Chinese investors moving beyond citizenship scheme in Cyprus

East Asian investments in Cyprus appear to be gathering momentum, but the nature of the assets bought is shifting to non-urban investments, outside the citizenship scheme.

Initially, in the immediate aftermath of the 2013 crisis, there was a big demand in the Paphos area where the purchase of high-value, luxury villas made buyers eligible for the citizenship by investment scheme. Well-off Chinese seeking ‘access to Europe’ became a key target group for developers seeking new markets and quick sales.

It is Limassol, however, with its high-rises and luxury, highly-priced apartments that has stolen the show over the last 36 months, giving rise to concerns that these sales were driven by the transient demand for Cypriot passports.

Recent indications, however, show a shift in trends. Some notable purchases by Chinese business include a hotel in the west of Larnaca, a residential construction in Limassol and another residential block in Nicosia.

What these sales have in common is that they all require further investment as the assets bought are either incomplete or in need of very extensive renovation. Other sales seen by the Cyprus Mail include a building in central Nicosia and four plots in residential areas, where planning for construction is already underway.

“What we are seeing is a decline in one-off buys, which originally led to concerns that they were based exclusively on the passport scheme. We are now seeing east Asian investors focusing more on investments that would require financing beyond the original sale,” commented a banking source.

Demand appears to have also picked up on assets which provide an immediate yield, such as large commercial buildings, warehouses, hotels and even retail space. It is clear that these investors are focusing on securing a return on their investment. Particularly in “assets in the tourist section”, which is a banking misnomer for hotels, investment interest appears to be intensifying, although completed deals are still to be seen in volume.

“The focus on China has changed. This market does not only generate consumers who purchase assets for personal use and perhaps for additional residency benefits,” according to a senior banker. “China now generates actual investors who are taking a position on the prospects and opportunities of Cyprus, adding further cash in their original investment, completing construction and improving the existing value proposition of the asset they buy”.

This makes the KYC (know your customer) function of the banks easier as investors with “skin in the game” are forced by circumstance (and by further investment) to become more transparent.

According to the same data, the value of the investments is also widening, as large deals to the order of some tens of millions are no longer the exclusive phenomenon of Chinese sales. Lower value sales, in the order of 100 to 200 thousand euro are also appearing. These investments are clearly beyond the scope of the passport scheme, which makes regulators and banks nervous, even though it pleases the smaller construction companies.

Data suggests that the original investment interest demonstrated by Chinese buyers is now maturing into a more generalised interest. One bank reported sales of more than €120 million to Chinese nationals in the last year. These sales, however, are no longer monopolised by Limassol, but are expanding to the rest of the country, to Famagusta, Larnaca and even Nicosia, including central urban areas that will be further developed.

It is clear that the potential of sales to east Asian, and especially Chinese nationals, is huge especially given the appetite of a growing middle class to diversify and to start focusing on yielding assets in which investors maintain a longer-term interest. More importantly, we are seeing that this interest is also escaping the short-sightedness of the original citizenship by investment scheme, involving the purchase of highly-priced housing and is now starting to move into more orthodox, yield-oriented investments that can only be good for the economy.