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In the referendum on April 24 2004, the Turkish Cypriots voted for reunification of the country – but Greek Cypriots voted against. Greece and Greek Cyprus has now joined the EU, but Turkey and Turkish Cyprus will have to wait a few more years. Nevertheless, the EU has promised to release the €259,000,000 earmarked in the UN Plan for the development of northern Cyprus between 2004 and 2006.

In the meantime, the economic boom that many analysts expect has attracted a plethora of British investors which is currently driving an unprecedented property boom. Since Turkish border controls were relaxed and movements between the north and south of the divided country have become easier, there has been much speculation over the development potential in the north of the island. While homes in southern Cyprus have experienced strong capital price growth of between 10-15% annually between 2002 and 2003, local estate agents report increases of 15% in northern Cyprus since Christmas, where property prices are among the lowest in Europe. “The market has gone crazy,” said one British estate agent. “Luxury developments, building sites, traditional villas - they are selling like hot cakes.”

But Britons chasing a slice of paradise and a fast buck are stepping into a political quagmire. Northern Cyprus (self-named the Turkish Republic of Northern Cyprus or TRNC) is an internationally unrecognised state and has been subject to international trade embargos for decades and as a result the economy is moribund. While the potential gains are great, the associated risks of investing in this internationally unrecognised state are high. As far as Greek Cypriots are concerned buyers are dealing in stolen property. The majority of houses which are being bought by British investors are built on the land that 163,000 Greek Cypriots were forced to abandon when Turkish troops invaded northern Cyprus back in 1974. “Those people who buy land from non-owners run a big risk of losing their money,” said Alecos Markides, the former attorney-general.

The revised UN settlement plan sets out complicated rules to compensate former owners, or in some cases to restore their homes and land to them. The UN has given assurances that Greek Cypriots who lost property as a result of the Turkish occupation would receive financial compensation. A large swathe of land currently under Turkish control will also be ceded to the Greek Cypriot territory in the proposed two-state federation. The Turkish Cypriots will also have to hand over 60 villages. Reputable agents are warning investors not to buy property in areas which could move from Turkish Cypriot to Greek Cypriot control. “Britons are taking a huge risk,” said one British agent. “Some could lose their properties all together. People are not seriously considering the risks involved.” Most UK investors are buying on land owned by Greek Cypriots but was given to Turkish Cypriots displaced from southern Cyprus after the 1974 coup. The UN Plan’s property provision aims to secure a balanced settlement for Greek and Turkish Cypriots, while also offering some security to foreign property investors who have invested, or are planning to invest, in areas where land rights are disputed.

But for those Britons who do get to keep their homes there is the added complication of compensation. While British investors are budgeting for compensation – should reunification occur post referendum – there is a risk that levels of compensation may be more than they bargain for. Calculations will be based on a similar size property or plot of land in southern Cyprus where property prices are significantly higher. One Greek Cypriot man who was forced to flee northern Cyprus in 1974 claims to be preparing a legal case against a British investor (David Oram) who has built a house on land that he claims he does not own. He claims to be one of a growing syndicate of Greek Cypriots prepared to take legal action over foreign investors in order to reclaim their land.

Despite the associated risks, an increasing number of Brits can’t resist the low prices and high capital growth potential. North Cyprus agent Fraser and Beyler reports that buying activity has recently boomed. “We have been incredibly busy,” says Sophie Butcher. “Prices here are very reasonable compared with areas in the south of the island.” Abby Dogruoz of Troy Lake UK, who specialise in northern Cypriot property for British buyers, says: “Its much cheaper, has a lot of natural beauty, and it is not over built like other areas.” Dugruoz’s clients include second home-owners and pure investment buyers, who tend to be younger. “Areas such as Famagusta and Nicosia are seeing new bars and restaurants opening and Kyrenia has the older harbour which is always a popular attraction.” She says that prices have almost doubled in the last 12 months but the area still represents a good investment opportunity. “We currently have a three-bedroom villa in an exclusive area with a swimming pool and land for only £85,000,” adds Dugruoz.

While the property rush in northern Cyprus looks likely to continue, the land rights issue is unlikely to go away any time soon. Therefore, investors worried about an uncertain future are advised not to choose northern Cyprus. Yet, for those who believe the growth potential outweighs the risk, the advice is to seek independent legal advice before making any commitments in the region.

Reproduced by kind permission of International Property Investor magazine (www.ipimagazine.com) The above article has been produced by Carolyn Watt.

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