07.10.2023
Foreign buyers continue to be the driving force behind Cyprus’ property sector as coastal towns see an influx of demand driven by a growing trend of large companies relocating to the island, EY research shows. This trend is expected to continue as foreign nationals buy homes in coastal areas, especially after the war in Ukraine.
According to an EY Cyprus report, 2022 was a busy year for the property sector, with total sales value exceeding €4.2 billion (up 31%) and transaction volume exceeding 20,000 (up 13% year-on-year).
According to the Land Registry, almost half of the sales documents were submitted by foreigners. Foreign buyers have led the market in recent years, submitting more than 40% of sales contracts. In 2018, 48.5% of contracts were submitted by non-EU citizens; in 2019 – 44.5%; in 2020, this percentage reached 41.3%.
The share of foreign buyers fell to 39.9% in 2021, rising to 44.9% last year. In the first quarter of this year it was 44.5%.
Although the war in Ukraine and subsequent restrictions on Russian-related investment and travel bans are projected to have a significant negative impact on the real estate market, it has proven more resilient.
As noted in the EY study, approximately 10,000+ professionals from Ukraine and other CIS countries (together with other household members, estimated at about 24,000 people) moved to Cyprus, which increased the demand for housing and led to rising rents and prices in certain areas.
The number of Cypriot buyers is declining due to rising construction costs and rising interest rates.
Cyprus uses various schemes to encourage the relocation of foreign companies, increase foreign direct investment (FDI) activity and attract international talent.
“Lessons have also been learned from the cancellation of the Cyprus Investment Program (CIP), leading to adjustments to schemes and increased diligence,” the report said.
The Investor Immigration Permit, or golden visa scheme as it is also known, is gaining popularity after the government withdrew the CIP in 2020.
Persons from third countries purchasing real estate worth more than 300,000 euros can obtain a permanent residence permit in an accelerated manner.
The criteria have recently been revised and scrutinized to address any shortcomings by introducing checks and verification mechanisms to avoid exploitation of the scheme.
As high-tech companies relocate, a fast-track work permit scheme for third-country company employees relocating to Cyprus is gaining momentum.
Inflation is expected to stabilize but remain high for the foreseeable future. High levels of inflation will continue to weigh on construction price indices, rents and house prices, eroding the purchasing power of potential buyers.
Apartments are in high demand
“It is clear that apartments remain the most popular asset class by volume and value (49% and 50% of the total respectively).
Houses come in second with 20% by volume and 25% by value, followed by land assets (combined at 25% of total volume and 20% of total value).
On the other hand, offices account for only 1% of the island’s total transaction volume and 4% of the total value.
Stores account for only 1% of total transactions by volume and value.
Other types of real estate (gyms, plantations, vineyards) account for 4% of the total volume and 7% of the total transaction value.
Looking at the compound annual growth rate (CAGR) of individual districts over 10 years (2013–2022), Limassol showed the most significant increase in transaction value at 14.4%, followed by Famagusta with 12.8%, then Nicosia with 11 .1% and Larnaca with 10.5%. Pathos showed the lowest growth in transaction value – 8.9%.
Limassol led the way with an 11.2% increase in transaction volume, followed by Nicosia with 10.5% and Larnaca with 8.7%. Famagusta and Paphos had more modest growth rates of 7.2% and 6.1% respectively.
Focusing on the most recent full year (2022), Famagusta , Limassol and Larnaca saw impressive double-digit growth rates in transaction values compared to 2021 (39%, 36% and 33% respectively). Nicosia saw the smallest increase, with a slight increase of 2%. Paphos, on the other hand, recorded the highest growth at an impressive 70%.
The increase in rents in 2022 was more noticeable than the increase in sales prices. This is due to increased demand from both Cypriots and foreigners.
Apartments and houses led the way in rent growth, increasing year-over-year by 15% and 11%, respectively. Apartments and houses have also grown by 5% annually over the past 10 years. Office rent growth slowed but held steady at 0.2% year over year, while retail and warehouse rents fell marginally at 0.2%.
These figures reflect trends in online shopping, shrinking physical store space and remote working.
Prospects
EY examined the number of building permits to determine the future of the property sector, noting that these are the last permits that need to be issued before any construction work begins.
“Consequently, this is not considered an ‘opportunistic’ approval, but rather an implementation authorization issued only for projects that are likely to proceed,” EY said.
Building permit statistics are a key indicator of market performance, with data for 2022 showing a slight decline in construction activity. The number of building permits has increased by 5% over the past five years. Last year, there was a 7% decrease in the total number of permits issued, but their values remained at approximately the same level.
“The reduction in permits in 2022 may reflect concerns about changing buyer behavior and falling demand due to prolonged periods of inflation and high interest rates.”
Residential assets account for three out of four permits issued. Multifamily buildings make up about 14% of total building permits, while 73% are single-family homes. Building permits issued for office space account for approximately 9% of the total.
