On Jun 7, 2018 IMF has published new 2018 second post program monitoring report for Cyprus. In this report IMF highlights CBI scheme targeted at the real estate sector in Cyprus.
According to the IMF report,
Growth is increasingly driven by strong momentum in the construction and real estate sectors, supported by a range of incentives, including a Citizenship-by-Investment (CBI) program that has attracted foreign investment primarily in real estate.
Most investment through the CBI scheme has targeted the real estate sector. The scheme requires individual investments of at least €2 million, in addition to the purchase of a residence valued at least €500,000. Eligible investment allowed under the scheme includes real estate, land development, infrastructure projects, participation in Cypriot companies and investment in Alternative Investment Funds.
- Residential property prices began to increase in 2017, after being broadly stable during the previous two years.However, demand is strong for luxury properties, buoyed by the CBI scheme, where prices are inflated by the implicit value of citizenship.
- Eligibility requirements of the CBI scheme should be decoupled from real estate to avoid excessive concentration of economic activity in this sector, over-supply of luxury properties and the risk of a future sharp price correction.
- Effective compliance with AML/CFT standards by all sectors covered by the AML/CFT system should be ensured to maintain the integrity of the scheme and mitigate risks to correspondent banking.
IMF said excessive supply of luxury properties, eventually result in a new boom-bust cycle.
Renewed boom-bust cycle: Business cycle becomes increasingly dependent on construction activity leading to excess supply of luxury properties until eventually the CBI scheme is scaled down or delinked from investment in real estate.
In the Risk Assessment Matrix, IMF proposes to enact a comprehensive reform agenda to improve prospects for more diversified growth and gradually decouple CBI scheme from real estate in a timely manner.
According to IMF, the housing market in Cyprus started to pickup with more sales to non-residents in 2017/18. The number of building permits soard in Q4 2017
Cyprus currently has residency and citizenship programs involving purchase of property, also driving the property market.
