The International Monetary Fund (IMF) has called on Cyprusto consider reinstating the Immovable Property Tax, which was withdrawn thisyear, and raising transfer duty to increase revenues.
IMF has made a number of recommendations on real estateincluding reinstating the annual Immovable Property Tax (IPT), raising transferfees and streamlining the procedures from issuing and transferring Title Deeds:Policy adjustments may be needed to avoid a potentially unsustainable increase inconstruction activity.
Several investmentincentives, including the citizenship-by-investment (CbI) scheme, providedwelcome support to construction and the economy more broadly in the aftermathof 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 couldturn procyclical. Further decoupling the scheme’s eligibility requirements fromreal estate would help avoid excessive concentration of economic activity, andreduce the risk of over-supply of luxury properties. Procedures for issuing andtransferring title deeds for new properties should be streamlined, with timelytransfer of titles to buyers.
If signs emerge thatconstruction in the luxury market is becoming reliant on domestic credit oractivity is spilling over to other segments, tightening bank lending standardsand raising macroprudential capital requirements would be appropriate.Reinstating the recently rescinded immovable property tax and raising transferduty on immovable property would provide additional countercyclical tools.