Kommersant UK continues to introduce readers to the investment potential of real estate in Northern Cyprus. What are the investment strategies? What factors need to be considered when purchasing properties? How to minimize risks? Investors from which countries buy property in Northern Cyprus? Anastasia Sergienko, sales director of the licensed real estate agency Caria Estates, answered these questions, and also, using examples of several cases, told what percentage of profitability investors can now expect when buying real estate on the island.
— What strategies exist for investing in real estate in Northern Cyprus?
— There are two main investment strategies. The first is an investment for the capitalization of one’s assets, when a property is purchased at a lower price for further resale. The second strategy is purchasing real estate for rent: daily (higher profitability) or for a long term (from 6 months) with a fixed monthly payment. It is also necessary to take into account factors that have influenced the real estate market in Northern Cyprus in recent years. If we consider investments in 2019, then we could accurately expect an average profit of 15% of the initial property price within a year. This is important to take into account, because you can invest half of the cost of the object (50%), then resell it and earn, accordingly, more than 15%. After the pandemic and the outbreak of hostilities in Ukraine, real estate in Northern Cyprus began to rise in price much faster (ROI could range from 50 to 100% or more). But such a jump in prices was largely determined by external factors, so it is impossible to focus on this level of income in the future. In 2023, the average increase in the value of real estate on invested funds is 30–35%. You still need to look for such assets on the investment market, taking into account the fact that investments in real estate are the least risky and are calculated here in a stable currency (pounds sterling). Now, when buying real estate for resale, you need to take into account various factors: the level of development of the regions, competition within them, the geography of investors and demand, which is formed differently in Northern Cyprus.
What factors influence the choice of project?
— For example, after the start of the war in Ukraine, Russian-speaking investors began to purchase a large number of properties in the Iskele region (near Long Beach). The growth in demand among Russians in 2022 was also influenced by the low exchange rate of the national currency against the dollar. But over the year it has grown significantly, and many Russian buyers have put properties up for sale because it has become expensive for them to pay installments for real estate in foreign currency, and their prices have decreased even compared to two or three months ago. That is, events in another country greatly influenced the cost of objects in one of the regions. The changes that occurred in Turkey, such as the increase in the minimum volume of investment in real estate to obtain a residence permit (from 75 to 200 thousand dollars), and the complication of the procedure for renting out apartments, were also reflected in the market of Northern Cyprus. Now real estate purchased after October 16, 2023 can be rented out for no more than 100 days (in fact, the occupancy rate will be less than 30% per year), and it is also necessary to obtain permission from the Ministry of Tourism and the consent of all residents (owners) of the complex in which there are apartments. Investors understand that the Turkish real estate market will fall and invest where conditions are more favorable. Of course, the arrival of so many investors from one country will affect the regional market (they buy properties in the Iskele region) if they start selling real estate en masse (for example, the situation in Turkey changes). Therefore, it is always important to assess how external changes affect the situation in the domestic market and choose a property based on world events.
— What is the geography of investors? For example, which regions are in demand among citizens of Europe and the USA?
— Europeans prefer to invest in the Esentepe region and the northern part of the country (Kyrenia region). Therefore, we suggest investing in coastal properties in this part of the island: they are more stable. This year, in our agency, real estate in these locations was purchased by investors from countries such as Holland, Sweden, Austria, Great Britain (the British buy a lot in this region), Germany, Canada (Canadians often purchase real estate for relocation), Norway, Finland. There are clients from the USA, but such transactions are most often concluded remotely.
— Risks and their mitigation: what should you pay attention to when buying real estate?
— Firstly, this is the choice of a construction company, because here the money for the purchase of objects is not transferred to escrow accounts, but is paid to the developer. First – an initial payment, and then installments either according to the stages of construction of the object, or in monthly payments divided by the construction period or installments (it may exceed the construction period). With such a strategy, it is important to understand who owns the company (local developer or not), what its reputation is, history, whether there are many completed projects that you can come to and see what condition they are in after several years after commissioning. Only choosing a reliable company will help mitigate the risks associated with the construction of a facility.
Secondly, you need to choose real estate according to the correct title and, when assessing the market, rely not only on the presentation of the project by the developer (liquidity and future capitalization), but also evaluate competitors’ projects that have already been built or are being built nearby. You need to clearly understand how unique the selected property is, because if the percentage of similar housing (for example, one-bedroom studios) in the project is high, then during resale you will have to compete with other owners of the same properties.
Thirdly, it is important to take into account the cost of new secondary real estate in a particular region. For example, in 2021 and 2022 there was a price jump, and the market often reacts late, so a property from a developer in new construction may cost more than a similar new property on the secondary housing market. Such trends are more clearly visible in the Iskele region, because a lot of new real estate has been built there.
Fourthly, you need to pay attention to additional costs. Often, developers include taxes in the price of the property, which, according to the laws of the country, the buyer can pay after completion of construction, upon receipt of the title. For example, value added tax (VAT, VAT) in the amount of 5% of the value of the property (this amount is frozen) or a transformer fee (from 1.5 to 3 thousand pounds, depending on the price of the property), which the buyer can pay upon receipt keys to the object. Accordingly, if the investor plans to immediately put the property up for resale, this fee will be paid by the next owner who will live in these apartments.
Give examples of several cases of real estate transactions that have been concluded recently.
— Sometimes it is more profitable for a buyer who has the full amount of the cost of an object to buy it on the secondary market. That’s why we even have a market where investors buy properties on the secondary market, which we resell from investors. A few months ago, a villa (total area 227 square meters, land area 476 square meters) in a small complex consisting of 19 houses (they were quickly sold out) was sold in the Tuzla region (near Famagusta) for 260 thousand pounds. The owner from Russia purchased the villa at the end of 2021 in installments for 179.9 thousand pounds, and about 30 thousand pounds were additional investments (a swimming pool was built, an air conditioning system was installed, remodeling was done). The investment in this case can be calculated in two currencies: the buyer invested rubles, converting them into pounds. He invested a portion equivalent to 10 million rubles—approximately 139 thousand pounds (at the rate of 72 rubles per pound). 14 months after the resale of the property, he received 17 million rubles, earning 7 million rubles – about 51 thousand pounds, which was about 31.9% per annum in foreign currency, and the ROI for the entire project (14 months) was 37.23%.
Bungalow with a roof terrace with a total area of 120 square meters in the first line overlooking the sea, located in a complex with developed infrastructure in the Esentepe region – the transaction amount is 320 thousand pounds. An investor from Argentina bought it in January 2021 for £149,975, with an additional £19,000 invested in building the pool. The buyer paid almost the entire cost (the balance is 22 thousand pounds). In this case, the Argentine investor will have an annual return of 32%, ROI for 34 months – 90.5% (having sold the bungalow, in six months he would have earned even more, but he is not ready to wait). In the first week of November 2023, a German buyer paid a deposit of £5,000 for the property. As soon as the entire transaction amount is paid – 320 thousand pounds – and the former owner of the property from Argentina fixes the amount of his profit from the bungalow, an investor from Germany, having made additional investments (furniture, filling the pool, landscaping the area) in the amount of 15 thousand pounds, will put it up for sale for 450 thousand pounds. In about six months he will resell it and earn about 110 thousand pounds. You can also make money on this property during the sale process by renting it out: during the season (from May to October) the bungalow will bring about 1.5 thousand pounds per week. There is a very high demand for rental properties during the season. Even now, the choice is very limited, and if you go to booking.com, then from the properties available for booking you can rent a villa for 5,500 euros per day. There will also be several offers for apartments that are not new and not on the first line. Everything else will be taken. The season has shifted slightly (become longer) to November (it was the same last year; now the temperature is +27 degrees), and, according to airport statistics, from August to November 20% more tourists have already arrived than last year.
Despite the fact that these objects are located in different regions, they are liquid and in demand. This suggests that there is investment real estate in any region, you just need to choose the right strategy and understand who to sell this property to later – this is the most important thing. In the first two cases there was such a high percentage of profitability because the property for resale was purchased a long time ago. Now in cases of purchasing investment real estate with further resale, the yield is slightly lower. One of the options we offer our clients is a one-bedroom loft-style apartment (total area 72 square meters) in Esentepe region costing £111,600. We predict that over 18 months the minimum ROI will be 34% return, the maximum – about 54%. Annual returns can range from 22.5 to 36%. This is one of the most interesting investment options. Profitability forecasts for other projects will now be slightly lower, so properties need to be purchased very carefully.
— What is ROI?
— ROI (return on investment) is the rate of return on investment, in fact an indicator of the profitability or unprofitability of a business. And since we consider all real estate transactions (purchase for the purpose of further resale or rental) from the point of view of investment, we apply this coefficient, because the object can be sold not only in a year, but also in 14 and 24 months. Therefore, if the annual return was 30%, but the property was sold after two years, then the ROI is 60%. This trick is often used by realtors when they say that the ROI for the project will be 20%, and then they write that resale of the property will be possible approximately 26–28 months after completion of construction. And if an investor is not a professional and comes across ROI for the first time, he most often thinks that it is 20% per annum, but in fact, if the property is resold after 24 months, it will be 10% per annum and 20% ROI.
— Licensed real estate agency Caria Estates has been involved in real estate since 2005. How many years has it been operating on the Northern Cyprus market and what is the reason for choosing the region?
The first real estate transaction in Northern Cyprus was concluded in 2011. We saw potential in this market and understood that it would develop and grow, so we opened an office here in 2017. In total, we have been working here for 12 years. Our agency is a member of the Association of Realtors of Northern Cyprus, which provides additional security guarantees to our clients. In order to become a member of the association, it is necessary that one of the founders (with a 51% share) of the company be a Cypriot (this is a small island, and here reputational risks play a big role). Upon joining the association, the founder of the agency, who then organizes the work of employees, passes a qualifying exam in professional activities. The real estate company itself, which is part of the association, and its activities are also insured (the insurance amount is 200 thousand euros). That is, the client’s funds are protected, because in the event of any financial losses due to the agency’s fault, the insurance company will reimburse them. And only a small number of real estate companies in Northern Cyprus have this status. This year the agency also began to engage in development. A cottage community consisting of seven villas will be built in the Esentepe region for the subsequent resale of real estate – this is a large, highly liquid project with an investment volume of more than 500 thousand pounds.
Go to: Caria-Estates.com
Did you start collaborating with the Kommersant UK newspaper because you plan to enter the British market?
— The British market is valuable to us because it is a prosperous country with a stable economy and a high standard of living. Many Englishmen have already bought property in Northern Cyprus (they have a large community). It’s convenient for them to live, relax, and earn money here, because the history of the island is closely connected with Britain (former colony): driving on the left, English schools (accredited by Cambridge standards), and education here is much cheaper than a similar one in the UK, deals are made in pounds (they will make a profit both from renting out objects and from their resale in their national currency). Real estate here is sold in installments, which makes purchasing properties even more profitable. In general, this market suits them very well. In addition, it is developing dynamically and has great investment potential in terms of making a profit. Not many countries offer such conditions.
We want to introduce this market to the Russian-speaking audience. We work for the long term and are confident that our customers will see this benefit and cooperate with the agency on an ongoing basis. There is also great potential and opportunities in terms of opening and running a business. Because we are developing not only in terms of real estate sales, but also in other directions, in particular, we have begun to implement development projects. This is an excellent opportunity for the development of our company and for our clients to make money on real estate investments.