30.04.2023
According to a report by Ask Real estate technology firm Wire, property prices in Cyprus rose 12.3% year-on-year for apartments and 3.1% for houses this week in the first three months of 2023 . In addition, prices for offices increased by 2.4%, for country apartments – by 8%, for country houses – by 3.1%. Only store and warehouse prices declined, dropping 0.1% and 1.8% respectively.
Rent increases have also been increased. Compared to the first quarter of 2022, the rent for apartments increased by 19%, houses – by 12.2%, shops – by 3.3%, warehouses – by 1%, offices – by 7.5%. In addition, in a shorter time frame, rents increased by 2.6% quarter-on-quarter for apartments and 1.5% for houses.
This rise in prices is attributed to an increase in demand driven by a significant influx of foreign professionals, a trend that began in the previous decade but has increased dramatically since the collapse of the Lebanese economy in 2020 and the war in Ukraine. Over the past couple of years, thousands of Lebanese, Ukrainians, Russians, Belarusians and others have arrived in Cyprus. Many Israelis have also moved to the island, primarily for professional reasons.
As a result, rents and property prices have become unaffordable for many Cypriots, a situation exacerbated by high inflation that has eroded disposable income. Rents in Limassol have risen so much over the past few years that many Cypriots are now looking for accommodation in nearby villages.
Alarmed by what is happening, Cypriot real estate professionals called on the government to intervene, despite the fact that the sector itself has benefited from the situation.
The lower ability to acquire from Cypriots has already begun to be reflected in the real estate market, said Marinos , President of the Board of Registration of Real Estate Agents Kineiro .
“These factors, as we have warned in the past, have weakened the ability of households to purchase, seriously weakening the ability to purchase housing, whether it be an apartment or a house. At the same time, whatever form of regulation the government eventually takes on the thorny issue of the reduced 5% VAT rate will affect demand for real estate and, consequently, new home purchases in the near future. Targeted government intervention is needed both to support citizens and to support the real estate sector.”
The reality is that there is no long-term public housing policy. With the exception of the refugee settlements built after the Turkish invasion, social housing has never been part of public policy.
Managing Director of Paphos-based real estate company Property Canvas Christos Nicolau said the migration patterns of recent years and their well-established side effects on the market are far from transient and require the government to take the matter seriously.
Individuals who have recently moved to Cyprus, working on the Internet or in fintech companies, “have not only invested their time and effort in the country’s development, but also invested heavily in the local real estate market,” he told Cyprus Mail , “meaning they are likely to stay in Cyprus for a long time.”
As a result, unless there is government intervention, it is unlikely that real estate prices will drop significantly in the near future, Nicolau said. He also noted that the rise in prices is further exacerbated by real estate investors, whose main goal is to ensure a good return on their investment. Nicolau said the increase in rental prices has had a direct impact on the sales market as foreign investors seek to buy properties that generate approximately 6% returns.
“Property rental income is a key determinant of property value as investors are willing to pay more for apartments that can be rented out at a higher price. For example, if an apartment can be rented for 1,000 euros per month, investors are willing to pay up to 200,000 euros for it.” However , if the same apartment can be rented for as little as 500 euros per month, the investor is only willing to pay up to 100,000 euros,” he added. According to him, this highlights the close relationship between rental prices and sale prices in the real estate market.
Ask CEO Wire Pavlos Loizou explained that historically Cyprus has addressed the issue of housing by increasing the availability of land for residential development through rezoning. But he said the approach was not effective in incentivizing landowners to develop unused land and increased the likelihood that the government would fine owners of vacant lots.
“Before exploring other options, it is clear that adding residential land through rezoning will not help unless the owners of such land are forced to develop it,” Loizou said . “There are thousands of empty or undeveloped plots in Cypriot cities whose owners have no reason to develop them, as there is no penalty in the form of any form of taxation for remaining empty,” he said.
Loizou explained that the government has many options for solving the housing problem. These include building residential buildings on their own or through joint ventures with private companies, having rent-regulated housing and renting it out to eligible tenants, implementing buy-to-let schemes, and selling public social housing.
“Ultimately, the role of government in housing should be to ensure that everyone has access to safe, affordable and decent housing,” he said. By working in partnership with private developers, housing associations and tenants, the government can provide a range of housing options to meet the diverse needs of citizens, Loizou said . “This requires a long-term commitment to housing policy and investment in the development, management and maintenance of the housing stock,” he said.
Nicolau believes that even in the absence of a housing policy, the government may need to take some measures to regulate the real estate market. “Such measures may include the introduction of additional restrictions on foreign investment or the introduction of incentives to encourage investment in other sectors of the economy. However , if such measures are not taken, it is expected that the property market in Cyprus will remain stable and prices will continue to reflect demand from both local and foreign buyers,” he concluded.
