20.07.2024
In the near future, the Cyprus real estate market will continue to develop, but the journey will not be easy, and strategic planning will be key to overcoming upcoming changes and challenges.
Moderate growth is expected over the next few years, as high interest rates stabilize demand and new projects are launched to meet it.
The Central Bank of Cyprus (CBC) reported a slowdown in the growth of the Housing Price Index (HPI) for houses and apartments in the first quarter of 2024. This index indicates that demand for real estate is normalizing, as evidenced by a slight increase in the number of registered sales contracts.
According to data from the first quarter of 2024, the HPI for houses and apartments grew by 1.6%. This growth, according to CBC data, was driven by a 0.8% increase in house prices and a 3.4% increase in apartment prices.
On an annual basis, house prices in the first quarter of 2024 increased by 7.8% compared to an 8.3% increase in the fourth quarter of 2023. Apartment prices rose by 13.9%, and house prices by 4.7% over the same period. Additionally, there is an increase in supply on the market, with more houses available for rent and sale. This trend is expected to continue, leading to a significant reduction in the number of registered transactions in the coming years.
Foreign investment, stimulated by regional geopolitical tensions, will continue to play a significant role, though the real estate market will face challenges related to rising construction costs and changes in the regulatory framework.
Cyprus’s residency program, known as the “Golden Visa,” which has been a crucial factor in attracting foreign investment, will continue to support demand and prices in the real estate market.
Construction Costs
The rising cost of construction is putting additional pressure on new developments, contributing to further increases in property prices. Nevertheless, Cyprus remains an attractive destination for foreign investors, offering promising returns on investments.
This dynamic creates various consequences for different market participants.
For local buyers, the situation is becoming more complicated, as homeownership is increasingly difficult to achieve due to high property prices and high mortgage rates.
For developers, high demand, especially in areas like Limassol, Paphos, and Larnaca, presents profitable opportunities despite the challenges associated with rising construction costs.
Overall, market conditions in Cyprus are encouraging foreign investment and development, with new projects being completed. However, local buyers are being pushed out of the market, as high inflationary pressures, especially in the energy sector, continue to reduce citizens’ disposable incomes, affecting their standard of living.
Cypriots are also facing difficulties in renting housing, particularly in Limassol and the capital, Nicosia, where prices have become unaffordable for most local residents.
The increase in high-tech and fintech companies relocating to Cyprus, while stimulating the economy, is complicating the situation for locals seeking rental housing.
Balanced Outlook
In the medium term, over the next five years, further leveling of growth is expected as projects currently in progress or already started during the current construction boom are completed.
According to the Statistical Service of Cyprus (Cystat), the number of building permits issued in Cyprus increased by 8.3% from January to April 2024 compared to the same period of the previous year.
Local authorities issued 2,545 permits in the first four months of 2024, compared to 2,351 in the same period of the previous year. The value of these permits increased by 8.9%, and the total area of the projects grew by 15.7%. There is also a significant increase in the number of planned residential units—up by 24.2%.
Demographic changes, along with regulatory changes such as the alteration of VAT taxation rules, will lead to a shift in preferences towards residential property.
Demand for residential real estate will be primarily focused on smaller, more affordable properties.
In addition, changes in EU regulations will lead the construction sector to focus more on environmentally friendly real estate.
In conclusion, market participants need to recognize current trends, closely monitor them, and develop a strategic plan to overcome challenges related to rising costs and regulatory changes.
