PRICES of houses and apartments fell 2.5 per cent last year and property prices are expected to fall another 2.5 per cent this year as fewer Cypriots buy homes, the Central Bank has said.
Even though transactions involving foreign buyers rose 15.7 per cent in the first four months of 2011 compared to the same period last year, they will not be sufficient to offset the overall decline in demand, the Central Bank said in its semi-annual economic bulletin this week.
Prices for houses and apartments fell in the fourth quarter of 2010 2.6 per cent and 2.4 per cent respectively compared to the year before. The biggest drop in house prices was observed in Limassol where they fell 4.8 per cent. For apartments, the worst hit was Famagusta district where they fell 4.2 per cent.
Prices for commercial properties also fell, the Central Bank said. Offices were sold for 3.4 per cent less, while prices for shops and warehouses fell island-wide on average 2.5 per cent and 2.4 per cent respectively.
Rents for all categories of buildings fell in the last quarter last year. The steepest decline was for houses which fell 6.1 per cent last year followed by apartments with a 5.5 per cent drop. Rents for warehouses, shops and offices decreased 4.2 per cent, 3.8 per cent and 2.7 per cent respectively, according to the Central Bank of Cyprus.
As construction activity is also in decline, a further slump in the housing market could put Cyprus’ financial system at risk, the central bank acknowledges. This could in turn result in a further “notable” drop in home prices.
Even though such an event could lead to a drop in household wealth, and further threaten financial stability, the “likelihood remains low, although it rose slightly compared to 2010”, the supervisory authority of the banking system said.
While economic recovery remains “fragile”, bad loans are on the rise as households and companies alike are increasingly unable to service their debts.
Non-performing household loans rose in March to 8.4 per cent, up from 7.9 per cent the year before, according to the Central Bank. The share of company loans which had not been serviced for more than three months rose to 9.1 per cent in March from 7.4 per cent the year before.
The above figures do not include fully collateralised loans of more than three months in arrears. As foreclosures can take up to ten years in Cyprus, an inclusion of fully collateralised non-serviced loans in the bad loan statistics would result in higher figures.
THE Central Bank’s figures are somewhat out of line with those to come out of the RICS (Cyprus) Property Price Index.
The RICS figures showed that in 2010 prices of apartments and houses fell by 11.2% and 7.4% respectively, with an average falls over the year of more than 9%.
Worst hit areas were Paralimni/Famagusta, where apartment prices slumped 23.2% and Larnaca, where house prices fell by 13.2%.