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Media Watch 2005

02 February 2005
Source: Cyprus Mail
Author: Simon Bahceli
Comment: The following article appeared in the Cyprus Mail of Nicosia on 2 February 2005.
Property market slumps in the north
"Seventy to eighty per cent of our business has been lost. It’s just one blow after another"

THE lucrative property market in the north is set to nosedive if a controversial bill to charge 15 per cent VAT on property purchases by foreigners becomes law, say building contractors, estate agents and foreign residents’ groups in the north.

The VAT bill could be the third blow to the once money-spinning industry in as many months, following in the wake of a scrapped bill to ban foreigners from owning freehold properties, and a landmark court case brought against a British couple living in a Greek Cypriot-owned property in Lapithos.

“Seventy to eighty per cent of our business has been lost. It’s just one blow after another,” Sercem Construction’s spokesman Hasip Izzet told the Cyprus Mail yesterday, adding: “I think this government is working together with the Greeks to destroy the market”.

Turkish Cypriot finance ‘minister’ Ahmet Uzun yesterday refuted such claims, saying the move was simply in order to “fill the gap” in state revenue caused by an earlier move that left VAT on foodstuffs at zero per cent. The VAT cut, he said, was to counter increasing purchases by Turkish Cypriots in retail outlets in the south.

“Half of the gap, we found, could be filled by natural growth in the economy and through VAT collected on the registration of cars imported onto the island. But we still had a gap of 2 to 3 million new Turkish lira,” he told the Mail.

“So we had to make a political decision. We did not want to hurt our citizens financially, so we looked for a sector that would not be adversely affected, and this, we decided, was the foreign housing market.”

Uzun said he believed building contractors were guilty of “massive profiteering” and that increases in property prices vastly outstripped increases in costs.

“Contractors are overcharging. One and a half years ago you could buy a house for £25,000. Now the same house costs £50-60,000. But the cost of building has not increased anywhere like as much,” he said.

Uzun was emphatic that the VAT hike had “nothing whatsoever to do with slowing down the housing boom in the north”.

“On the contrary. We want foreigners to come here and buy houses. At present there are between 4,000 and 5,000 foreigners living here. If only there were 20,000,” he said, adding that the presence of foreigners in the north helped the Turkish Cypriot cause internationally and brought foreign currency that benefited all sectors of the economy.

Uzun also refuted claims that selling off Greek Cypriot properties to foreigners hindered efforts to solve the Cyprus problem, saying: “Foreign capital coming into the country helps create economic equality.”

He insisted too that Greek Cypriots, by rejecting the Annan plan, had no right in telling the Turkish Cypriots they should not endeavour to expand their economy.

“They [the Greek Cypriots] lost nothing by saying ‘no’ to the Annan plan. Were we supposed to sit and wait, doing nothing until they changed their minds?”

Unappeased by the ‘government’s’ rationale, Kyrenia-based Boray Construction spokesman Yilmaz Topaz told the Mail yesterday his firm and a “lobby group” comprising building contractors and estate agents were planning to pressurise the north’s ‘government’ into dropping plans to introduce the 15 per cent VAT rise.

“We managed to stop the 125-year lease bill, and we will do our best to stop this one as well,” he said, adding that the bill was temporarily on hold pending the outcome of this month’s general election in the north.

He believes the lobby group has an 80 per cent chance of success.

Topaz also hinted that the bill could have been prompted by pressure from the Greek Cypriots and the international community, who he said wished to see the housing boom in the north grind to a halt, but remained confident any such moves would have little effect.

“The Greek Cypriots can’t do anything at the moment. They will have to wait for at least 10-15 years until Turkey joins the EU. Only then will there be a solution, at which time these problems will be solved through compensation to the original owners,” he said.

But perhaps most galling for potential foreign buyers is that the bill comes in the wake of sweeping VAT cuts in other sectors of the economy.

The north’s British Residents’ Society’s (BRS) chairman Mike Maternaghan, in a letter published in a north Cyprus English language publication last week, said the VAT hike was “discriminatory and grossly unfair, particularly to those 2,500-plus purchasers whose transactions will not be completed before the implementation of these changes, solely because the government cannot get its act together to deal with the backlog of applications for approvals to purchase”.

Maternaghan added that his members, who he claimed constituted the majority of Britons living in the north, were becoming increasing worried that they were no longer welcome there.

“The issue does highlight the increasing concerns of the BRS and its members about the apparent changes in attitude and approach towards foreign residents that may be taking place in government circles and possibly elsewhere.”"