Investing in real estate in Cyprus in the crisis of 2023

Understanding the impending recession of 2023 raises the question of how investors should proceed: how to diversify their portfolio, whether to invest in high-risk venture capital funds, and which country to buy to minimize risks. In this article, we will look at why investing in real estate in Cyprus might be an exciting option in the crisis of 2023 and what factors should be considered when making a decision.

In 2023, the world economy may face a crisis. Economists at Deutsche Bank noted that 2023 could be the third anti-rating year of the 21st century. It was worse only in 2020 when the pandemic began, and in 2009, after the global financial crisis. The Central Bank has suggested that the bursting of bubbles in financial markets and a tightening of policy in the U.S. will cause a crisis in 2023.

How might that affect investment? Much will depend on the nature of monetary policy in the U.S., Europe, and other major economies, investor attitudes toward risk, and the state of the global economy.

The economic crisis can significantly impact investments, including the real estate market. In times of crisis, investors tend to become more cautious and prefer more conservative investment strategies, such as investing in stable assets like real estate. However, during a crisis, investors should also consider additional risks associated with real estate, such as downside to home prices, legal issues, etc.

In addition, an economic crisis can lead to changes in government policies, such as changes in tax laws and other measures that can affect the investment environment.

In general, the economic crisis can substantially impact investments, but investors can adapt to changing conditions and find profitable investment opportunities. That said, assessing the risks and prospects of investing is essential to make the right choices.

Economic Crisis 2023 and the Situation in Ukraine: What is the Threat and What to Do?

The heated situation between Russia and Ukraine is causing the global economy to slow down and inflation to rise. The Organization for Economic Cooperation and Development (OECD) warns that the war could trigger a humanitarian crisis with increased hunger and poverty in the poorest countries.

The economic consequences will vary from region to region of the world. However, European economies will feel them the most, especially those bordering Russia or Ukraine.

The U.S. Federal Reserve predicts the beginning of a recession at the end of 2023. A moderate recession is expected to begin in 2023, after which the recovery will last about two years. A recession is a period of economic decline that lasts at least six months. During a recession, welfare gains, production, and business activity in the economy decline. People become poorer, and businesses go bankrupt, social spending declines, infrastructure degrades, and investment in the future (education, manufacturing, technology) fails.

Investors and business owners should be prepared for a more challenging and unpredictable market environment during a recession. Here are a few tips that can help you adapt to the changing conditions and preserve your investments and business:

• Evaluate your investments and businesses — you must conduct a detailed analysis of the current state and assess risks and opportunities for further development.
• Develop a strategy, based on the result of the assessment, that is appropriate to the current market conditions.
• Reduce expenses — in a recession, it is essential to reduce the costs to preserve cash and minimize risks.
• Look for new opportunities — during a recession, new opportunities for investment and business development can appear in the market. Experienced investors willing to take risks and make long-term investments must seek and seize them. Investing in venture capital funds may be one such opportunity.
• Stay in touch with customers and partners — during a recession, staying in touch with customers and partners is especially important to maintain their loyalty and trust.
• Seek support from financial advisors, banks, and other professionals.

It is essential to remain flexible and adaptable during a recession to react quickly to changing conditions and make the right decisions.

Diversification of investment risks

Diversification allows investors to allocate their investments among different assets to reduce risk and increase the potential return on a portfolio. It is essential for investors looking for low-risk investments.

Here are some tips to help you diversify your low-risk investments:

• Allocate your investments among different types of assets. These could be, for example, bonds, bank deposits, real estate funds, or index funds.
• Diversify your investments within each type of asset. For example, if you invest in bonds, choosing bonds of different issuers, maturities, and credit ratings is best.
• Invest in different markets and countries. This will help you protect your portfolio from risks associated with economic conditions in one country or region.
• Study each asset in which you intend to invest. This will help you understand the risks and potential returns.
• Keep in mind your investment goals and the timing of your investments. Diversification of assets should be consistent with your vision of achieving your goals and the timing of those goals.

In addition, it is essential to remember that asset diversification does not guarantee complete protection from risk. It can help reduce risks, but it does not eliminate them. Therefore, before investing, you should consider all the risks and potential returns carefully.

Assets for investing in the crisis

Cache and its counterparts (e.g., bonds with minimal risk of default) is the most stable asset, which has no significant drawdowns even during the worst economic crisis. In addition, cachet has high liquidity, unlike other assets, which allows the investor to convert it into another asset if necessary quickly.

However, like any other asset, kesh also has its risks. In addition to inflation risk, kesh may be subject to currency risk associated with currency fluctuations. For example, if an investor holds capital in dollars, they run the risk if the dollar depreciates against key currencies such as the euro, yuan, yen, etc. This can lead to capital loss when converting it to another currency.

In general, cache and its counterparts are assets commonly used to preserve capital amid uncertainty and risk. However, an investor may consider other types of assets, such as stocks, real estate, precious metals, medium- and high-risk bonds, and others, to diversify a portfolio and obtain higher returns.

Generally, government bonds issued by large and reliable countries are considered the most stable assets. Government bonds provide a fixed income and are considered one of the safest investments, as the government cannot simply go bankrupt and stop paying interest on its bonds. However, the stability of government bond yields can be detrimental to an investor because bond yields will also be low during periods of low inflation.

Investing in real estate in a crisis in Cyprus can be an attractive option for investors who want to diversify their portfolios. One of the reasons is the geographical diversity. In addition, Cyprus is famous as a tourist and holiday destination, which can present significant potential for rental income.

The favorable tax regime also makes Cyprus attractive for real estate investments. For example, the island has no inheritance or gift tax and low personal and corporate income taxes.

The moderate level of property prices in Cyprus can also be of interest. Compared to some other European countries, property prices in Cyprus are affordable. This could present opportunities for investors who want to invest in low-risk properties abroad.

«2023 reminds us that every development passes through a recession. As always, there are «safe havens» in times of crisis. Cyprus is one of them: low taxes, quick, permanent residence permits, legislation based on English law, private British schools, and good weather that attracts many tourists to the island. 

Why is real estate investment in Cyprus suitable for diversification in a crisis? When banks are collapsing, and markets are unstable, you need to secure your investment portfolio with reliable and conservative investments.»

Sergey Polivar, SEO SPM

Finally, the real estate market in the country is constantly evolving. This represents the potential for growth of investors' capital in the long term. Despite the existing risks, the strong demand for real estate, including commercial real estate in Cyprus, shows the stability of the market as a whole.

Precious metals such as gold, silver, and platinum can also be an exciting option for diversifying your portfolio during a crisis. They have unique properties that make them desirable investment assets in times of uncertainty and market instability.

One of the main advantages of precious metals is their investment stability. Historical experience shows that they tend to show an increase in price during economic crises and inflation. In addition, precious metals can serve as a hedge against losses when prices of other assets fall during periods of market instability.

Gold is the most popular precious metal for investors. Its price usually rises during periods of uncertainty in world markets. Some experts believe gold can be a desirable asset during global economic crises, as its price can rise very high.

Silver and platinum can also be attractive options for investors looking to diversify their portfolios. They have similar investment properties to gold but may have higher volatility and risk.

Finally, it should be noted that investing in precious metals can be done through purchasing physical bullion and coins and investment funds and ETFs that invest in precious metals. This allows investors to access the precious metals market without the need to hold and secure physical assets.

Cryptocurrencies have become a popular investment asset in recent years. They are a decentralized and encrypted way to store and transfer digital assets.

One of the main advantages of investing in cryptocurrencies is their high volatility, which can lead to significant profits with proper risk management. In addition, cryptocurrencies have a limited number of units, which can increase their value when demand rises.

However, cryptocurrencies also have their drawbacks and risks. Their high volatility can also lead to significant losses if the market changes do not favor the investor. In addition, cryptocurrencies are still a new and relatively unstable asset. Their regulation is ambiguous in different countries and can change at any time.

Venture capital investments. Despite the high risk, investing in venture capital funds as financial structures specializing in investing in startups and young companies with high growth potential can be profitable during an economic crisis. First, venture capital investments are considered long-term (3-5 years), so venture capital funds may not suffer much from short-term fluctuations in the market. Second, the crisis may present opportunities for profitable investments in companies that can make significant breakthroughs in the future. The percentage of the portfolio that can be invested in venture capital funds depends on each investor’s situation and investment goals and strategy. It is generally recommended that investors invest no more than 10-15% of their total portfolio in venture capital funds. However, the percentage may be higher if the investor has a high rate of return, a high level of risk, and long-term investment goals.

The peculiarity of the work of venture capital funds is a high level of risk. Investors invest in startups — companies that do not have sufficient financial stability and are at an early stage of development. However, in case of successful growth, investors receive a high profit, which compensates for risks.

One of the most successful venture capital funds is TA Venture IT Fund, established in 2010 in Ukraine and since then, has invested in more than 140 companies in 22 countries worldwide. The total amount of investment was more than 150 million dollars.

TA Venture’s experience shows that investing in startups can be successful and profitable if the projects are chosen correctly. For example, one of the successful projects the fund has invested in is Grammarly, a company that provides services for checking grammar and spelling in English texts. This company was valued at 1 $ billion by 2019 and had become a Unicorn, and by 2021 it had already become Ukraine’s first Decacorn.

«As an iClub partner, our company recommends paying attention to the main venture trends of 2023. Every crisis shows new needs of the society, which leads to the creation of a new promising product. Innovative startups can increase in the future and pay off 3, 4, 10, and even 50 times over. Venture capital funds allow you to invest in a dozen startups — 3-4 of them will „go bust“, and the rest will pay off, but 1-2 will bring profit x10»

Sergey Polivar, SEO SPM

iClub is a platform based on the TA Venture fund for investing in startups, which allows private investors to join investment clubs and support alongside experienced investors and venture capital funds. Each club focuses on a specific market sector or type of startup.

With iClub, investors can invest in startups at different stages of their development, from the seed stage to series A and B. In addition, you will have access to deals that are usually closed to the market and exclusive deals that are not available to the general public. This expert community includes over 4,000 investors from all over the world.

Notably, venture capital sectors may be more resilient during the crisis than others. For example, there is more interest in healthcare innovations, remote work technologies, and online education in times of crisis.

It may also be noted that venture capital funds begin to invest more actively in start-ups with a sustainable business model and products that can show results shortly. In such a situation, liquidity and cash flow become more critical.

In addition, the geographic priorities of venture capitalists may change during the crisis, as some countries may be more resilient than others.

Finally, it is worth noting that venture capital funds may get better investment terms during a crisis, such as lower asset prices or more flexible financing terms. In general, venture capitalists in a crisis should be prepared to change the situation and look for new opportunities to invest in promising projects.

How to make a portfolio of investments in times of crisis?

Building a portfolio during a crisis can be challenging, but there are a few tips to help you create a portfolio that is more risk tolerant:

• Diversify your investments by spreading them out between different assets — this will help you reduce the overall risk level of your portfolio. Don’t invest all of your savings in one asset.
• Avoid highly volatile assets: in times of crisis, highly volatile assets, such as specific stocks, may pose a higher risk than usual. It is better to choose assets that show a more stable performance.
• Explore Investment Opportunities: during a crisis, new investment opportunities may arise. Study the market and look for opportunities to invest in assets that may be overvalued or of value long-term.
• Maintain investment discipline. Don’t make too many changes to your portfolio, even if the market seems volatile. Follow your investment strategies, and don’t make decisions based on emotion.
• Use professional advice. If you’re unsure how to assemble an investment portfolio, seek professional advice. An SPM investment advisor can help you choose the most appropriate investment products and create a portfolio that meets your goals.

Finally, remember that building a portfolio is a long-term process. Don’t expect your portfolio to produce quick results, especially in times of crisis. However, with the right approach and discipline, you can create a portfolio that is successful over the long term.

11 principles for making a portfolio of investments in the crisis:

 

1. Diversification of the portfolio by industry and country. If all investments are concentrated in one sector or one country, the risk of loss can be very high if a crisis occurs in that industry or country. Therefore, spreading investments across several sectors and countries is advisable to reduce risks and increase the likelihood of success. The specific proportions of investments in different industries and countries may depend on the investor’s investment objectives and risk tolerance.

2. To minimize risk and increase portfolio diversity, do not invest more than 5-10% in one company or industry and no more than 2-5% per issuer.

3. Portfolio in the asset currency of stable countries. Cyprus and its currency (euro) can be considered stable during the crisis due to several factors: the high degree of diversification of the economy, the significant contribution of the financial sector to the economy, attractive tax rates for foreign investors, and the availability of external sources of funding in case of need. 

4. Allocate at least 10% of the portfolio to money market instruments (treasury accounts, bank deposits, up to 1-year corporate bonds) to quickly enter assets in a crisis.

5. When interest rates in the world’s major economies, including the U.S. and the EU, are rising, their currencies are strengthening, which affects the price of gold, expressed in U.S. dollars. Therefore, you should not have gold in your portfolio under this scenario.

6. Buying gold and bonds in the event of an economic collapse. In this situation, prices of stocks and precious metals usually decline as investors sell their assets to preserve capital. However, to get out of the crisis, governments begin stimulating policies by injecting money into the economy, which can lead to higher inflation. In such a situation, investors often look for anti-inflationary assets such as gold, which can cause their prices to rise. Therefore, a crisis may be an excellent time to buy stocks and precious metals, as their prices may recover after the crisis.

7. If a crisis has not yet occurred but is expected soon, adding non-cyclical industries (healthcare, communications, consumer staples, utilities) to your portfolio of dividend aristocrats can be helpful, as these companies can maintain their stability during market corrections due to the steady demand for their products and services. In addition, these companies typically have high dividend yields, which can mitigate losses from falling stock prices in the portfolio.

8. Qualified investors may include hedge funds in their portfolios in a small proportion of 5-10% to reduce risk and diversify investments. Hedge funds are investment funds that use a variety of sophisticated investment strategies to protect against risk and achieve high returns. They can use techniques such as short positions, leverage, derivatives, and others to make money in any market situation, including asset price declines. Such investments, however, usually involve high risks and are limited to qualified investors.

9. Most of the portfolio (80-90%) should be invested in stocks of large and successful companies with a good market reputation and good performance. A minor part of the portfolio (10-20%) can be allocated for investing in shares of less well-known companies that may have growth potential but can also be riskier. The primary tool for investing in stocks of large companies can be global indices such as the S& P 500, Nasdaq, Dow Jones, etc., which can be purchased through exchange-traded funds (ETFs).

10. No more than 10% of one’s portfolio can be allocated to active speculation. Still, it is a risky investment involving the rapid buying and selling of assets in search of short-term gains. This method of investing involves a high degree of risk and uncertainty, as short-term market fluctuations can lead to significant losses.

11. When compiling an investment portfolio for the crisis or any anti-crisis period, it is necessary to focus on the long-term perspective and not worry about short-term market fluctuations. This approach allows you to overcome temporary declines and profit over the long haul. In addition, it is essential to choose regular, quality companies to include in the portfolio to ensure long-term viability and stability.

What risks are waiting for the investor when investing in times of crisis?

Investors who invest in times of crisis face several risks. Some of them include:

• Market Risk: During an economic crisis, markets can fluctuate wildly and be volatile. This can significantly lead to significant losses for investors if they have not diversified their portfolios.
• Credit risk: during a crisis, companies and governments may experience financial difficulties, which increases the risk of defaulting on loans. This can lead to significant losses for investors who have invested in these companies or states.
• Liquidity: In times of crisis, markets can become less liquid, which means that investors may have trouble selling their investments. This can be particularly problematic for those needing quick investment access.
• Political risk: the political situation may change during a crisis, affecting the investment climate and increasing investor risks.
• Inflation risk: during a crisis, governments may start to issue more money to combat the crisis. This may lead to inflation, which will reduce money’s purchasing power and lead to investors' losses.

These risks can lead to significant losses for investors who do not take appropriate precautions. Therefore, investors should diversify their portfolios to mitigate risks, choose reliable and creditworthy issuers, monitor market liquidity, and consider macroeconomic factors such as inflation and political stability.

In addition, inflation increases the risk of long-term investments. This is because inflation can reduce the purchasing power of money in the future, reducing investment returns and even leading to a loss of capital.

For example, if you invest 10,000 $ in a 10-year bond with a fixed interest rate of 5% annually, you expect to get 500 $ in income yearly. However, if inflation rises to 4%, the actual return will only be 1%, which may not offset the risk of losing capital.

To reduce the risk of losses from inflation, investors may consider investing in assets that can protect them from inflation, such as inflation bonds, real estate, gold, or other commodities. Investors may also consider short-term investments that are not subject to inflation risks.

Investing in real estate in Cyprus in 2023: why this decision?

At the beginning of 2022, property prices in Cyprus continued their steady rise. According to the Cyprus Statistical Service, the average housing price in the country increased by 7,2% in 2021, and commercial real estate prices continue to rise. Moreover, Cyprus is the leader in Europe regarding the growth of house prices, which indicates a high demand for real estate in this country.

Moreover, Cyprus is among the few European countries actively returning to economic growth after the COVID-19 pandemic. According to the International Monetary Fund, Cyprus will be the 4th fastest-growing economy in the EU in 2021.

These factors, combined with the strong growth in demand for real estate in Cyprus, make this country attractive for investors looking for opportunities to diversify their investment portfolios.

For example, according to the Cyprus Society of Surveyors, in the first quarter of 2022, demand for housing in Cyprus increased by 80% compared with last year. In addition, the need for commercial real estate in Cyprus is also growing, especially in the retail and logistics sectors.

Therefore, investing in property in Cyprus during the economic crisis can be a profitable solution for investors looking for opportunities to diversify their portfolios. However, as always, assessing the risks and choosing the right property according to your investment objectives and capabilities is necessary.

What to invest in during the crisis: tips for the investor

Crisis periods can be unpredictable and volatile for investors, but some general tips can help in determining the best investment options:

• Diversify your portfolio: Don’t invest all your savings in one asset. It is essential to spread your investments across different assets to reduce risk.
• Invest in reliable and sustainable companies: In times of crisis, some companies may experience difficulties, but some can survive and even thrive. Explore companies that have stable revenues and a robust business model.
• Invest in real estate: Real estate is usually a stable asset that can protect your investment in times of crisis. Also, you can earn a steady passive income if you invest in rental real estate.
• Invest in gold or other precious metals: Gold and other precious metals are considered safe havens during economic crises. They can protect your investments if the stock or currency markets fall.
• Be careful with long-term investments: Crisis times can lead to market volatility, so you must be careful if you plan to make long-term investments.
• Cutting expenses can help you save money and not leave yourself without funds to live on during a crisis. This can include avoiding unnecessary costs and optimizing current expenses.
• Having a rainy-day airbag can help you cope with unexpected expenses during a crisis and avoid having to sell investments at the wrong time.
• Taking out loans during a crisis can become risky because repayment capacity may be limited, resulting in debt and increased debt.
• Learning about crisis investing techniques and strategies can help an investor reduce the risk of loss during a financial downturn.

It is essential to understand that investing always involves risk and that investors should be prepared to lose some or all of their investments. Therefore, it is always important to do your research and consult with experts before deciding to invest.

No matter what, there is no investment without risk. As legendary billionaire Ray Dalio, founder of Bridgewater Associates, said, «In times of crisis, you have to understand that some investments may lose value and some may become cheaper, but acting on emotion and selling investments that fall in value can be a mistake. It is important to have a diversified portfolio covering different types of risks and protecting your capital reliably.»

Also, read about what kind of business to open in Cyprus in 2023: according to analysts, some areas will be more profitable. Among them are not only tourism but also real estate or energy, as well as several other exciting areas.

An important aspect is the tax changes for 2023. Find out how to pay taxes in Cyprus in 2023, how the rates have changed, and what are the preferential programs and benefits for businesses.

SPM is your most valuable contact in Cyprus.

 

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