Property investment in Cyprus: A strategic guide for investors

Cyprus has certain advantages for property investors, with a safe legal system and English widely spoken. Its position between Europe and the Middle East gives it a strong international buying market that bodes well for long-term capital growth.

However, non-resident investors in Cyprus should know that the government has been clamping down on short-term rentals, making it difficult to run a buy-to-let.

Cyprus also has a wealth of exciting and innovative new developments for investors to consider.

Whether you’re a first-time investor or are looking to build on an existing property portfolio, there are a few things to consider in advance.

Understanding the Cyprus property market

The Cypriot real estate market has seen its ups and downs since the global financial crisis that hit it exceptionally hard. Before 2008 growth of 20% was common, but problems over title deeds and mortgages issued in Swiss francs (that doubled when the franc was devalued) knocked confidence in the market.

Property prices in Cyprus started rising again in 2016 and accelerated to 7% to 8% annual rises in 2023 and 2024. Apartments have shown the strongest growth, rising by almost 14% in the year to spring 2024, while house price rises moderated slightly to just under 5%.

There are significant regional variations. The Famagusta district leads with the highest growth rate of 5% year-on-year across all property types, followed by Paphos, Larnaca and Limassol.

One recent change has been the loss of Russian buyers following the Ukraine War. This market is tending to buy in Northern Cyprus now.

Letting restrictions

Before committing to a property investment in Cyprus, ensure your plans are legal, based on your nationality and residency status.

Generally, non-residents are not permitted to let property on a short-term basis to tourists in Cyprus, but can let to long-term Cyprus residents.

If you wish to rent out your property in Cyprus on short-term let sites, like Airbnb, you must register with the Register of Self-Service Accommodation Establishments and obtain a special serial number. This can take years to obtain. There will be a registration fee of €222 for the registration and it lasts three years.

Other things to consider if you’re letting out a property in Cyprus include:

• Monitoring: The Deputy Ministry of Tourism monitors compliance, and properties must be registered in the National Registry to legally operate as short-term rentals.
• Compliance: The property must comply with certain conditions, such as having valid home insurance and being registered with the tax department.

 

Rental returns in Cyprus

For long-term rentals, investors can expect moderate rental yields ranging from 3.5% to 5% across various property types, including luxury homes, villas, townhouses, apartments and commercial properties.

Being so well-placed in the world geographically, Cyprus offers better opportunities for long-term rental than many other Mediterranean hotspots. For example, for the families of expats working in the Middle East.

It also benefits from year-round warm weather which means it has a long season; indeed, a 12-month season. Cyprus also has year-round direct flights from the UK, which rival destinations such as Crete, for example, lack.

For short-term rentals, Ayia Napa has seen ups and downs as a mass tourism destination. Demand for apartments from tourists makes investing in studios particularly attractive, especially in cities like Limassol.

In the West, Paphos investors may have more luck with villas.

Cyprus, being outside the Schengen Area, allows third-country nationals to spend 90 days in Cyprus but also 90 days in the Schengen countries such as Greece.

 

Taxes on investment property

Like many governments, Cyprus sees investors as a lucrative source of funds and tax rates are often higher for property investors.

Personal income tax (PIT)

Non-residents are taxed only on income accrued or derived from sources within Cyprus. The tax rates range from 20% to 35%, depending on the income bracket.

Special defence contribution (SDC) 

Special Defence Contribution (SDC): Non-residents are generally exempt from SDC, which applies to dividend, interest, and rental income for Cyprus tax residents.

Capital gains tax (CGT)

Non-residents are subject to CGT on gains from the disposal of immovable property located in Cyprus.

Value added tax (VAT)

VAT of 19% is payable on new build property bought for investment purposes. While it is reduced to 5% for most primary residences, commercial property including let property is taxed at the full 19%.

For those simply looking for a capital return on their primary residence, bear in mind that:

• The 5% VAT rate is applicable to the first 130 square meters of the buildable area of a residence, with the total cost not exceeding €350,000.
• Residences must not surpass 190 square meters of buildable area or have a total cost exceeding €475,000.
• For residences exceeding 130 square meters, the remaining area will be subject to the standard 19% VAT rate.
• If you sell the property within 10 years you must repay the other 14%.

Where to invest in Cyprus

Deciding where to invest in Cyprus largely depends on the market investors are seeking to profit from. Limassol, Larnaca, and Paphos offer a mix of residential and commercial opportunities.

Limassol is favoured for its port and tourist infrastructure, while Paphos is known for its lifestyle and tourist market.

Nicosia, as the capital city and commercial centre of Cyprus, presents opportunities for office space and business investments. It also offers potential for residential lets in the diplomatic, services and business sectors too.