07.02.2023
According to a report released this week by the Central Bank of Cyprus, house prices in Cyprus continued to rise in the third quarter of 2022, mainly due to rising construction costs and increased demand from both foreign and local buyers.
According to the report, the central bank’s House Price Index (CPI), which refers to houses and apartments, continued its upward trend in the third quarter of 2022, up 2.1% from a 1.7% increase in the previous quarter. In addition, the index increased by 6.3% year-on-year, compared to a 4.7% increase in the second quarter of 2022.
The central bank explained that the main driver of rising house prices is still rising construction costs, coupled with increased demand, which has been well documented by real estate market analysts. In addition, real estate transactions also grew at an accelerated pace during the first nine months of 2022, according to data from the Department of Land and Surveys’ sales documents. This is primarily due to the annual increase in demand from both domestic and foreign investors.
Inflationary pressures, which have a significant impact on construction costs, continued throughout the third quarter of 2022, but did not have a significant negative impact on demand.
Moreover, an increase in borrowing costs due to an increase in the ECB’s key interest rate appears to have affected mortgage demand in the third quarter of 2022, which could affect future construction activity.
Contents
Sustainability despite market uncertainty
According to the central bank’s report, the house price index (CPI) rose 2.1% qoq in the third quarter of 2022, compared to a quarterly growth of 1.7% in the second quarter of the same year.
The increase in the housing price index was driven by a 2.2% quarter-on-quarter increase in apartment prices and a 2% increase in home prices over the same period.
On an annualized basis, home prices rose 6.3% in the third quarter of 2022, compared to 4.7% in the second quarter of 2022.
Apartment prices rose 8% year-on-year in the reporting quarter, while housing prices rose 5.2%.
The central bank noted that “the real estate market, despite the continued high uncertainty associated with external geopolitical events, is showing resilience, and housing prices continue to accelerate this quarter.”
“As in previous quarters, the growth is primarily due to rising construction costs, which is reflected in both apartment and house prices,” the central bank added.
In addition, the central bank also linked the increase in residential property prices to an increase in demand from both foreign and domestic investors, which is confirmed by the above data provided by the Department of Land and Geodetic Works.
Meanwhile, a slight increase in lending rates in the third quarter of 2022 has so far not affected deposit rates, keeping the real estate market as an attractive investment option, as the real estate market generates higher returns from property rentals than interest earned from deposits. .
The most important impulse for the demand for the purchase of real estate from foreign investors seems to have been caused by the arrival of many foreign professionals in Cyprus as a result of the transfer of the international headquarters of many companies to the island.
Companies that open offices in Cyprus are mainly active in the financial services, shipping, technology, information and communications sectors, and are concentrated in Limassol and Paphos. At the same time, Larnaca is also seeing an increase in activity in this market segment.
According to the Ministry of Energy, Trade and Industry, during 2022, more than a thousand companies with foreign participation were registered in Cyprus under the relevant resettlement scheme.
Housing prices have risen in all areas
In the third quarter of 2022, house prices rose in all areas compared to the previous quarter of the same year. In more detail, growth was 1.2% in Nicosia, 3% in Limassol, 1.2% in Larnaca, 2.6% in Paphos and 2.3% in Famagusta. In addition, the annual increase in house prices was recorded in all areas of Cyprus. In Nicosia, house prices rose by 4.4%, in Limassol by 8%, in Larnaca by 2.8%, in Paphos by 8.2% and in Famagusta by 8%. Moreover, quarterly housing prices rose in all districts.
In Nicosia, apartment prices increased by 1.3% compared to the previous quarter, in Limassol by 2.8%, in Larnaca by 0.6%, in Paphos by 2.6% and in Famagusta by 2.3%.
Year-on-year, house prices also rose in all areas. In particular, house prices in Nicosia, Limassol, Larnaca, Paphos and Famagusta rose by 4.1%, 6.7%, 1.1%, 7.4% and 6.5% respectively.
Apartment prices are rising quarterly in all provinces. In particular, in Nicosia they grew by 1.1% compared to the previous quarter, in Limassol – by 3.2%, in Larnaca – by 2.6%, in Paphos – by 3.3% and in Famagusta – by 2%. .6%. In addition, year-on-year apartment prices also rose in all districts.
In Nicosia, apartment prices rose by 4.9% year on year, in Limassol by 9%, in Larnaca by 7.2%, in Paphos by 11.9% and in Famagusta by 12.9%.
Real estate sales have grown significantly
Real estate sales continued to rise in the third quarter of 2022, up 33.8% year on year, according to the latest data from the Department of Land and Surveying.
A total of 3,347 properties were sold in the third quarter of 2022 compared to 2,502 in the corresponding quarter of 2021, reflecting increased demand for property. In addition, during the quarter under review, the number of properties sold to foreign buyers increased by 67.3% compared to the same period last year, and there were 1,506 such transactions compared to 900 in the same quarter of the previous year.
The report explains that this was driven by a 32% increase in purchases by EU residents, as well as a 104.1% increase in purchases by non-EU residents.
Overall, in the first nine months of 2022, the number of sales increased by 37.2% compared to 28.6% in the previous year.
The increase from local buyers was 17.4%, and from foreign investors there was a much larger increase of 76.7%.
According to market sources, demand from local investors has been focused on old properties ready to be let out, or even used properties that are likely to be bought at a lower price before refurbishment.
Along with an increase due to the relocation of the headquarters of international companies, the war in Ukraine continues to create demand in the real estate market from entrepreneurs and investors, both from Russia and Ukraine.
Higher interest rates negatively affected the demand for loans
At the same time, inflationary pressures and the resulting increase in the ECB’s key interest rates seem to have weighed on the demand for new housing loans.
According to the Monetary and Financial Statistics Report of the Central Bank of Cyprus, new home loans decreased by 12.3% year on year in the third quarter of 2022, as well as by 6.7% compared to the second quarter of 2022. the same year.
In total, new home loans amounted to €238.8 million in the third quarter of 2022, compared to €273 million in the third quarter of 2021 and €256.1 million in the second quarter of 2022.
In addition, according to the same report, the home loan interest rate continued to rise in the third quarter of 2022, averaging 2.72% during that time, compared to 2.27% in the second quarter of 2022. Moreover, further increases in mortgage rates are expected in the future, given the increase in ECB rates.
According to the related Banking Sector Review, lending criteria tightened in the third quarter of 2022 compared to the previous quarter.
Finally, according to data provided by the Cypriot Statistical Office (Cystat), the number of residential units for which building permits have been approved, which is a preliminary indicator of construction activity, recorded a decline of 7.3% year-on-year between January and September 2022.
