Despite their differences, property markets in Greece and Cyprus have in recent years followed the same course, with prices of houses and professional properties constantly moving upward. The satisfactory growth rates of both economies, the swelling and the burst of stock values and the decline in interest rates, particularly in Greece, combined with a series of social factors, have created the right conditions for property prices to rise high. On the other hand, the catalyst in each country was different. In Greece, the effect of the Olympic Games was crucial in changing the real estate market. But for Cyprus, it was the country’s course to European Union membership and the government’s decision for tax amnesty, which channeled hundreds of millions of Cypriot pounds to the country’s economy during a tough period, particularly for the property market. This capital served as a real boost, since most of it was invested in the real estate market, increasing the demand and raising prices. There are, however, significant differences between the two markets: The most important one, at least from the consumers’ point of view, is that the Cypriot market is far cheaper, despite the higher per capita income on the island. For example, the sale price of a detached house in Nicosia would not exceed 3,000 euros per square meter. Major differences are also seen in the tax systems, as in Cyprus there are no «objective values,» that is the Greek device for the state to determine the tax applying to each property. The Cypriot government imposes property tax on each property’s market value as it was set back in January 1980, and taxes owners for properties they possess on January 1 every year. Another difference is that in Cyprus value-added tax on new buildings has already been imposed since May 1, 2004, when Cyprus joined the EU. The imposition of VAT in the Cypriot market has offered limited experience, since there have been few actions in practice under the new system. That is due to the reactions of contractors and consumers. In order to avoid paying VAT, constructors had a high number of licenses issued, and consumers rushed into buying properties to avoid being charged more. The outcome of that was an average rise of prices by 10-15 percent and the creation of a house stock without VAT, with which the market keeps operating some 19 months after the tax was imposed. But in Greece, the rise in prices ahead of the changes from January 2006 is much greater, ranging around 20 percent this year. This has also plummeted because of fear about the rise in «objective values.» Cypriot property market professionals say the new year will see fresh properties with VAT entering the market. There seems to be interest in 2007, when VAT will also be imposed on the sales of plots of land. This is expected to open a new cycle of price rises, at a time when interest rates in Cyprus are moving south to converge with the eurozone’s. Back in Greece, «the non-application of VAT on the purchase of land is probably the most important weakness in the bill presented by the government,» said property consultant Akis Kyratzis. «The essence of the problem is the land. Burdening the purchase of a plot with increased objective values, with 11 percent transfer tax and 19 percent VAT on the final product, totals an additional charge of 25 percent, which is not absorbed. This will lead to price rises and to distortions such as false and inflated invoices,» Kyratzis predicted. Another key difference between Greece and Cyprus in VAT application is the main residence. In Cyprus, the main residence is burdened with 15 percent VAT, but 10 percent returns to the buyer. Still, the relevant bill for the return of the part of VAT for the purchase of a main residence is expected to be activated by year’s end, determining when money is to be returned as well as the maximum house size to which the tax return will apply. But a main residence is completely exempted from VAT in Greece, mainly for social reasons. Although this exemption is happily received by consumers, market experts talk about problems in the measure’s application and its impact on sale prices. As Technical Chamber of Greece President Yiannis Alavanos said recently during a meeting of Parliament’s Permanent Financial Affairs Committee, new construction licenses are charged with VAT regardless of whether the houses will be used as main residences. «Consequently it is not in the interest of the seller, who is subject to VAT, to sell a house as a main residence. In this case the seller will ask for a higher price or will refuse to sell,» Alavanos said.