Cyprus re-unification talks hold key to future property boom
|Wednesday, 29 October 2008|
As leaders of the Greek Cypriot and Turkish Cypriot communities continue their talks on the re-unification of Cyprus debate over buying property on the divided island also continues. Passions run high.
Cyprus is not only physically divided, it has come to represent the emotions of two different nations - the Greeks and the Turks, a strong Mediterranean brew that exists on an island divided into the internationally recognised Republic of Cyprus and the 'occupied' Turkish Republic of North Cyprus.
From a property perspective certain things are black and white. Property is generally 50% cheaper in the north than the south. When, or some might say if, re-unification happens, property prices in the north are expected to escalate.
But other aspects are less clear. Title deeds are still a major issue. Legal advice is vital but despite assurances that TRNC title deeds are safe, there are still those who caution against buying in the north and a decision in the European Courts on a trial case is expected soon.
Greek Cypriot leader Demetris Christofias and Turkish Cypriot leader Mehmet Ali are meeting again on November 3, the latest in a series of get together under the sponsorship of the United Nations. Property is a major issue in their talks.
When Turkish troops occupied the northern third of Cyprus in 1974 following a Greek Cypriot coup inspired by the military junta ruling Greece at the time, thousands of Cypriots were displaced.
In the aftermath of the struggle the Republic of Cyprus was internationally recognised and claimed sovereignty over 97% of the island and all surrounding waters with the UK controlling the remaining. Turkish troops remained in the north and a green line buffer zone was created by the UN.
When the Turkish held north of the islands declared itself the Turkish Republic of Northern Cyprus in 1983, only Turkey recognised its claim.
Peace talks in 2004 got nowhere when Greek Cypriots rejected a Turkish Cypriot backed UN peace plan. But now there is an even greater incentive - Turkey wants to join the European Union and this just isn't possible while it continues to claim sovereignty in north Cyprus. So the current round of talks are regarded as the most hopeful yet.
Also Cyprus, which is now part of the EU, has a new leader Dimitris Christofias, who is more pro-reunification than his predecessor Tassos Papadopoulos.
Property is one of the toughest issues to be resolved. Greek Cypriots forced to flee leaving behind their homes and lands want compensation and/or their property back.
There are two types of title deeds for the north. The pre-1974 Turkish title is internationally recognised and foreign buyers are limited to one per person. The TRNC freehold title deed is recognized by Turkey and the TRNC and refers to land that was either left in 1974 or exchanged with land in the south after 1974.
The British High Commission in Cyprus has the following on its website: 'The non-recognition of the Turkish Republic of Northern Cyprus and the possibility of a future political settlement in Cyprus could have implications for those considering buying northern Cyprus properties. Before purchasing a north Cyprus property you are advised to appraise yourself fully of the situation and seek legal advice.'
According to an international law firm that has clients buying in Cyprus the legal risks are less than they used to be but it is still not clear cut. 'Whatever the local people may say about the rights and wrongs of this situation the international community and courts were pretty much of one view - the invasion was wrong and the land in the area now occupied by the Turks in northern Cyprus still belonged legally to the people who were dispossessed in 1974,' explained said John Howell, senior partner of The International Law Partnership.
This meant there was a risk if buying in the north that one day the old owner might come back and claim it. 'The only secure way of avoiding that risk was to buy land from people who had a title that went back before 1974 as that title would be valid both according to the rules in northern Cyprus and the rules in southern Cyprus,' said Howell.
A number of property investors took the view that the risk of the former Greek owner coming and knocking on their door claiming ownership of the property was pretty remote.
But when the Republic of Cyprus joined the European Union in 2004 the way was open for Cypriots living in southern Cyprus who claimed ownership of property in northern Cyprus to make a claim directly against the assets of those who had bought those properties.
This led to a widely publicised legal case when Meletios Apostolides, of Greek origin, obtained a judgement in the court in Nicosia (Cyprus) against English couple David and Linda Orams that he was the legitimate owner of some land in northern Cyprus from which his family had been dispossessed in July 1974.
In 2002 the Orams had bought a plot of land from a Turkish Cypriot who had good legal title to it under the rules of the TRNC. Unfortunately this was the same plot that had belonged to Mr Apostolides. The International Law seemed clear in that his rights were treated as superior to the rights of the Turkish Cypriot who had acquired later title under the rules of the TRNC.
The judgement ordered the Orams to demolish the house they had built at their expense and to surrender the land to Mr Apostolides. They refused. Mr Apostolides went to the English courts who, in October 2005, decided the judgement was enforceable in the UK against the Orams. The Orams appealed and won.
The case has now moved to the European courts for what will be a final ruling on the position and a judgement is expected soon.
But whatever happens in the Orams' case it is a lot more straightforward for later buyers because as things now stand it seems the rights of the people in Southern Cyprus cannot be enforced directly in the UK against the buyers of their former properties in northern Cyprus.
'If you are a cautious person then you should only think of buying a property with a legal title that can be traced back before 1974 and which will, therefore, be recognised as a good legal title both in the TRNC and in the south,' said Howell.
'If you are a little more adventurous or if you take comfort in the decision of the English High Court then you may think that, providing you are getting a bargain, you are not likely to lose your house if you buy a property in northern Cyprus. Once the European courts have made their decision in a few weeks time, the position will be clearer still, he added.
Real estate professionals believe that if property investors follow the correct advice there should be no risk to their properties. 'With regards to investing in north Cyprus, investors need to ensure that a property they purchase comes with a pre 1974 Turkish title deed to ensure that their property is safeguarded,' said Katrina Mullin, managing director of Property International, a property investment company specialising in off-plan commercial and residential property in North Cyprus.
'Property investors that purchase a property with a pre-1974 Turkish title deed, which is an internationally recognized freehold title deed, can be assured that they will not lose their properties,' she added.
The company is confident that the current talks will lead to an agreement, possibly by the end of the year. 'North Cyprus has long been overlooked as an investment opportunity. With steps towards reunification ever closer, this looks set to fuel the country's economy as well as boost the Cypriot property and tourism market,' she predicted.
Jolene Leatham and her husband Fionntan from Belfast have invested in a two bedroom apartment in north Cyprus even although they initially intended to buy in the south of the island.
'It was the price, the quality and the stunning scenery which made us change our mind,' said Jolene. They had been set to spend £130,000 on an apartment in Agia Napa, a popular tourist resort in the south. A friend suggested they contact Property International and they decided to go and look at the Palms project in Famagusta.
'I was immediately struck by the difference in quality and price. We also fell in love with the area, it is simply beautiful,' added Jolene. With their £80,000 two bed apartment due for completion next year the couple and their two young children are looking forward to spending up to six weeks a year there and enjoy a rental income.
Those in favour of buying in north Cyprus point out that it is benefitting from €400 million economic aid for improving infrastructure, the government is actively encouraging the development of the region as a fiscal and business hub, there is no inheritance tax and every individual or household is exempt of Capital Gains Tax once in their lifetime on the sale of one property.
Tourism is predicted to grow from 433,000 to two million in the next five years. Since the borders opened between the north and south, applications from foreigners to purchase property in the North have increased. There is an English style legal system, prices are in Sterling, English is widely spoken and they drive on the left.
Most people seeking to buy in Cyprus still look to the south but according to analysts this part of Cyprus is suffering from the effects of the global credit crunch.
'Mortgage lending conditions have already been restricted to cool the market and lending will only get tighter,' said Robin Bowman, author of the new Property Secrets market profile of Cyprus.
'Our experience on the ground is of a market that is over-supplied on the coast and re-sales are tough and yields squeezed. One of the problems is that there is no official housing sales index in Cyprus, so data needs to be treated carefully,' he said.
His research indicates that in Paralimini, for example, prices are off as much as 40% compared to 2007. 'Although this is on the back of big rises in 2007 and before so the effect on units bought two or three years ago is not as bad as it might seem,' he said.
A large number of buyers are British and the fact that the UK economy is now in such poor shape is likely to have a marked effect on the economy in Cyprus and by extension the property market.
'The major buyers recently seem to have been Russians and they are in the market for villas rather than apartments,' said Bowman.
'In general, in our opinion, the market is currently suffering from depressed tourist numbers, a large oversupply of new builds and an uncertain outlook for many UK investors and retirees who are concerned about the UK economy and global credit and pricing issues,' he added.
But re-unification could help the downturn in the south of the island. 'If the reunification talks are successful as the two leaders have vowed they will be, the whole of Cyprus, north and south, stands to benefit hugely. The economic boost is beyond doubt,' said Bowman.
'Studies have shown the Unification Dividend could be worth as much as €5,500 a year for every household in the whole of Cyprus. Compensation over property seizures will also provide a one-off wealth effect and, as Cypriots are a nation of property owners, this cash is most likely to go into property. Property prices in the north will probably be the biggest gainers if reunification goes ahead, but the south will also get a boost, we believe, due to the economic benefits accruing to the whole island,' he predicted.
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