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Time for Real Estate Funds?
26 February 2017
There are the parameters nowadays, which show that the time is ripe, at least for an initial examination, for the creation of real estate funds in Cyprus.
Our opinion is based on the following:
With all the above in mind and with the, be it, limited finance available of the Cypriot real estate market, is it perhaps the time to examine the possibility of setting up local real estate funds?
We suggest that such funds could vary in size and scope but as a basis we suggest that:
Perhaps these funds could be created initially with the financier being the major shareholder, with an option (or otherwise) to depart in 2-4 years. Since management will be in the hands of the financier, the other shareholders will feel safe, as opposed to a private Co/individual to control the fund. The more attractive the fund appears to the market, the greater the demand for it and it is one way out for the financiers to dispose their properties, which now/will hold.
If the financiers/majority shareholder “guarantees” an annual income for the initial period of 2-3 years of 1½-2½ p.a. it will become even more attractive securing an initial return plus the expected capital appreciation and the anticipated profit at the end for the shareholders.
The financiers could set up numerous such funds of various levels of equity investments. Larger funds could be set up aiming at other higher amount investments, such as hotels, golf courses, beach land, students hall, beach villas, villas to let etc.
Notwithstanding the situation of the Cypriot economy the market of real estate is improving with clear signs for a positive future.
Instead of the prevailing situation of financiers sitting back and waiting investors to be interested, the above vehicle for sale is one option which might attract the big investment buyers from abroad (see Chinese interest for shopping malls, hotel development etc).
If this idea gets a proper study and it is so promoted, we feel that it is an effort worth exploring especially by the financiers.
Regarding alternative investment funds, although it sounds odd, agricultural fund investment should not be discounted outright (see our previous article Investing in Agriculture). The problem with this fund is the very small pieces of agricultural land.
However with the halloumi and other local products to be produced as a patented product (colokasi, lizo, vine land, prickly pears, aloe and its products etc) are possibilities to be investigated.
If financiers get together and exchange ideas how to promote these agricultural plots as one lot in one area, it could be possible to come up with large holdings. So if one financier owns an X plot and another a next door/nearby plot, provided they get together, it could be a solution.
Agricultural investment will need a special study on soil suitability and produce quality. To this end the Ministry of Agriculture could help with expert knowledge, whereas the various subsidies is an added plus. Agricultural investments mind you will need a lot of persuasion not easily understood by the wide market and it will be a difficult job. But then what is one going to do with the various agricultural plots now in the financiers ownership lying awaiting.
Food for thought?