07.11.2022
During a recent discussion between a young developer and a real estate agent, new conditions in the real estate market came into focus. It was early morning in the popular Yermasogeia area of Limassol. The area was full of life, some enjoyed walking, some jogging, some cycling. Two specialists discussed the possibility of buying a plot of land. While it would be mutually beneficial to reach an agreement, at one point the real estate agent asked, “Aren’t you afraid of what’s going on? Cost of energy and raw materials, inflationary pressure?” The young developer replied: “Look at all these people around us. They love this place. Real estate always moves in cycles. Surely better days will come.”
The real estate sector is undoubtedly one of the three main sectors on which the Cyprus economy has been based for many years. This is a sector that has become a mainstay of the country’s economy during difficult times, contributing greatly to the efforts to return Cyprus to the path of recovery. Even during the difficult two years of the pandemic, facing unprecedented challenges, the real estate sector has managed to weather the turmoil, reduce dependence on the Russian market and emerge from a severe pandemic crisis.
Unfortunately, with the end of the pandemic, the global economy has faced even greater difficulties, and Cyprus real estate is no exception. Rising inflation, rising energy and construction prices, and higher interest rates on home loans are causing serious concerns about the next day in the real estate sector. We are already counting the first losses: due to the high cost of construction, 25% of the apartments that were supposed to be built in our country in 2022 were suspended or canceled in the face of a limited supply of real estate for sale.
While the upward trend in home prices reduces the risk of banks financing mortgage loans, there are factors such as inflation, rising interest rates and lower consumer confidence that could reduce the interest of banks in mortgage loans, as well as reduce domestic demand.
Looking to the future
The current real estate situation raises reasonable concerns among developers about what should be done and whether there are still opportunities and prospects in this sector. Despite the seemingly unfavorable conditions, I am convinced that the picture is far from bleak. Ensuring business continuity in the sector depends on how its management perceives the prevailing market conditions and how it responds to new challenges. After all, it’s a longstanding fact that pessimists don’t survive in the investment world.
Faced with major challenges, it is important that businesses in our industry can see beyond the nose and anticipate future trends so they can respond to new realities while reducing risk. Of course, this is not always possible, as uncertain factors and unforeseen events can suddenly change the landscape again, signaling new risks. But we must not forget that the economy consists of cycles, which are characterized by ups and downs. After all, a healthy economy grows and thrives, and markets recover and move higher for long periods of time. If irresponsibility is seen as the enemy of investments during booming markets, fear is their worst enemy when they face difficulties.
In either case, the winner is the entrepreneur/investor who carefully considers long-term benefits and confidently invests in areas that can generate attractive risk-adjusted returns. After all, even in times of crisis, real estate has always been a reliable investment with stable returns in the future.
In summary, the real estate sector in Cyprus is currently facing new challenges. How to behave in a new situation depends on each entrepreneur. However, we must remember that a healthy economy has mechanisms to return to normal and, most importantly, problems also create opportunities. Such situations should be treated calmly and, above all, with optimism and wit.
Yiannis Misirlis is the Founding Director of Imperio, Vice Chairman of the Cyprus Land and Building Developers Association (LBDA), Chairman of the Cyprus Chamber of Commerce and Industry Real Estate Committee and Member of the Board of Directors of the Limassol Chamber of Commerce and Industry.
