The institutional gaps that must be addressed

Affordable housing in Cyprus is not threatened by development itself, but by the absence of effective preventive control over property acquisitions by third-country nationals. In the vast majority of cases, such acquisitions are not made for owner-occupation but for investment purposes, generating upward pressure on prices and rents and, ultimately, undermining social cohesion.

The acquisition of immovable property by third-country nationals has evolved into one of the most decisive factors shaping the Cypriot housing market.

This is neither a theoretical nor a purely legal issue. It is reflected daily in the growing difficulty faced by Cypriot citizens, particularly young people and young families, in acquiring or renting housing at sustainable prices.

The existing legal framework

The Immovable Property Acquisition (Aliens) Law (Cap.109) regulates the acquisition of immovable property, not merely its purchase, and makes such acquisition subject to prior approval by the competent authority, namely the District Officer.

This distinction is important, as acquisition is legally linked to registration with the Land Registry and the transfer of ownership.

Cypriot case law has consistently underlined that the requirement for prior approval is not a mere formality but a substantive safeguard. The Supreme Court has held that the purpose of Cap.109 is the exercise of preventive control over the acquisition of immovable property by aliens.

Although, in certain cases, the absence of approval has been treated as a remediable procedural irregularity, the intention of the legislature is clear. Control must precede, not follow, the acquisition and exploitation of immovable property.

In practice, however, a problematic process has become entrenched. Sale contracts are executed, deposited with the Land Registry, and possession is delivered before the required approval is secured.

As a result, preventive control is effectively converted into an ex post facto procedure, largely devoid of substantive value.

Corporate structures and circumvention of the law

Particular concern arises from the circumvention of statutory restrictions through the use of Cypriot corporate vehicles. Third-country nationals acquire immovable property via corporate structures, thereby undermining the very purpose of the legislation.

Even more troubling is the fact that such acquisitions also occur in areas adjacent to the Green Line, raising not only economic concerns but also issues of public interest and national security.

In this context, the role of the Registrar of Companies must be decisive. The transfer of shares to a company holding immovable property should only be permitted upon the production of a tax clearance certificate from the Tax Department confirming the payment of capital gains tax and the levy payable to the Equal Distribution of Burdens Fund. Failing this, share transfers become a mechanism for the avoidance of tax obligations.

VAT and the misuse of incentives

A central issue also concerns value added tax. The reduced VAT rate of 5 per cent for a primary and permanent residence is institutionally sound. However, in the case of third-country nationals, its application must be linked to proven actual use, and not merely to a declaration of intent.

The appropriate approach is the imposition of the standard 19 per cent VAT rate upon the purchase of newly built or under-construction properties, with a refund or reduction granted only upon substantiated evidence of genuine permanent residence.

In addition, the imposition of an application examination fee constitutes a justified and proportionate measure.

Cyprus and accession to the Schengen Area

The prospect of Cyprus’ accession to the Schengen Area cannot be ignored. While accession entails significant benefits, it also brings enhanced obligations regarding the control of the establishment of third-country nationals.

Where the acquisition of immovable property operates as a vehicle for permanent settlement or economic activity, regulatory gaps cease to be a purely national matter and evolve into an issue of European responsibility and institutional credibility.

International practice confirms that such restrictions are by no means a Cypriot peculiarity. In Canada, the ban on residential property purchases by non-Canadians is in force until 2027. Denmark requires permanent residence and prior approval, Singapore imposes extremely high taxation on foreign buyers, Switzerland prohibits the investment purchase of residential property by foreigners, while in England increased stamp duties and stringent source-of-funds checks apply.

The economic dimension

Unchecked investment demand artificially inflates demand, restricts supply for owner-occupation and is directly passed on to rents. Market stability is not achieved through unlimited capital inflows, but through balance, transparency and enforceable rules.

Immovable property cannot be treated as just another investment asset devoid of limits and social accountability. When housing is transformed into a yield-generating instrument for third parties, the cost is borne by Cypriot citizens and by social cohesion itself.

The state has a duty to close institutional loopholes, restore genuine preventive control and draw clear red lines where affordable housing, the public interest and the institutional credibility of the country are at stake.