08.04.2023
Cypriots are being squeezed out of the property market as they cannot afford rising rents, and construction costs and interest rates make houses unaffordable.
Panos Danos FRIX, CEO of DANOS International property Consultants & Valuers , argues that despite a significant recovery in the real estate market and uncertainty caused by the energy crisis, the market remains tough.
Danos noted that the increase in construction costs by more than 20% and the increase in mortgage rates have prompted Cypriot households to think twice before taking out loans and mortgages to buy their dream home, as demand for mortgages has fallen.
“The Cypriot economy did not remain completely unscathed: inflation was rising here, as elsewhere, especially affecting more vulnerable groups,” Danos commented .
A veteran property marketer claims that many Cypriots are being marginalized as renting an apartment or house has become a nightmare, especially in Limassol and the capital Nicosia. He explained that the ever-increasing number of high-tech and fintech companies moving to Cyprus, benefiting the economy, makes it difficult for local residents to find housing.
“These companies bring their employees with them, who have higher salaries and can afford higher rents. Employees of these companies generally prefer newer properties, taking them off the market for lower income Cypriots. It seems that in all cities of Cyprus the demand exceeds the supply. Especially in Nicosia and Limassol , any new residential project is sold on paper and during the construction period, and there are few apartments for rent at a reasonable price,” Danos said .
According to him, renting a one-bedroom apartment in Limassol costs at least 800 euros per month, and a two-bedroom apartment will cost the family budget no less than 1,300 euros. It is almost impossible to rent a three-room apartment in this area on a Cypriot salary, as the rent is about 1,700 euros per month.
Commenting on the options for a young Cypriot couple to buy property in Limassol , Danos said they are very limited. “Most of the new buildings are being bought by employees of high-tech companies moving to Cyprus, or by foreign investors as an investment or to obtain a residence permit.”
according to Danos , as prices have also skyrocketed. Renting a one-room apartment in good condition can cost from €550-700. People with less money, such as students, will be lucky if they get a 35 square meter studio for around 400 euros.
For a two-room apartment in the capital, a family will need from 750 to 900 euros. For example, an apartment of 85 square meters in the suburb of Engomi costs 900 euros per month. Those who are looking for more space and want to rent a three-bedroom apartment in Nicosia will spend approximately 900-1500 euros.
Moving building to the suburbs
Residents of Nicosia looking for cheaper alternatives must move to suburbs such as Lakatamia , where rents are cheaper. One-bedroom apartments cost from 500 to 600 euros per month, two-bedroom apartments from 700-800 euros, and three-bedroom apartments from 900 to 1000 euros.
“These prices are pushing Cypriots out of the market as wages have stagnated for years. This is where the government needs to intervene by re-evaluating its policies on affordable housing and benefits.”
The minimum monthly wage in Cyprus is set at 940 euros.
“We have been looking for new apartments to add to our list, but they will be available in at least ten months,” Danos said , highlighting the imbalance between supply and demand.
EU directives stipulate that from 2033 a building sold must have a class A energy efficiency certificate , making buyers skeptical about investing in older buildings.
Chairman of the Cyprus Developers Association Michalis Hadjipanyotu said the sector’s recovery will be tested by a lack of supply in the coming years.
Last year, the value of transactions reached 4.18 billion euros and sales documents reached 13,409, which is 13% more than in 2021 and 34% more than in 2020.
“If we consider that in the same year there was a decrease in the issuance of new building permits by about 7%, the effect on the market will be strong, since building permits are an important indicator of future activity in the construction sector. Simply put, there will still be high demand and low supply of real estate, which, combined with a huge increase in the prices of building materials, will lead to new price increases,” Hadjipanayotou said . “It is only by increasing the supply of real estate that prices can be reduced,” he added. He said the association has asked the government to reconsider changes to its taxation policy for new homes. “In times like today, especially when the middle class is under pressure, imposing new property taxes is the wrong choice, with negative economic and social consequences.”
The EU directive requires member states to introduce 5% VAT on houses up to 140 square meters. According to the bill proposed by the Ministry of Finance, houses with an area of more than 170 square meters will be subject to the standard VAT rate of 19% for each square meter above the limit of up to 200 square meters. But a house larger than 220 square meters is not eligible for the lower VAT rate of 5%, but is instead subject to 19% for the entire project.
For apartments, only the first 90 square meters of a 110 square meter apartment will be taxed at a rate of 5% VAT.
This currently applies to houses and apartments over 275 square meters.
“The government and parliament should review the proposed legislation so that the purchase of the first residence does not become prohibitive. Under the current proposal, for example, a couple buying an apartment worth €201,000 will pay €38,000 VAT, while today they will pay €10,000 if it is a first home,” Hadjipanayotu explained .
