The Central Bank of Cyprus has expressed concern about the skyrocketing prices of building materials, which has led to a rapid rise in construction costs to new highs and a further rise in property prices.
In its December update on the island’s economy, the CBC noted that the real estate market will need to be closely monitored to keep house prices from falling due to rising construction costs.
The Monthly Financial Bulletin states that “heightened demand from domestic buyers is being fueled by a continued low interest rate environment, while relatively tight lending criteria indicate that, to a large extent, new mortgage lending will continue to be viable.”
It notes that a significant role in the growth in housing prices was played by the rise in the price of building materials, especially in the third quarter of 2021.
“This makes it especially important to constantly monitor the real estate market to determine the extent to which this will affect prices in this sector and its recovery,” the CBC said in a statement.
Real estate stakeholders said the unprecedented rise in the cost of building materials is pushing up new property prices by more than 20%.
The central bank said it will monitor how the rising cost of building materials interacts with the island’s epidemiological data and efforts by commercial banks to dispose of assets from foreclosures and debt-to-asset transactions. According to the CBC, house prices in Cyprus rose in the first half of 2021, especially for apartments, in contrast to commercial property prices, which declined over the same period.
House prices rose in the first and second quarter
In the first and second quarters of 2021, house prices recorded quarterly increases of 0.5% and 0.3%, respectively, according to the CBC Residential Property Price Index (RPPI) data.
On the other hand, according to the RICS Cyprus index, prices in stores, warehouses and offices decreased in the first half of 2021 by 5.2%, 4.3% and 0.9% respectively.
Apartment sales were the driving force behind house price increases in the third quarter, according to preliminary CBC data.
“This upward trend in prices is supported by the government’s partial interest rate subsidy scheme for new mortgages and low interest rates in the domestic market. Also, by encouraging investments and benefits for the head offices of high-tech companies, as well as a program for obtaining a permanent residence permit in Cyprus through the purchase of real estate by foreign investors, ”the message says.
As the CBC notes, rising house prices are in line with broader macroeconomic developments, such as the island’s GDP growth rate.
More recent figures, such as the European Commission Economic Outlook index of property price expectations for the next three months, are in line with the uptrend in the sector, recording a positive sign in the first half of 2021.
Nicosia is the main source of real estate recovery
Once again, Nicosia has been the driving force behind the recovery of the industry following the end of the citizenship by investment program at the end of 2020, which has supported a burgeoning construction and real estate sector in recent years.
During the first ten months of 2021, property sales recorded an annual increase across the island of 21.6%, corresponding to an annual increase in sales to domestic and foreign buyers of 29.4% and 9% respectively.
Compared to the first ten months of the coronavirus-hit 2020, sales in the capital are up a whopping 37.6%. More strikingly, sales in Nicosia are up 38% compared to the same period in 2019.
Although they didn’t reach the level of performance until 2008, before the real estate crisis hit, real estate sales figures have been rising in recent years and the market has stabilized at its highest level in more than a decade. Property prices in Cyprus recovered by 87% compared to the first quarter of 2008, according to a recent bulletin from the rating agency DBRS.