The Minister of Finance, in his search to find the much needed €500mil. in order to get the Cyprus economy up and running, has announced various measures which include cost saving measures regarding the civil service, reduction in Governmental spending and a revised property tax which might amount to 15‰ [fifteen per thousand] for property owners in excess of €1.mil. Euros. He also announced that the property tax will be revised and the so far basis of 1.1.80 market value will be replaced by updated values. These measures [he said] will help collect over the next 3 years, the much needed €500 mil. for the Cyprus economy.

One wonders what the Government is thinking and what logic there is behind this. There is an antiphasis of what the Governmental wants and on the other hand what is actually proposing. The Government has just hired another 1000 civil servants, has announced the development of the new Nicosia theatre for €11 mil., the Music center for another €70 mil., the Pafos – Polis road for another €600 mil., etc.etc. Here we are then, on the one hand, we, as Cyprus, invite Qatar in order to attract investment here in real estate, we encourage the development of new marinas and golf courses and at the same time we now inform all prospective investors that we will tax them!! During these difficult and competitive times that all countries in the world are trying to attract investors [and as such we form part of a most competitive market], we are doing our best to attract them on the one hand and discourage them on the other!! The industrial buildings, hotels etc., which have more than 1 mil. Euros in real estate, the various developers and the hotel companies as well as various individuals and companies will have a problem if the new tax is imposed [as explained so far]. The two categories in particular which are having serious problems [property market/tourist industry] and during these times, they will be called upon to pay a tax which amount to 10 approx. times more than what they are actually paying now and this regardless if these owners are in heavy debt and independently on their existing financial strength. The announcement of updated property valuation in order to replace the 1.1.80 values will not happen because:

*It took 5 years to value Cypruswide real estate as at 1.1.80 during the years 1975 – 1980.

*Trying the same exercise now, when the market has increased at least threefold [bearing in mind how many individual units have been developed over the last +30 years] will need another 10 years to complete.

*So even if this happens, let alone the cost of doing it, it will not happen within the 3 years period that the Government is seeking but after 5-8 years.

*The tax will provide a negative affect on the much needed real estate investment and encouraged as such by the Government.

*People who own for example a plot of land worth €500.000 will postpone its development so that the total valuation of the real estate will not be in excess of €1 mil. So how does this coincides with the declared Governmental policy that recovery will happen through new development?

10 years ago we suggested a heavy tax on all undeveloped land which falls within development areas. As such agricultural land/land not capable for development will be excluded. Using the self tax approach [as we have it now with income tax] property owners to submit to the income tax office a statement of their real estate, accompanied by a certificate issued by a qualified valuer/architect that the property is undeveloped and its zoning [development area or not]. If we are to adopt the 1.1.80 values [until such time that the revaluation is carried out] the 4%o tax to be increased for these undeveloped property to 30/00. The tax to have an exception of €100.000 per person [at 1.1.80 values]. So most people will be protected and to have a tax limit and charge people with high vacant property values. Taxing vacant property will benefit public interest and it will help the economy, [it will encourage development in order to save tax / or sell, since it will not pay to keep and thus keeping development land prices low, helping in particular the lower income groups etc.] Vacant land programmed for public interest projects [e.g. golf courses, marinas, private hospitals, hotels etc.] could be excluded for a period.

The taxation of undeveloped development land is fair and reasonable since this property does not contribute anything to the Cyprus economy, other than benefiting their owners increasing their value by non developing [reducing the supply of development land and thus benefiting from increasing prices]. This heavy tax will also discourage the behind the doors “dealings” to include agricultural land to development zones without costing to the owners a cent. If one drives through any town in Cyprus, he will note the vacant building plots in central areas are in excess to the built ones. In Nicosia alone, there are 3.500 vacant building plots, whereas there is enough undeveloped land which can accommodate 4 times the existing Cyprus population. Yet, land prices are very high, unrelated to the earning capacity of the locals [Land cost in relation to the total development cost, increased from the 22% year 1985, to 41%, year 2009].

This idea of ours which was adopted by the two previous Governments [but not executed] is now being differentiated by the present one.

Theory and practice dear readers are two different things and we are afraid that the ministry of economy theoreticians must re-examine their thoughts, because, it appears that they are going the wrong way.

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