Real estate agents in Limassol and Paphos are reporting the highest demand from foreign buyers and Cypriots for homes since 2020, when the government ended the disgraced citizenship-by-investment scheme.
The boom comes amid a global crisis as the war rages in Ukraine and sanctions hit Russian investors, who until 2020 were the number one buyers of properties in Limassol and Paphos.
Esme Palace, Attorney Partner at Michael Kyprianou and Co LLC, Paphos, said the number of foreign nationals looking to buy property in the city has skyrocketed. She said the influx of demand is driven mainly by British expats looking for a nursing home , Israelis and Germans looking to relocate.
“Sales in Paphos are growing. This is the biggest traffic we have seen in recent years as our clientele is growing rapidly as more foreigners are looking for a home on the island,” Palace said.
It may be too early to draw conclusions about how long the boom will last, but “it will definitely boost the Paphos real estate sector in 2022.”
“This is the biggest move we have seen in the local market since the termination of the citizenship by investment scheme, which also coincided with two years of inactivity due to COVID restrictions.”
Most properties sold in recent months have been sold to non-EU citizens.
According to land registry data compiled by real estate analyst Nigel Howarth, the largest number of sales were recorded in Limassol, followed by Paphos, Larnaca, Famagusta and Nicosia.
Total sales for the first five months of 2022 reached 5,090 units, up 42% from 3,577 units achieved in the same period of 2021.
In Paphos, the growth was 80%, with 1080 sales registered from January to May.
Total property sales to foreigners are up 94% compared to May 2021, with sales up in all areas except Nicosia.
In Paphos, sales to foreigners grew by 113% in the first five months compared to last year, as 746 sales documents were filed with the Land Registry.
Of the 746 properties sold, 415 were bought by non-EU citizens and non-EU citizens bought 186 in the first five months of 2021.
Palace said the increase in sales is due to the lifting of COVID restrictions.
“People looking to buy residential property for investment or looking for a home for their family are keen to do so as quickly as possible before prices rise.”
Construction costs have risen nearly 20% in the last year and many people are choosing to buy now as there are signs that prices will only rise.
“We have seen a large number of UK retirees looking to buy new property, as opposed to what we have seen in the past where expats preferred used property.”
Eleni Averkiou, real estate consultant for Danos/BNPRE Group, said the island’s west coast is a real estate hotspot.
“In recent months we have seen an increase in sales and interest in properties in Limassol and Paphos.
“Not only to outsiders, but also to real estate agents, it may seem strange that in a global crisis, when the inflation rate has reached its highest peak in four decades, real estate sales will increase,” Averkiu said.
She said: “What’s interesting is that we have a lot of demand from Russian-speaking clients and people from Ukraine.”
She noted that demand has been boosted by non-EU citizens seeking residence permits.
Stimulating demand is due to the post-COVID restart of the market, while real estate agents say buyers are looking to put their money to good use during a time of high inflation.
“Keeping money in the bank under these conditions does not make much financial sense, so people with money prefer to invest in assets that will not depreciate,” Averkiu said.
She also argued that buyers are following the development of the market and are aware of another aspect that could drive prices up.
MPs will soon incorporate a European Union directive into local law to reduce the size of homes eligible for a lower 5% VAT.
“This will definitely happen as failure to do so could result in sanctions from the European Union.”
An EU directive obliges member states to introduce legislation on a 5% VAT rate on houses up to 140 square meters.
In Cyprus, a reduced VAT rate of 5% applies to houses up to 200 sq.m.
“The construction industry objected to this, noting that the new directive would lead to an increase in construction costs, which are already rising due to a 15-20% increase in the cost of building materials,” Averkiu said.
According to the new law, houses with an area of more than 140 square meters. m are subject to the standard VAT rate of 19% for each square meter in excess of the limit.
But a home over 200 square meters will not be eligible for the lower 5% VAT rate, but will instead incur 19% for the entire project.
This is currently applicable for homes larger than 275 square meters.
In earlier comments to the Financial Mirror, the chairman of the Cyprus Technical Chamber (ETEK), Konstantinos Constanti, stated that the construction of the 201 sq. m will cost an additional 42,000 euros.
“Today, the average cost of building such a house will be about 315,000 euros, and VAT – 15,000 euros.
“If the directive is passed, couples will be asked to pay €42,000 on top of the original €15,000,” Constanti said.
A source at one of the Big Four accounting firms confirmed the boom on the west coast, but warned against getting carried away with increased sales.
The source, not wanting to reveal his identity, said that the market is unstable due to the events in Ukraine and subsequent sanctions against Russian interests, as the cost of construction has not yet stabilized.
“We’d rather wait a few more months before jumping to conclusions about where the market is heading.”