2013-10-23 11:07:03 - Government’s forced reduction of rental property prices in Cyprus has been approved by parliament, causing mixed reaction among owners/ investors & the public.
After five postponements, the House of Representatives in Cyprus approved a law to force the reduction of residential and commercial rents by 15% to 20% over the next year.
“Government should not and can not control markets. Rental prices are determined by simple economics – supply and demand. In fact, the real estate market in Cyprus has already regulated itself, and renters are receiving lower rents. Such a law will only create more confusion in the market, provoke more non-performing loans and discourage investors,” states Managing Director, Urban Splash Real Estate & Chartered Surveyors, Lambros Kaloyirou MRICS.
It is now left to President Nicos Anastasiades to approve or refer the law back to parliament and for MPs to review their decision.
the proposed law, residential rents up to €300 will see a reduction of 15% (up to €45). From €300 and above, a reduction of 20% applies, with a maximum reduction in absolute terms of €120. Commercial rents up to €600 will be cut by 15% (€90). For rents in the €600 to €2,000 bracket, there will be a 20% decrease, but with a reduction cap of €250, including the €90 in the first bracket. Rents over €2,000 will see a reduction of 20% with a cap of €400.
“Government stepping in like this will surely scare away investors to Cyprus. And this is the last thing we need right now. The Cyprus property sector is fundamental to economic growth, both at a macro and micro level. It is also an important part of our wider image as an investment location to the outside world,” continues Kaloyirou.
According to the MRICS real estate agent, the best way to encourage private investment is to signal investors that the real estate market will be safe from such rent control and not only have this law rejected, but eliminate the possibility of any form of rent control with a change in the law that forbids it. “Actually, one of the best ways to help tenants and the property market here is to protect the economic freedom of landlords and investors, sustaining a market-driven economy,” he adds.
If passed, the law is set to start as of November 1 this year and end on October 2014, applying to all rental and lease contracts signed prior to October 2012. Any tenant that has more than two rents in arrears must first settle the amount outstanding before being eligible for any of these reductions.
Any reductions already made should be offset. In the event a landlord had the right under an initial contract with the tenant to raise the rent after a certain period of time (usually a certain percentage every two years) but did not exercise this right, this will also be taken into consideration.
Lawmakers however have omitted to provide for a mechanism to resolve disputes, for example in the event a landlord refuses to comply with the provisions of the new law.
The legislation provides for a tiered reduction in both the residential and commercial rents. The House rejected the amendment of the Democratic Party to exclude residential rentals who argued tenants of residential premises can easily move somewhere with cheaper rent – and are either doing so or easily renegotiating their own terms – while its much more difficult for businesses to relocate.