27.11.2022
The skyrocketing cost of living and higher interest rates threaten to negate the real estate sector’s recovery, say local stakeholders who want the government to intervene.
A real estate consultant for the Danos/BNPRE group, said interest rate hikes happen when the market picks up momentum, forming a positive trend.
She said real estate players have already seen a drop in demand in the housing market due to rising inflation and interest rates.
“After the lifting of the strict measures against COVID, we are seeing an increase in the market, mainly due to the interest of local residents and foreign investors in housing and office space,” said Averkiu.
The recent rise in interest rates will hit savers and anyone else who wants to borrow money, which will affect the cost of mortgages.
However, as she pointed out, this trend is currently on hold as Cypriots in the housing market are pulling out due to the rising cost of living.
Until the summer, the key rate was negative; there have already been three hikes to 2%, while the European Central Bank is expected to raise rates during its Board of Governors meeting on 15 December.
This will make it harder to access credit as analysts at the European Central Bank report that borrowing will be significantly more expensive.
“Mortgage interest rates have risen significantly in the first half of this year, which could particularly affect home prices and real estate investment,” Phileleftheros daily quotes researchers from the European Central Bank.
“At a time when the ECB is raising interest rates, models suggest that a one percentage point increase in mortgage rates could lead to prices falling by about 9% in two years,” the researchers note.
Danos believes that the market is still growing thanks to locals and foreigners with cash in their pockets.
“This source of buyers will soon dry up, leaving the industry looking for buyers.
“Currently, the market is supported by interest in one- and two-bedroom apartments in up-and-coming urban areas, mainly from people with money who want to make investments,” Averkiu said.
Redemption rights
She argued that the authorities should step in to take action to help unlock the sector.
Averkiou said the only thing the authorities have to do is find ways to overcome the permanent freeze imposed by parliament on the foreclosure law.
“MPs need to rethink their policies as the permanent renewal of the moratorium on foreclosure blocks NPL-related real estate from re-entering the market and makes banks less willing to issue new home loans.”
In addition, she suggested, the government should revise its building ratio policy, allowing developers to build more floors and apartments and thus be able to offer lower prices.
In 2023, the average house price in Cyprus is expected to fall for the first time in two years, Danos said.
Asked if now is the right time to buy a house for someone with money, a Danos spokeswoman said that this period is favorable for those who are looking for a home and do not need a mortgage.
Meanwhile, the main opposition party, AKEL, has criticized the government for not taking action to ease the pressure on society from the interest rate hike. She argues that this increase has led low-income households to despair as they cannot make their mortgage payments as their monthly payments rise.
AKEL spokesman Charis Polikarpou said: “The State should, in cooperation with the Central Bank of Cyprus, enforce the infamous Loan Restructuring Code to find solutions to temporarily alleviate the situation of low-income borrowers.” He said solutions include extending the loan repayment period or even paying an extra amount at the end of the loan.
The Communist Party wants the government to persuade the banks to funnel any windfall from higher interest rates back into the economy. “We note that in Spain the government has even taken the decision to tax the windfall of banks from higher interest rates,” Polikarpou said.
