Despite the fact that prices for the sale and rental of apartments are gradually rising, the focus is not on taking measures to solve the problem, says Imperio director Giannis Misirlis.
In an interview with InBusinessNews, Mr. Misirlis stressed that while prices will be market-driven in the long run, until then, the state must provide the necessary incentives to reverse the current supply squeeze. In this way, he emphasizes, the increased demand will be satisfied and, consequently, prices will be reduced.
The official statistics of recent months fixes the rise in prices for apartments. What factors contribute to the increase in prices for apartments compared to private houses?
It is clear that rising apartment prices are a serious problem, especially for young couples who, due to general economic circumstances, are not able to acquire their own housing. In order to find a solution, we must look deeper and ask ourselves what are the real reasons why the prices of these properties are rising rapidly, as evidenced by the relevant Central Bank (CB) index.
The recent Central Bank report on the housing price index, as well as related press releases, partially analyze the problem, acknowledging only some of the factors contributing to its mitigation, for example, that we should pay attention to the pace of growth in housing prices, building materials, etc. However, unfortunately, the biggest and perhaps the most important driver of price increases is not recognized: the reduction in the supply of suitable real estate.
No one paid attention to the fact that for many years the supply of apartments has been less than demand. And I mention this to emphasize that under the current market conditions, even more supply reduction is expected in the next three to four years, as many projects that were planned for implementation are now postponed until later.
How will the market consolidate?
I am a free market believer and believe that the market will fix itself in the long run. However, if the conditions are not correct, it may take a long time before this correction is made. And here, limited state intervention is required to correct any “distortions”.
Take, for example, Limassol. If you carefully study the Limassol market, you will notice that in recent years the rent has increased dramatically. And since the Central Bank compares the growth rate of prices with the average growth rate of the Cypriot economy, the rent has increased much more than the average growth rate of the Cypriot economy over the past five years.
The market will correct this distortion in the long run. However, given the small size of the local market, it may take another four to five years to reach the desired price level. Until then, however, tenants will continue to suffer through high rents. That is why government intervention is required until rents are regulated by the market.
Measures a State Can Take
What measures could the state take in this direction?
Incentives need to be created to encourage and enable the private sector to produce more high demand properties such as apartments. An increase in supply will also solve the problem of high rents. The private and public sectors must work together to create the right conditions so that the real estate market is consolidated and there is enough real estate at affordable prices, as well as the right financing conditions so that homeownership is not the privilege of a few.
In addition, conditions should be created for the rental market that are conducive to the existence of institutional investors in real estate, which is not the case in the Cyprus rental market compared to similar markets abroad. Creating the right conditions for institutional investors to invest in a large number of apartments with the obligation to sell them on the rental market solves the problem of high rents, as a higher supply will curb the upward trend in prices and/or may drive them down.