EU bailout or not, Russian cash in Cyprus to stay

PUBLISHED : Thursday, 15 November, 2012, 12:00pm
UPDATED : Thursday, 15 November, 2012, 12:00pm

Property advertisements in Cyrillic letters, Russian radio and newspapers and even schools in the coastal resort of Limassol spell out the identity of Cyprus’s top foreign investors.

The allegedly dubious sources of Russian deposits in Cypriot banks, which total US$26 billion, well over Cyprus’s GDP of US$17 billion, are pipped as a potential cause for economic difficulty for the small Mediterranean island.

A German intelligence report cited by Der Spiegel magazine last week alleged an EU bailout for Cyprus would prop up illegal Russian mafia money, presenting a dilemma for European finance ministers.

Russian buyers maintain a significant presence on the strong luxury property market and individual investors, millionaires or not, are firmly rooted on the sunny holiday island.

“Demand at prime developments is entirely driven by international buyers. In the 500,000 to 2 million euro (US$635,000 to US$2.54 million) price bracket, the market is made up mainly of Russian and other European buyers,” Peter Christofi of Antonis Loizou estate agents told AFP.

“The very top end -- over 2 million euros -- attracts buyers from Russia and other CIS countries” of the former Soviet Union, he added.

Many Russians are here for the long term, taking Cypriot citizenship and settling down, and are providing important economic activity for the island, even those not in the millionaire bracket.

“I really fell in love with the place,” said Karina Luneva, who moved to Cyprus to work and study, and bought a property seven years ago.

She was full of praise for the island’s “beautiful climate, friendly people, nice environment... and low crime rate,” and said she would not return to settle in Russia.

Christofi cited safety, education and medical treatment as popular reasons for buying property. “A notable number of buyers plan to move abroad for permanent residence,” he added.

An estimated 50,000 Russians reside in the Greek Cypriot-run Republic of Cyprus, making up five per cent of the population of more than 800,000. A smaller community lives in the breakaway Turkish Cypriot north of the island.

“Russian women marrying (Cypriots)... and rich Russians” are the ones taking Cyprus nationality, Luneva said.

Anyone who spends more than 300,000 euros on a property in Cyprus becomes eligible for permanent residency.

Andreas Theophanous, an economist at Nicosia University, said he was not concerned about the impact of the Spiegel report.

“We have all the regulations and legal framework” needed to ensure Russia’s Cyprus investments are sound -- regulations whose efficacity is disputed in EU circles.
Theophanous emphasized the “cultural relationship” between Russia and Cyprus as a reason other than the low corporate tax rate of 10 percent that the foreign funds would remain.
The Greek Cypriots and Russians share the Orthodox Church, and several Cypriot politicians, including President Demetris Christofias, are Moscow-educated.
Moscow signed a 2.5 billion euro loan with Nicosia last year.
Although it has been relatively mute on a further 5 billion euros requested in June, Spiegel pointed out, a Cyprus financial collapse is not in its interest, and Russia wants to support the island to protect its investments.
Russian direct investments in Cyprus have steadily grown, reaching almost 1.5 billion euros (US$2 billion) in 2011, according to figures given to AFP by the Central Bank. Cypriot investment in Russia was over 600 million euros (US$760 million).
And there is more Russian money on the horizon.
A report in Cyprus newspaper Alithia said the country was in talks to obtain a loan worth 1 billion euros from Russian banks for offshore oil and gas exploration, months ahead of an energy conference designed to draw investors to explore off the island’s coast.