31.12.2022
The Cyprus real estate sector is stabilizing after hitting a record number of sales since 2008 as the post-pandemic growth trend is halted by rising construction costs and interest rates.
In the first 11 months of 2022, 12,074 sale documents were filed, compared to 9,063 last year, a 33% increase, according to Land Registry data. This is the best eleven-month period since 2008, when total sales reached 14,043 units. According to analysts’ forecasts, the year will end with more than 13,000 sales.
However, a slowdown was recorded in November, and experts expected that the market would go through a period of stabilization in the next couple of years. George Muskides , Chairman of the Cyprus Property Owners Association, said that the expectations of stakeholders in the sector for the coming years are not high.
“The increase in building materials has driven up building and renovation costs, coupled with rising interest rates, which is keeping sector stakeholders from having high expectations,” Muskides said . He recalled that construction costs are estimated to have risen by more than 20%, which is reflected in prices, arguing that prices would rise were it not for the increase in supply.
With reports that mortgage interest rates could hit 5% from 2.5% by the end of next year, this may not affect the initial capital required to buy a home, but it will affect its value to the buyer. “However, here we face another difficulty, as it is difficult for banks to issue loans, and when they do, they take too long to approve them, alienating interested couples.”
Muskides said the sector is puzzled by how banks are handling new loan applications given the high levels of liquidity.
According to the Central Bank of Cyprus, total loans continued their downward trend for the fifth month in a row, falling to 27.1 billion euros, while total liquidity in the system stood at 24.6 billion euros.
“On the other hand, the surge in demand for rental housing, caused by the reluctance of banks to issue loans, and the influx of highly qualified personnel, mainly in the field of IT and Fintech , makes the option of buying a home more attractive.”
High tech
Mouskides said the headquarters’ government scheme to attract high-tech companies to move to Cyprus has paid off.
“These companies and their employees bring real business to the island as they are involved in every aspect of the island’s society and economy, from buying clothes to renting an apartment. Moreover, those who thought that the abolition of the citizenship by investment program two years ago would put an end to the interest of foreigners in buying real estate were mistaken.
He explained that real estate agents are seeing increased demand from expats looking to buy property on the island, especially in coastal towns, with demand from Lebanese and Israelis rising in recent months.
“So this demand also counterbalanced the increase in supply. However, we expect growth to slow down as developers may change their minds about continuing with new projects.”
Panos Danos FRIX , CEO of DANOS International property Consultants & Valuers , said he expects property inventories in Cyprus to remain relatively high in 2023.
“However, mortgage rates will remain high and it will still be difficult for banks to negotiate loans.” This may mean that sellers may make less profit, but they will most likely still make a profit.
“It is unlikely that 2023 will be a major turning point for the Cyprus property market. Buyer demand is not expected to rise sharply, and sellers are not going to drastically change prices.”
Danos said the real estate market and prices will influence supply and demand, and investors still view the real estate market as a safe investment for their money.
“But still, it will take some time for buyers and sellers to digest the new norms, likely in the first quarter of 2023, and process the new adjusted prices. A risky but prudent long-term outlook is that there is unlikely to be a significant improvement in prices or interest rates in 2024. Average prices will remain, which will make it difficult to afford real estate, especially housing.”
