The steady rise in property prices is a serious problem that has not been adequately addressed by the government, said Yiannis Misirlis, founding director of the Limassol construction company Imperio and vice chairman of the Land and Building Developers Association.
He added that at least four to five years are needed to stabilize both property prices and rent levels. That’s why it’s critical that the government offer some stimulus to reverse the ongoing trend of low supply. Thus, Misirlis stressed, the current increased demand will be adequately covered, which will lead to the stabilization of real estate prices.
According to official government statistics, apartment prices have been on the rise in the past few months. Why are apartment prices rising faster than houses?
Rising prices for apartments is a serious problem, especially for young couples. To find a solution, it is necessary to study this issue in depth, focusing on the real reasons for the sharp rise in prices.
The recent report of the Central Bank of Cyprus (CBC) on the housing price index, as well as articles that attempt to analyze some aspects of the problem, indicate only some of the ways to solve it, such as monitoring the ever-increasing prices of building materials around the world.
However, perhaps the most important but often overlooked factor driving prices up is the reduction in the supply of suitable properties. For many years, the supply of apartments has been below demand, and the situation will not improve in the near future. On the contrary, it is safe to say that in the next three to four years, the supply will fall even more, as developers postpone new projects.
How to solve the problem of rising prices?
In the long run, the market tends to self-correct. However, this requires favorable conditions. This is where a low level of government intervention can help to correct any distortions.
Take Limassol, for example, where rental prices have skyrocketed in recent years. And since the CBC likes to compare price growth rates with the average GDP growth rate of the Cypriot economy, it is worth noting that rental prices have outpaced the country’s GDP growth rate over the past five years.
The market will correct this distortion in the long run. However, given the small size of the market, it may take another four to five years to reach the desired level of rental prices. Until then, tenants will continue to suffer from high rents. That is why the state must intervene until the rent is stabilized by the market.
What initiatives should be taken by the state in this direction?
It is critical that the private and public sectors work together to create the right conditions for property consolidation and ensure that there is enough affordable real estate on the market, as well as the right financing conditions, to ensure that homeownership does not become the privilege of a few.
The state should start offering incentives that will encourage and allow the private sector to provide more real estate that is now in high demand, such as apartments. Increasing the supply of apartments will also help solve the problem of high rents.
Proper conditions must also be created for the rental market in order to facilitate the penetration of institutional investors in real estate, which is lacking in the Cyprus rental market compared to other countries.
Institutional investors should be encouraged to invest in a large number of apartments with the obligation to subsequently make them available to the rental market, thereby solving the problem of high rents.
Support for new customers
Misirlis also stressed that the level of home ownership in Cyprus is quite low compared to other European countries.
He pointed out that new buyers should be supported with the right initiatives, such as creating the necessary offer that will make houses and apartments affordable, so that buying a house is not out of their reach. “For these reasons,” he added, “at the Cyprus Land and Building Developers Association, we have repeatedly stated that the real estate sector is one of the most taxed in the economy.
“Today’s real estate market, in conditions of high prices for building materials and a limited supply of housing, cannot withstand the introduction of any new taxes. On the contrary, millennials and young buyer-renters should be given special tax breaks to enable them to own their own home. We must find ways to create more homeowners and fewer tenants.”