The Jewel in the Mediterranean Crown

Focus on Property

The Jewel in the Mediterranean Crown

Northern Cyprus seems set to be one of the new global property hot spots

Cyprus is a paradise island of incomparable natural beauty, full of unique historical treasures. It lies in the clear blue waters of the Mediterranean, 40 miles off the coast of Turkey, 60 miles from Syria and 250 miles from Egypt. After Sicily and Sardinia, it is the third largest island in the Mediterranean Sea, and lies at the crossroads of Europe, the Middle East, Asia and Africa. It has been the centre of successive civilisations and trading nations for over 2000 years. North Cyprus provides a most hospitable welcome, with its friendly people and its beautiful natural attractions. The island is unspoilt, unpolluted and uncrowded with miles of coastline and golden sands bathed in sunshine almost every day of the year. There is much of historical interest to reflect nine thousand years of history. Gothic churches rub shoulders with crusader castles, and ruined temples with British Colonial architecture in a fascinating blend of styles. The all-pervading sense of the past adds to the enchantment of the present to make Northern Cyprus an ideal property location.

Northern Cyprus has a specialist investment agency, YAGA, which provides an extensive range of services to investors. YAGA provides relevant information and consultancy on the legal framework, the investment climate, sector specific information and incentives to help investors take advantage of investment opportunities. The agency carries out both local and international promotion activities with the objective of attracting local and Foreign Direct Investment. YAGA is directly linked with and reports to the Prime Minister.

Perhaps the most significant reason for investing in Northern Cyprus is the potential political changes that may arise as the question of reunification rises on the political agenda. Historically, the Greek (Southern) part of the island has enjoyed greater prosperity than the northern section, with corresponding higher property prices. However, as there now appears to be significant progress towards the reunification of the island, it is highly probable that this gap will diminish, and property prices will approximate more to those on the Greek part of the island. It would therefore appear that now would be an ideal time to invest in this jewel of the Mediterranean.
 

Northern Cyprus Ultimate Investor Guide Series 2009

One of the most beautiful countries in the world, but with a difficult political history, Northern Cyprus has long been considered an emerging market with huge potential for property investors. What is the political situation now, and is it likely to change?
How is property set to perform over the coming years?

Introduction

The Turkish Republic of Northern Cyprus (TRNC) is an independent republic located in the northern third of the island of Cyprus. It declared independence in 1983; nine years after a Greek Cypriot coup, attempting to annex the island to Greece, triggered an invasion by Turkey.

The country currently holds diplomatic recognition from Turkey, which provides the majority of its economic, political and military support. The ‘green line’ between the North and the South is operated by the United Nations, and used to be completely closed off to citizens from either side. However, talks on the reunification of both sides of the island have been progressing. In 2003 five crossing points opened up, and travellers can now walk across in many places. This has aided economic growth in the North.

The capital of Nicosia is divided into two halves, serving as the administrative centre and seat of government for both sides of the island. As part of efforts to reunify the island, a symbolic wall dividing the two communities in the city was demolished on 3rd April 2008. On 18th April 2008 the technical negotiations started between the two parties, who also agreed to work towards a reunification plan. On 14th April 2009, the Turkish Cypriot leader, Mehmet Ali Talat, stated he expected the talks to be finished, and a referendum for the countries to be held, by early 2010 (SETimes, April 2009). Property investors are aware of the undoubtedly massive growth in property values when reunification is achieved. But what can investors benefit from in the meantime? How is the economy in the TRNC, and how will that affect property? As tourism grows, and many people are recognising the value in property in the region, many analysts say that it may be too long to wait for reunification.

The economy

The Turkish Cypriot economy has seen startling economic growth over the past decade, boosted by loosening trade restrictions and a growing stature on the tourist trail. Between 2002 and 2007, gross national product per capita more than tripled (TRNC State Planning Organisation, February 2008) and the country progressed from possessing just 40% of the per capita GDP in the Republic of Cyprus (CIA,World Factbook, 2009) to 76% of the southern region in this time (World Bank, 2009).

The economy is a relatively small market, and is dominated by the service sector, which contributes 69.1% to GDP; industry and light manufacturing contributes 22% and agriculture 9% (CIA,World Factbook, 2009). The country operates on a free market basis, and has a significant portion of administrative costs funded by Turkey, which gives it a diplomatic recognition. On this basis, the TRNC uses the New Turkish Lira as its currency, linking its economic situation to the high performing Turkish economy. The stability of the Turkish Lira has made a large contribution to the growth rate of the country, which reached 15.4% year-on-year in the past five years (European Studies Centre, 2008). Under an agreement signed in July 2006, Turkey is to provide Northern Cyprus with around US$400m annually to assist development in the country (TRNC State Planning Organisation, February 2008). Partly due to the fact that the financial industry in Northern Cyprus has no link to Western banks, the financial downturn has had little effect on the banking sector in the country.

Therefore despite its reputation as one of the more risk-seeking emerging markets, Northern Cyprus should in fact offer financial stability. Infrastructure in the island is also improving. As part of the process of integrating the country with the global community, the EU has pledged financial assistance of ?259m for Northern Cyprus (CIA,World Factbook, 2009).
As this develops, more and more countries are putting foreign trade into Northern Cyprus, which now has trade relations with 60 countries worldwide, and the volume of foreign trade has been rising by on average US$29m every year (TRNC Public Information Office, 2009).

Tourism

North Cyprus is often regarded as the Mediterranean’s best kept secret. Its relaxed pace of life, value for money and peaceful villages are attracting ever greater numbers of tourists.
The government has recently embarked on a large global promotional programme for tourism on the island, saying that, “North Cyprus is bursting with intriguing antiquity and a rich cultural history. The North Cyprus coastline is astonishingly beautiful with its ancient harbours where you can dine al-fresco, and beaches that stretch for miles, whilst the depths of the crystal-clear azure seas offers many of the region’s best dive sites. A labyrinth of craft shops, ancient sites and family-owned restaurants await exploration in North Cyprus’ vibrant towns, whilst idyllic scenery and ancient rustic villages gently dot the countryside.” (TRNC Economy and Tourism Ministry, 2009) Tourism revenue has been steadily increasing, with the number of tourists almost doubling from 420,000 in 2002 to 800,000 in 2008 (TRNC Economy and Tourism Ministry, 2009).

Whilst Southern Cyprus is considered by many to be spoilt and over-developed, Northern Cyprus offers a glimpse of the old ways of the island. A number of hotel chains are looking to move in, and the development of tourism on the island looks to be taking great strides, as one newspaper reports a Disneyland resort worth ¤880m is being planned for the north of the island. This is expected to lead to further rapid development and huge price rises in property nearby (Famagusta Gazette, January 2009).

Reunification

Despite the stunning location and the strong growth, analysts agree that the biggest boost to property in Northern Cyprus will come with the reunification of the north with the divided south of the island. Property prices in the north are on average 50% cheaper than the south (Propertywire, October 2008), and reunification would mean a rapid catchup, leaving property investors who already own in the north seeing a massive return on investment.

Turkish troops originally occupied the northern third of Cyprus in 1974, following a Greek Cypriot coup inspired by the military ruling Greece at the time, and thousands of Cypriots were displaced. In the aftermath of the struggle, the Republic of Cyprus was internationally recognised. It claimed sovereignty over 97% of the island as well as all surrounding waters, with the UK controlling the remaining. Turkish troops remained in the north, and a green line buffer zone was created by the UN.

When the Turkish held north of the islands in 1983, it declared the region the Turkish Republic of Northern Cyprus which is only recognised by Turkey. In order for Turkey to achieve their aim of joining the European Union, the reunification of Cyprus must occur.

Dimitris Christofias, the new leader of Southern Cyprus, which is now part of the EU, is more pro-reunification than his predecessor Tassos Papadopoulos, and talks have begun. A UN official said that the ongoing talks have witnessed real progress that is “very encouraging” in April 2009.

For property investors, the main issue regarding reunification is the clarification of title deeds, as there are concerns that Greek Cypriots may eventually claim land that they or their families originally owned before the island divided. Therefore it is important to either purchase a property built since 1974, or make sure the developer provides the correct title deed. The signs for reunification are encouraging, and property investors will certainly benefit when the two sides agree. On 14th April 2009, the Turkish Cypriot leader Talat stated he expected a referendum for the countries to be held by early 2010 (SETimes, 14th April 2009).

The property market

As trade and travel restrictions loosen between the two sides of the island, and reunification talks gather pace, property investors have been increasingly looking to the TRNC region.
The Southern portion has been on the radar for many years, with high tourism numbers meaning the coastline has been saturated with concrete hotels and mass resort developments. Property investment in this region is considered by many to be long past its peak. Whilst there is still a market for holiday homes, they are generally considered overpriced and not an investment option.

Northern Cyprus is widely regarded as less developed and more naturally beautiful than the South, and has a profusion of beaches and mountain tracks. Investors have seen impressive price rises of around 25% over the past two years, boosted by those reacting to the increase in tourism, and those expecting reunification and the benefits that come with it (MAP S.Platis, 2009).

Despite these increases, purchase prices are still in some cases 50% cheaper than comparable properties in the South. Prices are also favourable compared to the rest of Europe on a price-to-income ratio, meaning there is still plenty of headroom for growth, and any further rises can still be considered sustainable (Global Property Guide, 2009).

The TRNC government is taking steps to promote property investment internationally. An article towards the end of 2008 in British daily national newspaper, The Independent, summed up the growing interest in the region, “in many areas you can find a villa with its own private grounds, private swimming pool and three bedrooms for £150,000 or less. It’s fantastic value and build quality is high.” (The Independent, 2008).

With news emerging on the Disneyland development, golf courses and casinos being built, along with the Turkish mainland set to join the EU, substantial growth is expected to occur. As Cyprus is a former British colony, the majority of foreign buyers are British, but according to local estate agent reports, a number of wealthy Russian investors are making enquiries about property on the island, which typically leads to a boom in prices as it becomes an international market with interest from cash-rich buyers (Unwin Estates, 2009). Since the start of the global downturn, 2009 is likely to see a softening of price growth, to about 10%-15%, but actual price falls are not currently forecast (Unwin Estates, 2009).
As a property market, Northern Cyprus is still very much in the emerging stage, but for investors ready to take advantage of upcoming political changes, a large return on investment is ready to be made