Investments in Business and Commercial Real Estate in Cyprus

Investing in commercial real estate in Cyprus requires a deep understanding of the market and its specifics. The island offers more than just sunshine and the exciting Mediterranean Sea; it also provides a reliable economic environment for growing your business and diversifying your investment portfolio. Which properties generate stable income in Cyprus, and what should you pay close attention to?

To ensure your investments are successful and predictable, you need a clear understanding of the available opportunities, hidden risks, and key nuances. Let's examine some real-life examples and practical advice from DOM iNVEST expert Martin Skromans to help you make informed decisions.

What projects and properties are available for investment in Cyprus?

The Cypriot commercial real estate market offers a wide range of opportunities, from office centers to innovative turnkey businesses. Your choice depends on your goals: whether you are looking for stable rental income, high returns, or an opportunity for active management.

Office buildings and business centers

The office real estate sector in Cyprus is experiencing rapid growth, especially in Limassol, a hub for international IT companies and financial institutions. Investors can purchase individual offices or entire buildings. The main advantages of these investments are the stable, long-term income generated by reliable tenants and the high potential for growth in property value.

The high demand for quality office space in Limassol is due to the rapid influx of international companies. Investors who invest in modern business centers receive stable cash flow and long-term prospects for asset value growth. The presence of tenants from the IT sector is an excellent indicator of reliability, comments DOM iNVEST expert Martin Skromans.

A great example is the modern office building in the heart of Limassol. This seven-story commercial property is located in the prestigious Agios Nikolaos area. This ensures excellent visibility and accessibility.

Key features:

1. Total area: 5,607 m² (internal area: 4,295 m²).
2. Number of floors: seven plus a basement, mezzanine, and roof.
3. Condition: fully constructed, commissioned, and leased.
4. Additional features: The building is sold with an adjacent 700 m² plot of land for future development.
5. Investment indicators: payback period of 16 years and ROI of 6.1%.
6. Price: €26 million.

This is an ideal option for an investor looking for a ready-made, fully functional, income-generating property. The purchase is made through the acquisition of a special purpose vehicle (SPV), which simplifies the transaction process.

Shops and retail space

Investing in retail space provides the opportunity to generate stable rental income and benefit from the growth of the consumer market. Such properties can be located in Cyprus's bustling shopping districts or within new luxury residential complexes to serve affluent residents.

Retail space in premium locations is always in high demand. Investors should pay attention to foot traffic, visibility, and, of course, potential tenants. Premises in new residential complexes on the first line are a gold mine, as they guarantee a steady stream of high-end customers, says Martin Skromans.

Example: Commercial premises opposite Dasoudi Beach and the eucalyptus grove in Limassol. These premises are part of a prestigious new seafront project in the popular Germasogeia area, which is particularly popular with Russian-speaking visitors.

Key features:

1. Total leasable area: 408 m²
2. Location: First line with a panoramic sea view.
3. Condition: Available in shell and core condition, allowing it to be adapted to the tenant's individual needs.
4. Purpose: Ideal for a restaurant, brand store, or showroom.
5. Rental price: 31,000 euros + VAT.

This property offers investors an excellent opportunity to acquire commercial space in one of Limassol's most sought-after areas.

Restaurants, cafes, bars (including franchises)

This segment is attractive for those looking for high returns and ready for active management. Rather than acquiring just premises, acquiring a ready-made and successful business allows you to start making a profit immediately, bypassing the start-up stages. The key factors for success are a strong concept, well-established business processes, and location.

Consider, for instance, a successful fast food restaurant with a proven model in Limassol. It is a time-tested business with a loyal customer base and excellent scaling potential.

Key features:

1. Location: In a well-known food court in the heart of Limassol's Old Town with high foot traffic. Business model: Proven and profitable.
2. Additional features include a sale through transfer of company shares (VAT not applicable), all licenses available, and permission to hire employees from third countries.
3. Investment indicators: payback period of four years and an ROI of 27%.
4. Price: €150,000.

This property is an excellent opportunity to acquire a profitable, well-organized business with growth potential in one of the city's most vibrant areas.

Apart-hotels and boutique hotels

Tourism is one of the pillars of the Cypriot economy. Investments in the hotel business, especially in the form of boutique hotels, aparthotels, or guesthouses, offer high returns and an enjoyable experience. Such projects can be particularly attractive in picturesque, non-touristy regions where they can receive government subsidies for development.

Example: A 50% stake in a boutique hotel complex in Paphos. Become a partner by purchasing a stake in the company implementing this project. The boutique hotel complex will be located in the picturesque village of Katikas in the Paphos district.

Key features:

1. Five residential buildings (three already in operation and generating rental income).
2. A historic building will be renovated to accommodate ten apartment suites.
3. The project is eligible for government grants and subsidies.
4. Projected capital growth is up to 40% within two years after renovation.
5. Expected annual return: approximately 15% after project completion.
6. Price: €1.1 million.

This is a rare opportunity to become a partner in an unusual, high-scalability project with stable returns and distinctive character in one of the most atmospheric and promising regions of the Island of Aphrodite.

Ready-made business

Acquiring a business not directly related to real estate (or with real estate on a long-term lease) can be a profitable investment. This allows investors to focus on operational management and scaling while bypassing the complexities of purchasing land, construction, and obtaining licenses.

Example: An automatic car wash in Limassol. In Cyprus, a clean car is the norm, not a luxury. This is a unique investment opportunity to acquire a modern, fully equipped, European-standard automatic car wash in the Ipsonas area of Limassol.

Key features:

1. Convenient location with easy access to highways and the main regional road.
2. The operating model is open 24/7 with minimal operating costs and one employee. It is fully equipped with eight wash bays.
3. Financial indicators: stable customer base and a net profit of €220,000 per year.
4. Investment indicators: payback period of four years and an ROI of 35%.
5. Sale through purchase of company shares (SPV).
6. Price: €690,000.

Ready-made businesses with a clear model that are already profitable are very attractive assets. With such projects, investors are buying more than just walls; they are buying a working system that has already proven its viability. This is an ideal option for those who want to quickly enter the market and generate income, says Martin Skromans.

What is goodwill? Is it payment for air or an intangible asset?

The term "goodwill" often comes up when purchasing an existing business. It essentially reflects a business's reputation, customer loyalty, brand recognition, and established relationships with suppliers. These factors enable a business to generate above-average profits. Professional investors can sense goodwill from miles away.

Formula: Goodwill = Purchase price – (Fair value of assets – Fair value of liabilities). For example, if an investor buys a company for €1.5 million, but its net assets are worth only €1 million, then the goodwill is €500,000. Investors understand that goodwill is not a "fee for air." It is the real value you pay for.

1. Brand and reputation: the value that customers see in the company name at the time of purchase
2. Customer base: regular customers who provide a stable income
3. Established processes: an effective system that allows the business to function smoothly and effortlessly.
4. A professional team of trained and motivated employees is the foundation of any business's success.

Of course, when assessing goodwill, it is important for an investor to conduct a thorough analysis to ensure the indicator is justified. In general, goodwill is a subjective indicator that depends on many factors. Therefore, when buying a company or a stake in one, especially in Cyprus, it is crucial to hire independent financial and legal advisors to provide an objective assessment and minimize risks.

Pitfalls and risks when purchasing commercial real estate

As in any other country, buying commercial real estate in Cyprus requires caution. To avoid unpleasant surprises, pay attention to the following aspects:

1. The legal status of the property. Ensure that the seller has full ownership rights to the property and that the property has all the necessary permits and title deeds (certificates of ownership). Unscrupulous sellers may offer properties without these documents, sometimes at a reduced price.
2. Tenants and lease terms: If you are buying a property with tenants, carefully review the lease agreement terms. It is important to understand the lease term, renewal terms, the amount of the rent, and rent indexation. These factors directly affect your payback period and ROI.
3. Zoning and permits: It is crucial to verify that the property's current use complies with its zoning regulations. For example, a space officially registered as an office may not have a permit for use as a restaurant. This is critical for hotels, restaurants, and retail spaces. This is true even if the property was previously used in the same way as when it was put up for sale.
4. ROI assessment, depreciation, and maintenance costs are also important considerations. Conduct a detailed financial analysis. The ROI calculation should take into account rental income and all related expenses, including property taxes, utilities, insurance, management costs, training, and depreciation.
5. Consider growth potential. Study the area's development plans and the likelihood of their implementation. New roads, infrastructure projects, and development plans can significantly impact your property's future value and profitability.

Many investors focus solely on price and current income, forgetting about potential risks. Our approach is to provide a complete package of information, including the property's legal status, a market analysis, and potential risks. This allows investors to make informed decisions, says Martin Skromans.

Legal and tax considerations

Understanding these aspects is an integral part of a successful transaction. In particular, the following points should be taken into account:

1. Procedure for purchasing commercial real estate for non-residents. Non-EU residents can freely purchase commercial real estate in Cyprus, but they may need permission from the Council of Ministers if they purchase more than one property or plot of land. The purchase process is simplified when purchasing a ready-made business through a company (SPV).
2. VAT and stamp duties. The VAT rate on the purchase of new commercial real estate is 19%, with a 5% reduction under certain conditions. No VAT is charged on resale. Stamp duty is calculated on a progressive scale from 0.15% to 0.20% and levied on the amount specified in the purchase agreement (up to a maximum of €20,000).
3. Capital gains tax: It is 20% of the profit made from selling real estate. The seller pays it from the amount of the profit in the event of resale.
4. Property maintenance includes utility bills and property taxes. Owners of commercial real estate are required to pay local fees. However, Cyprus abolished property tax in 2017, making purchases more profitable. Utility costs are usually covered by the tenant. However, they also need to be considered when calculating ROI.
5. Rental income is taxed. For Cyprus tax residents, there is a flat rate of 12.5% on net profits. Non-residents pay tax in their country of residence.
6. One option is to open a company in Cyprus to optimize taxation. Opening a company in Cyprus, which has a low corporate tax rate of 12.5%, is an effective way to optimize the taxation of rental income and future asset sales.

Investing in commercial real estate and businesses in Cyprus is promising but requires careful and knowledgeable consideration. We hope this overview has helped you navigate the variety of offers and understand the key points to look out for.

The most important thing is to not rush. Conduct a thorough analysis and work with reliable partners who have in-depth knowledge of the local market. This will allow you to minimize risks and maximize potential returns.

If you have a business idea or have already decided on an investment sector, our team is ready to provide all the necessary information, help structure deals, and conduct full legal and financial analyses. "We don't just show you properties; we help you make informed investment decisions," summarizes Martin Skromans.

Successful investments in Cyprus result from strategic planning and professional support throughout the entire transaction process. We recently discussed with Martin Skromans how to find a buyer or investor for your project in Cyprus. Have you started building your own portfolio of financial assets in Cyprus yet?