You may have noticed how much empty building land is around. Vacant building plots must still be lit, roads cleaned and maintained etc and all these for a little cost (for an ordinary vacant building site the cost is approximately €60 p.a.) not enough even for the cost of having the road electricity. In a recent study prepared by the Ministry of the Interior, it concluded that there is already enough vacant development land (i.e. land which has already been zoned for residential/other development) to accommodate 4 mil. people. So, bearing in mind the 700.000 population, it seems that Cyprus has a supply of land which exceeds demand by approximately 5½ times. Why then is development land so expensive? Vacant building land, especially housing land, has increased in terms of % cost to the total purchase price from 22% 10 years ago to nowadays 40%!! This increase of around 18% p.a., is far ahead to the other cost parameters, which have shown an increase of around 5% p.a.

Keeping vacant building land in Cyprus is something like a national sport. By not selling, supply is limited and thus prices go up, so by doing nothing (but a lot of damage) one’s assets go up in value.

Following our 10 years ago suggestion and our repeated nagging over the last 2 years and now that the Government needs money, our idea of taxing the “idle wealth” (as we called it) is gaining ground. In a recent announcement by the Ministers of the Interior & Economy, they called this tax of undeveloped/vacant land a “fair system” of taxation. Until a new general revaluation comes into play, at present values (expected in 5-8 years) this sort of “idle wealth” taxation subject to generous exceptions (of say €85.000/person as at 1.1.80 values) will encourage development, will discourage withholding land, keep land prices/building land at reasonable level and making houses more affordable. Land cost being the main cause of relatively high house prices, it is that, that must be “hit” and make it cheaper.

In Cyprus a couple with an average yearly income (of approximately €35.000-€40.000) need 7-8 times of that income to reach the sales price of an average residence (say €260.000), whereas in the U.K. this factor is reduced to 4 times. In our detailed study which we have submitted to the Government, we have indicated that an average residential building plot (vacant) will attract an annual tax of €500 p.a. after an exception of 3 plots per person of an equal value at today’s prices of €700.000!! Of course this approach will hit the developers in particular, as well as large scale land owners (including the Church).

Developers who buy ahead in order to have a land bank for future projects, will have to pay a heavy tax p.a., but, then, on the other hand, they will need not keep such large stock, if his idea is adopted, since land availability will increase and thus no need to buy ahead for long periods. It is understood that we are not very much liked at this point of time, either by the land owners association or the speculators, but this sort of taxation has the advantage of being imaginative in the sense that it meets the Governmental goal to collect more taxes, it helps the public especially the lower income groups by having land available, it will stop the pressures on the Planning Office to keep enlarging development areas and it exempts the man on the street who buys a building plot for future use by his family – Not bad to achieve all these is one go-even if we say so!!

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