Contract change is a situation where a person enters into a contract to buy a new off-plan property, but only pays 30% as a deposit before selling it for a profit. Essentially, the speculator can take advantage of the potential property price increase over the one to two years it takes to complete the property.
In fast-moving markets, the opportunity to invest is excellent, but in periods of stable or even declining prices, the speculator could get stuck and have to pool the remaining 70% and take possession. And if you want to sell, you could lose out on the less popular resale markets.
The potential contract investor should also ensure that they have excellent legal advice, just like any other property buyer; Actually it is obvious but many just think they are buying and selling contracts but if the final buyer cannot get the property then the investor will not make any sale. .
When buying a property abroad to change the contract, the same rules apply as when buying a property at home: location, location, location and value for money.
With the VAT levied on the sale of land in Cyprus in 2008, anyone buying a property can now expect a built-in 7% margin and until title deeds are transferred to the buyer’s name, the land transfer tax land is approximately 2% of the value of the property. does not have to be paid.
But the smart pinballer should consider the cancellation fees payable to the developer when it comes to selling, hopefully long before he has to shell out 70%. Property developers do not typically mention contract cancellation fees on resale before deeds are issued, and if they are not mentioned, they tend to charge a fee of around 2% of the purchase price. So the smart flipper limits this in the contract to CYP500 and makes sure there is an explicit right to sell. This last point is surprising but is sometimes forgotten.
In addition, the smart flipper will ensure that you do not pay a portion of the developer’s liability for real property tax on your entire portfolio by making a provision in the contract as well.
The smart flipper can only use CGT personal allowances in Cyprus once. Therefore, the contract pinballer may need a corporate vehicle for his business. Yes, it’s a business!!
Setting up a company in Cyprus through your Cyprus lawyer will cost around CYP1500, but can be very tax efficient from a CGT and corporate tax point of view.
If you are a multi contract pinballer then the savings could be significant. Cypriot companies attract a 10% corporate income tax rate on rental income and a 10% capital gains tax.
Unlike personal tax, you will not have to pay any additional tax in the UK unless you earn the income or capital gain from the Cypriot business. If you retire in Cyprus, you can withdraw the money at Cypriot personal tax rates and, if you are an investor, you can reinvest the profits in more real estate without paying additional UK tax.
The next big event in Cyprus is the accession to the euro zone in May 2007 and the adoption of the euro as the symbol of the country.
currency. Interest rates on euro loans could be in the region of just 2.5%. Generally speaking, this is good for the contract investor because as interest rates fall, people can afford to borrow more money to buy property, and more people can afford to get into the real estate market. taking advantage of this capital growth rate.
Following the success of the ecu peg policy, the Cypriot pound was pegged to the euro on 1 January 1999, the first day of the introduction of the new European currency. The central parity rate remained at CY£1 =EUR1.7086. Initially, the fluctuation margins were also maintained at ±2.25%.
However, on January 1, 2001, wider bands of ±15% were introduced to allow the Central Bank to absorb any impact of possible destabilizing capital movements and deter speculative capital flows, in the context of the liberalization of the capital account. At the same time, the narrower bands of ±2.25% were temporarily maintained in order to anchor prices and expectations.
By some pretty crude math, it could be GBP/CYP at 0.75 on the bottom. Those paying for a property in installments would like to note the downside potential.
The sentiment is that it’s still 50/50 on whether or not there will be a devaluation, but perhaps it’s best to keep as little CY£ capital as possible, just in case!
With the above in mind, what happens if you have a mortgage here in Cyprus in Cypriot pounds and the Government of Cyprus devalues it and then converts to the Euro?
It would mean you could be a winner! It all depends on the source of the money you use for the mortgage payments. If the Cypriot pound devalues, it means that other currencies will buy more CYP than before, so if you are using UK sterling income for the payment, for example, how much sterling you will need to exchange to make the same payment of CYP will be lower.
In other words, if you have a CYP mortgage that is equal to, say, GBP 50,000 and the CYP depreciates by 10%, then you would only have to pay GBP 45,000 to pay it off.
If you have a mortgage of 50,000 CYP at the current exchange rate of 1 CYP = 1.74333 EUR, then the euro equivalent of the loan at the moment is 87,166 EUR. If the CYP devalues against the euro by 10%, the exchange rate would be CYP = EUR 1.56899, which means that a loan of 50,000 CYP would be equivalent to EUR 78,449. With 105 discount.
There is much in this article for the Cyprus real estate investor to think about how to set his strategy for the next two years.