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Fragile recovery in European residential property

The European residential real estate market is recovering slowly but in Cyprus the current fiscal and political climate is too unstable to encourage investment in the property sector.

RECOVERY is underway in the majority of European housing markets, but uncertainty remains in the region, with considerable performance variations, says the latest RICS European Housing Review launched earlier today in Brussels.

While housing markets were experiencing rising prices in Belgium, France, Germany and the Nordic countries during 2010, other markets were still facing problems. Ireland, Hungary and Cyprus experienced significant falls through the year and in the UK, Netherlands, Poland and Italy prices were slightly down.

On the other hand, in Spain, Greece and Portugal last year’s falls were quite moderate despite their economic problems, and the Baltic States are progressively recovering.

Though most European markets are stepping out of the crisis, the research reveals that the future of the European housing is still uncertain and full recovery will depend on many different factors.

Unlike previous housing market upturns, this time the recovery is led by price increases, while other market indicators such as housebuilding supply and sales are still low across Europe, with some exceptions. Also many countries continue to face important mortgage constraints. While interest rates remained low during 2010, markets are likely to be very sensitive to any interest rate increases.

The report’s author, Professor Michael Ball, said: “Full recovery will not occur until housing markets are fully functioning again: with plentiful mortgage finance, revived housebuilding and extensive market turnover throughout all sectors. However, the residential sector in Europe is far from following the long term standstill that the US housing is experiencing.”

Recent market performance in Cyprus

The slowdown in the housing market observed from 2009 continued in 2010. The new RICS Cyprus index reported that apartment prices were 9% down in the first nine months of 2010 and houses prices down 5%, with the overall fall expected to be 7% for the year. This was around the level of the previous year and there is little prospect of a significant pick-up in the market in 2011.

The housing market is actually a series of sub-markets. The biggest division is between the holiday-second home areas and the five main towns where most Cypriots live. The available house price indices refer to the domestic rather than the second home market. House prices in tourist areas are difficult to generalise about, but prices in these market sectors have been much more volatile than in the urban areas of the country: rising more in the boom but now falling much faster. Local experts suggest that prices in these areas have dropped by approximately 20–25% for good quality/ good locations, 30–35% for good quality/ secondary locations, and 40–50% for bad quality/ secondary locations.

Other indicators are mixed. Mortgages have been expanding quite rapidly at double digit rates. Growth has been encouraged by accession to the Euro, lower mortgage interest rates and by an economy that, although it has slowed, has weathered the global slowdown comparatively well. Transactions data from the Cyprus property registries have been the starkest indicator of a sharp decline. The biggest fall-offs were related to foreign buyers, whose presence in mid-2010 had dropped by 80% from the peak.

Building permits, a forward indicator of housebuilding, showed a relatively moderate fall to September 2010 of 9% year-on-year. Housebuilding levels from 2005 to 2008 were extremely high, peaking at 22.8 dwellings per 1,000 population in 2008, but building began to fall off after that and has still not bottomed out. Excess supply is particularity apparent in the holiday homes markets.

Further reading

RICS 2011 European Housing Review – Executive Summary

Readers' comments

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  • out of the frying pan into the fire says:

    I did not see a program last night Tuesday 1st March, Homes from Hell I think .

    Needless to say Cyprus did not come out well.

    Short term greed for long term loss.

    George is right, the chickens have come home to roost.

  • George says:

    I suspect that when there’s a general recovery in the “holiday/retirement” overseas home market that will not be reflected to a significant extent in Cyprus. The halcyon development days have gone bye-bye.

    Currently clouded by a general recession, the impact of the now clearly visible Title Deeds scam and the highlighting of the shortcomings in the Cypriot judicial and legal systems (by the likes of the O’Dwyer case) will become horrifyingly apparent.

    With nothing to hide behind – the chickens will come home to roost.

  • aspr0mavr0 says:

    Houses are down by 9%. What is the relationship between this and the decrease in prices by house agents (developers) as Aristo developer who sells houses with a discount of 30%? Which one is the actual price? What does the RICS figure indicate. the headline price or the effective?

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