Cyprus is synonymous with real estate. In recent years, the real estate market in Cyprus has seen a surge in the popularity of off-plan properties. This may be because of high demand and low supply of ready to be delivered properties. Whatever the reason may be, it is undisputed that these off-plan properties offer unique opportunities and challenges for buyers.
Let us dive in and take a closer look at the benefits and downsides of off-plan properties and how downsides can be dealt with.
It is imperative, before moving on, to define what off plan means. Simply put, an off-plan property is a property which is still under plan, specifically in the design phase.
There are some downsides to buying an off-plan property.
Possibility of delays:
Construction delays are a possibility with off-plan properties. If you are buying off plan it means construction has not started yet and therefore, the delivery date is harder to plan. Factors such as regulatory approvals or unforeseen circumstances can push back completion dates. However, by adding penalty clauses to the contract, the purchaser can ensure that she/he will be receiving an amount equal to or close to the rental market value of the property for the duration of the delay.
Market fluctuations:
The real estate market fluctuates, meaning that the possibility of values declining during the construction period may result in a buyer’s investment being worth less than anticipated. Furthermore, if one draws comparisons between the Cyprus and Dubai markets, one will see that both have faced a boom-and-bust cycle. In the case of Dubai, the reason behind the crisis was because investors were buying properties and paying only a deposit with the intention of flipping the off-plan properties before the need to start making payments during construction.
Developer’s insolvency:
Although a less likely scenario nowadays, there is always the risk that a developer may face financial difficulties or insolvency, jeopardising the completion of the project. This is where the reputation of the developer and the longevity of the company come into play along with other protective legal measures discussed below.
Now let us focus on the brighter side of the story. There are many advantages an investor may enjoy when considering an off-plan property investment.
Lower prices and investment potential:
The developer usually launches a project for sale while in the off-plan phase in order to attract investors. While permits are in the process of issue, off-plan properties are offered at lower prices compared to completed projects, which attracts investors looking to capitalise on potential appreciation as the project progresses and the market evolves.
Make it how you want it:
Off-plan purchases allow buyers the chance to amend the design and finishes of their property. Such customisation can range from selecting fixtures and fittings to modifying floor plans, ensuring the property meets their specific needs and taste.
Modern design and amenities:
Since off-plan properties have not yet been built, this means that they will incorporate the latest architectural designs and modern amenities. Depending on the developer’s aesthetic and approach to functionality, buyers can expect state-of-the-art facilities, energy-efficient systems, and contemporary living spaces.
Flexible payment terms:
If a purchaser wishes to immediately move into a property, it means that the purchase price must be settled outright. Off-plan purchases, however, offer flexible payment structures, allowing buyers to spread the cost over the construction period.
Undoubtedly buying an off-plan property is associated with greater risk, but risk can be reduced significantly by setting up certain securities.
Due diligence:
Conducting thorough research on the developer’s track record and financial stability is imperative. As mentioned above the company’s reputation in the industry is a risk alleviation indicator, especially in Cyprus which is a small market and news travels fast.
Secure your investment:
Perhaps the most important tool in securing your investment is to obtain a bank guarantee. This means that you pay the money to the developer’s bank, but the funds are blocked until some pre agreed conditions are met. Such conditions could be the release of the permits and then the subsequent releases being tied to the construction progress of the project.
Even in the absence of a bank guarantee, stage payments are highly recommended as the buyer’s obligation for payment arises only upon completion of certain milestones. Such milestones should be confirmed by the project’s architect, who many view as not being objective (being hired by the developer), yet the truth is that architects are bound by duty of care. The buyer always has the option to request payments be released once an independent architect, appointed by the buyer, confirms completion.
Detailed contracts:
The signing of a detailed contract that includes the plans, specifications, timelines and penalties for delays, is imperative. The contract should also include a clear description of the property, including materials and finishes. This is why it is important for an experienced real estate lawyer to be engaged by the buyer to prepare such agreements.
Buying an off-plan property in Cyprus offers numerous benefits, from cost savings to customisation options. With careful consideration and securities in place, it can transform into a successful and rewarding property investment.
