21.05.2024
The Cyprus property sector is experiencing a seemingly golden age. A booming economy (projected growth of 2.7% in 2024), resurgent tourism and impressive fiscal discipline (budget surplus averaging 2.3% of GDP from 2023 to 2028) create an impression of prosperity. Construction is booming, with coastal spots such as Limassol leading the way.
However, behind this “beautiful facade” lies the story of two markets, each with its own set of problems.
Locals are feeling the pinch: While foreign investors flock to Cyprus, lured by the Golden Visa program, low corporate and income taxes, good environment and stability, locals face a different reality. In February 2024, loan restructuring accounted for 45% of new home loans, highlighting the financial strain on some Cypriots. Rising interest rates and inflated property prices, exacerbated by commodities, energy and general inflation, further worsen the situation. This financial predicament is especially troubling for locals, who typically earn less and are subject to higher taxes compared to their foreign counterparts.
Foreign investment, especially from non-EU countries, has boosted property sales in places such as Limassol and, to a lesser extent, Paphos and Larnaca . However, this dependence on external capital creates vulnerability. Sanctions on traditional investor pools such as Russia, coupled with a potential market correction (as indicated by the slowdown in real estate transactions, especially for luxury residential properties), could cause some foreign buyers to shift their focus. The occupied north has already become more attractive to certain groups of the population, such as Russian (about 70,000 people already live there), Israeli and Lebanese investors.
Cyprus has a history of ignoring problems, as evidenced by past economic crises, and taking short-term measures when trying to solve them. A proactive government approach is critical to ensuring long-term stability. This includes addressing real estate affordability issues for local residents, mitigating the risks associated with over-reliance on foreign investment, and creating a mechanism to ensure that all local residents benefit from the increased number of foreign companies and residents. But this is unlikely to be feasible as politicians are currently focused on the upcoming municipal and European elections and parties in parliament remain divided and lacking vision.
Foreigners are everywhere
Every fourth resident of Cyprus was born abroad, owns an established business and is part of the community. They are here to stay for permanent residence and help Cyprus develop. They are Cypriots. Ignoring a quarter of the population is not the way to build a sustainable future. Just because some (many) people don’t like that the cost of living has gone up, that the work hours are longer, and that there are more tech-savvy people around, doesn’t mean that ignoring “foreigners” will solve all these problems.
Immigrants, their descendants and newly arrived foreigners play an increasingly important role in the life of the country. They own much of Cyprus’ infrastructure (airports and ports, three out of four telecommunications companies, all banks, an increasing number of hotels, etc.), run businesses, contribute to local culture and participate in public life. This not only enriches the cultural landscape, but also stimulates the economy by creating jobs, increasing demand for goods and services, and attracting new prospects.
However, this influx of foreigners is also creating problems for the housing market. Increased competition for jobs often affects local salaries, which can make it more difficult to acquire real estate.
In addition, a growing population creates higher demand for housing, which could potentially lead to rising prices and pressure on public services. These rapid changes may cause divisions among some local residents, who may feel abandoned or displaced. These concerns sometimes manifest themselves in the rise of right-wing political parties. However, it is important to recognize that these concerns are not unique to Cyprus.
Globalization and technological advances are changing economies and labor markets around the world, leading to similar concerns about the cost of living and competition.
A sustainable future and development requires recognizing the contributions and needs of all residents. Integration policies and inclusive economic planning are important . These policies should aim to ensure that the benefits of immigration – economic growth and cultural diversity – are distributed fairly among the population. This could include supporting affordable housing initiatives and developing programs that equip local residents with the skills they need to thrive in a changing market.
Only one future is sustainable for Cypriot real estate: one that bridges the gap and promotes shared prosperity for all residents.
