The International Monetary Fund (IMF) has called on Cyprus to consider reinstating the Immovable Property Tax, which was withdrawn this year, and raising transfer duty to increase revenues.
In a Concluding Statement following its recent mission to Cyprus, the IMF has made a number of recommendations on real estate including reinstating the annual Immovable Property Tax (IPT), raising transfer fees and streamlining the procedures from issuing and transferring Title Deeds: Policy adjustments may be needed to avoid a potentially unsustainable increase in construction activity. Several investment incentives, including the citizenship-by-investment (CbI) scheme, provided welcome support to construction and the economy more broadly in the aftermath of the crisis, and construction of luxury residential and tourist properties – financed mainly by foreign equity – has been brisk. However, this support has now achieved its goal, and could turn procyclical. Further decoupling the scheme’s eligibility requirements from real estate would help avoid excessive concentration of economic activity, and reduce the risk of over-supply of luxury properties. Procedures for issuing and transferring title deeds for new properties should be streamlined, with timely transfer of titles to buyers. If signs emerge that construction in the luxury market is becoming reliant on domestic credit or activity is spilling over to other segments, tightening bank lending standards and raising macroprudential capital requirements would be appropriate. Reinstating the recently rescinded immovable property tax and raising transfer duty on immovable property would provide additional countercyclical tools.