05.09.2023
In response to rising interest rates, there have been several budget adjustments among borrowers. In addition, property buyers are now preferring more thoughtful and thoughtful investments. This means the time it takes for real estate agents and property professionals to help clients find the ideal property has increased.
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Lending reduction
According to the Central Bank, Cyprus saw a significant decline in new loans in April. New loans fell to €473.9 million from €922.5 million in March 2023. This decline affected various areas, including consumer loans, home loans and loans to non-financial companies.
According to the latest ECB data, Cyprus has some of the highest lending rates in the eurozone. In particular, the average interest rate on home loans in Cyprus is 4.45%, compared to 4.03% in the eurozone. In Greece this figure is 4.06%, in Spain – 3.47%, France – 2.99%, Luxembourg – 4.11%, Malta – 2.56%, Austria – 4.06%, Slovakia – 3, 71% and Finland – 3.62%.
Given the expected decline in demand, as evidenced by the contraction in lending activity, and the fact that borrowing capacity declines as interest rates rise, this poses a significant challenge to current price levels.
This is prompting a reassessment of market dynamics and raising questions about the sustainability of existing prices.
Construction costs are stable
According to the Cyprus Statistical Service, the price index for construction materials has remained relatively stable since the beginning of the year.
The number of secondary real estate offers will increase
An increase in the number of non-performing loans will lead to an increase in the number of properties for sale. Especially those who purchased an investment property may find themselves at a crossroads, wondering whether loan servicing remains a viable option or whether liquidating their property will be a smarter choice.
GDP is also expected to contract slightly, increasing pressure on the labor market, which in turn is likely to lead to higher unemployment. Following this, along with declining household purchasing power, there are additional reasons why the supply of resale properties and the motivation of existing owners to sell are expected to increase throughout 2023 and 2024. However, the supply of resale properties from funds is expected to remain stable.
The number of new housing offers will increase
The number of building permits is expected to decrease with more apartments and larger projects coming to market. When comparing January-May to the same period in 2022, building permits for all types of housing fell by about 9%. However, it increased by 3% in size/area ( m² ), 3.5% in number of apartments and approximately 18% in value. This trend of increasing sizes and units can be explained by recent legislative announcements of VAT reduction policies which place restrictions on the size (and value) of properties.
As a result, developers have rushed to obtain valid building permits to ensure that the new changes do not affect their future mid-term projects. In addition, the increase in cost is associated with rising construction costs.
Overall, taking into account only data from permits issued between January and May 2023, approximately 4,135 new residential units are expected to enter the Cyprus market in the coming years.
Based on the trends mentioned above, it appears that prices are currently in the process of stabilizing. This is expected to lead to a slight decline in nominal prices. However, it is important to note that if inflation remains high and nominal prices remain stable for an extended period, ‘real’ property prices will inevitably fall.
