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HomeInvestmentProperty market review and expectations for 2012

Property market review and expectations for 2012

A PACKED audience of Rotarians and guests at Limassol’s Londa hotel listened to a presentation by Pavlos Loizou MRICS about the Island’s property market and his predictions for its future on Wednesday evening.

Mr Loizou, lead consultant with niche real estate market research company Leaf Research, spoke of the economic factors and other issues that had resulted in dramatic downturn in sales that started in 2008.

“A fall in the Island’s GDP and rising unemployment means that the ‘good days’ have gone” said Mr Loizou, adding that “we are probably approaching the worst point, but things are unlikely to get back to where they were.”

Since January 2010, loans for housing have increased by 17% (€1.818 billion) and have rocketed by a staggering 197% since 2006. “The high cost of servicing these loans combined with increasing interest rates is putting a greater financial burden on households” said Mr Loizou.

The reduction in domestic sales started in 2004 as salaries failed to increase in line with the rising cost of housing. Although wages kept pace with construction costs, land prices rocketed by 576% between 1998 and 2008, pricing many local buyers out of the market.
Overseas sales peaked in 2007 and then declined as a result of troubles with their economies and as news of the problems with Title Deeds spread. It is difficult to see how the many holiday homes built specifically for the British market, which lay part completed or empty, will be sold and their future is uncertain.

Demand for property has also changed in recent times. Land sales have fallen as construction slows and this has led to a fall in the price of land. Falls in the price of properties in the towns and city centres has resulted in increased sales to local buyers in those areas. And as many prefer to buy a house, rather than apartment, house sales have remained steady over the last three years while the number of apartments being sold has fallen.

Focusing on Limassol’s property market, local buyers are looking for good quality properties with a Title Deed costing between €200,000 and €400,000 in the central areas, while overseas buyers are focussing their attention to the west of the town, towards Paphos.

Market predictions for 2012

As for his predictions for the coming year, Mr Loizou believes that prices will continue to fall:

  • Housing plots down 17%-22%.
  • Housing fields down 22%-27%.
  • Commercial plots down 12%-17%.
  • Offices down 10%-15% for grade A and 20%-25% for grade B/C.
  • Apartments down 10% in city/town centres and 15% in secondary and tourist areas.
  • Shops down 10% in city/town centres and 20% in secondary and tourist areas.
  • Agricultural land down 25%-35% and in some cases more.

Click here to view Mr Loizou’s presentation.

Editor’s notes

Organised in conjunction with the Rotary Club of Limassol Berengaria-Cosmopolitan , a raffle was held to raise money for a minibus for PASYKAF (The Cyprus Association of Cancer Patients and Friends) that will be used to ferry cancer patients between the towns and the specialist cancer treatment centre in Nicosia.

On 25 January at 13.00 Mr Loizou will be giving his presentation (in Greek) at the Hotel Crown Plaza in Limassol; the entrance fee is €22. Organized in conjunction with the Rotary Club of Limassol, those wishing to attend should contact George Araouzos at george@araouzos.com

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17 COMMENTS

  1. Dear All,

    Thank you for your comments, both privately and through this informative blog. Thank you also to those of you attending the presentation and helping raise money for cancer sufferers.

    With reference to some of the points raised, please find my reply below in reverse chronological order.

    I remain at your disposal at all times.

    Regards

    Pavlos

    January 26, 2012 at 5:17 pm
    dimitri comments:
    Buyers are not better off because of the tightening of lending and increased interest rates (see separate article by me, from about two years ago, titled Τα μαθηματικά των ακινήτων/ Maths for real estate).

    Prices are unlikely to bottom out this year, and indeed I do not believe that they have done so in the UK. The UK market is being “held together” by very low interest rates (0.5% base rate) that makes it affordable for borrowers to maintain their payments even though unemployment is at its highest point in 17 years and average salaries are falling. Only central London (zone 1 & 2) has increased, and this is down to overseas buyers “fleeing” Greece, the Middle East, etc (plus new money from Russia, China, etc).

    However, as per my comment to Peter, if you believe I am wrong about my predictions about Cyprus real estate then simply do not take on board what I say.

    January 26, 2012 at 12:33 am
    George comments:
    I would refer the matter of Antonis Loizou being more “conservative” than I directly to him (nicosia@aloizou.com.cy). However, his recent articles in the local press (in Greek) are along similar lines to what I have put forward in this presentation.

    January 25, 2012 at 6:30 pm
    George comments:
    These are our predictions for 2012 only. However, every year (sometimes every six months) we review these predictions. I expect a peak to trough fall of circa 30% in city centre properties, 50% for holiday homes, and 50-70% for land/ fields.

    NB: The crunch point will be in June when the banks will need to raise the additional capital to become capitalised and compliant to Basel 3 rules.

    January 24, 2012 at 5:42 pm
    dimitri comments:
    I agree.

    January 24, 2012 at 11:08 am
    Denton Mackrell comments:
    Thank you Denton. Predictions as to the negative state of the market were first reported in 2008/2009 at a presentation to the Minister of Interior (we made an assessment of the affordability of Cyprus real estate by locals, also referred to in this presentation). Unfortunately, we were told that we were overreacting and trying to “scare potential buyers”. You can find a complete list of articles and reports about these predictions on our website (in Greek I am afraid).

    January 24, 2012 at 10:36 am
    Costas Apacket comments:
    I agree.

    January 23, 2012 at 5:42 pm
    Gavin Jones comments:
    I agree.

    January 23, 2012 at 5:14 pm
    Peter comments:
    With reference to the clients of Antonis Loizou & Associates, we have advised our clients to reduce their asking prices but many refuse. Most people seem to thing that they will find someone who will pay what they want and (I believe) like to feel that their property hasn’t gone down in value (it’s a psychological thing). As agents we cannot force the issue.

    Not sure about your reference regarding RICS valuations. If you are referring to the RICS index, then I would refer you to the methodology of the index developed by the University of Reading. If you believe that the index misrepresents the market, then in the same light you should also discount the indices issued by the UK Land Registry, the Halifax index, the IPD index, etc which are based on similar methodology. An index is an average of the market, and clearly is not applicable to all properties. The lack of transactions does increase uncertainty in terms of pricing, but it does not negate the quality or value of indices (which were developed – for free – in order to make the market more transparent).

    I do not believe that I am a “doom and gloom merchant”, but if you believe so then simply do not take on board what I. See however how this statement clashes with the statement in your opening paragraph? How can you expect my clients to listen to me in order to reduce their asking prices and at the same time you consider me a “doom and gloom” merchant? Either I am, which means that they shouldn’t listen to me and thus your first statement is wrong, or I am not, which means that your last point is wrong as I am representing what the situation actually is.

    January 23, 2012 at 1:34 pm
    Costas Apacket comments:
    I agree Costas, but I guess that even so no one has the money to pay them now.

    If you tell people who bought in 2006-2009 (sitting on 20-40% negative equity), to pay another 3-8% of the purchase price in order for the title deed to be transferred to their name, they are unlikely to do so. This is also indicated in that more than 50% of title deeds issued have not been transferred because the buyers do not go to transfer them in their name.

    January 23, 2012 at 9:53 am
    Alex comments:
    I agree.

    January 21, 2012 at 10:14 am
    Mike comments:
    I agree that even if my predictions are fulfilled, that the market will continue to be overpriced. That is why we predict that the rate of price decreases will continue beyond those percentages (this was stated during the presentation, but is not in the actual document).

    January 20, 2012 at 6:15 pm
    Pete comments:
    I agree that the Title Deeds situation has managed to escalate to a complete fiasco that is affecting banks and individuals, and is pushing the property market further down hill. Unfortunately there seems to be little will in changing the “workings” of the Cypriot government, although as things deteriorate further they (may) be forced to take bold steps and revise their processes and procedures.

    We are also sufferers of these inefficiencies– the house I grew up in doest have a certificate of final approval (it was completed 27 years ago) and our holiday home (bought through a developer) doesn’t have a title deed after 12 years.

    January 20, 2012 at 4:46 pm
    I agree that we cannot predict the future. However, we can make an estimated assessment as to where we are going.

    January 20, 2012 at 1:47 pm
    Gavin Jones comments:
    Thank you Mr Jones.

  2. okay, so seems 2008 was the ‘peak’ and now we are in reverse? at a rate the rates listed? good news for buyers it seems but has to be seen in the context of the much higher lending costs nowadays, so are buyers really much better off with today’s prices, be interesting if anyone has looked at this? either way if prices continue to drop at this years rate won’t they bottom out as that have in the u.k?

  3. Thank you Nigel

    In my 2nd paragraph I made no sense at all but I am sure you figured it out.I meant that if it was the overall price decrease from 2008 to 2012 then it didn’t sound to bad. Obviously not, sometimes my dyslexia gets the better of me.

    I wonder what Loizou the father thinks of his sons doom-laden predictions. He usually tends to be more conservative. Why cant Christofias do a Cyprus property roadshow in China. I am sure the Chinese don’t care about title deeds etc.

  4. Does anyone know if the mr Loizou’s price reductions above are the total reduction since the recession began and the prediction for 2012 or just the prediction for 2012?

    If its just the 2012 prediction then its not so drastic and on the conservative side, however if its just a 2012 prediction then Mr Loizou has hammered the last nail into the Cyprus property coffin.

    Who will buy now when in a year they can get 50-75% off 2007 prices. If land has been going down at 15%-20% a year since 2008 then that’s accurate. And property owners in England and elsewhere cry if the markets down 10-20%. You need Sheftalia balls in Cyprus.

    (George – it’s his prediction for 2012 – Nigel)

  5. Always goes back to the fish smells from the head saying, the govt owes millions in compensation where it has grabbed land to build roads or schools or for the benefit of society, many people are still waiting to see the money and to see the works that were supposedly supposed to take place…., as for the banks and write downs another 10% would tip the scale towards total chaos…I am sure Christofias and co. are banking on the natural gas reserves….but a few quangos here and there will soon make these discoveries a distant memory…..fed up of hearing the amounts of money involved are too large to just vanish.

  6. @Peter. Gloom and doom merchants? Scaremongers? I agree that the predictions of anyone connected so directly to the property industry need to be taken with a large pinch of salt. The problem is that he is not alone in his very negative prognosis – just very late in the day compared to just about everyone else, whether professional or lay!

    I’m all for positive attitudes and resilient thinking, where these are warranted, but not where it all flies in the face of the blindingly obvious. If the Cyprus government, the developers and bankers all want to remain in denial, that does not mean the rest of us have to follow suit

  7. Hi Gavin, thanks for your comments, which are spot on.

    I would only add that the vice or web they are caught in also contains stupidity and greed.

  8. Costas Apacket.

    By issuing title deeds, the banks who hold them would have to say ta-ta to the c.€6 billion that the developers owe them, secured on the houses/apartments/land sold to tens of thousands of people.

    As we know, this is why the Interior Minister is merely tinkering with real estate laws in order to deflect attention and delay fiscal Armageddon.

    If the EU ordered these deeds to be issued, the government would have to bail out the banks which are in a precarious position anyway as a result of their holdings of Greek government bonds and other toxic debts. They’re all caught in a vice of corruption.

  9. All very well making imaginary predictions, perhaps Mr loizou’s father Antonis would like to make the necessary reductions in the asking prices of his clients by way of setting an example???

    I doubt it. IMHO, RICs valuations in climates like these are pretty useless. Perhaps if you wanted a bank loan, they would be acceptable, but that’s as far as they go. The market is too volatile for valuations to be taken seriously. Market prices are not valuations, but a reflections on what is happening on the ground.

    People sitting in ivory towers need to get out more!

    I find doom and gloom merchants like these to be no help to the current situation, scaremonger at its best. I feel for the people trying to sell and recoup as much as possible and along comes a dreamer to put the anchors on it, pft!

  10. All the more reason, is it not, for the RoC Government to recoup the potential 1.3 Billion Euros of revenue from the issue of outstanding Title Deeds, plus the income from IPT and Capital Gains Tax, etc, etc?

  11. The prospects we can be more or less sure of are as follows:

    1. Sooner or later Greek government will announce details of write-down on its debt. It will be at least 50%. Most probably more.
    2. Laiki (the second biggest bank in the country) holds Greek debts of ca. 3,5 billion.
    3. Even if the write-down is only 50%, this means losses of 1,75 billion. In reality more, since only about half of Greek debts they hold are sovereign with the remainder being loans to Greek institutions, which may be lost completely.
    4. Laiki cannot withstand this shock and will definitely turn to government for help, citing familiar reason "too big to fail", that is effectively blackmailing government to give them money rather than deal with outraged depositors (many of them hold assault rifles at home, by the way).
    5. The government has no money at all. They have just avoided bail-out thanks to last minute Russian loan of 2,5 billion.
    6. So, Cyprus will need to ask EU for a bail-out in order to save Laiki. Of course, the sums involved will be a trifle compared to what Greece needs, but for Cyprus, that positions itself as a financial center, this will be a disaster: as soon as foreign depositors lose faith in Cypriot banks, the whole financial system on the island will collapse.
  12. In the past 14 days I have seen two investment articles making it clear to me for the first time that the Greek debt crisis will overshadow everything in Europe, including title deeds issues in Cyprus.

    The basic message in these articles was that Greece should never have been allowed into the Euro, that Greece squeezed in by fiddling the figures and got away with it for a long time.

    The problem now is not just the current debt. The Greek economy is not structured to cope with the conditions set for Euro membership and cannot meet them, leading to an inevitable default and exit from the Euro at some stage. Apparently, the Greek authorities know this and are concentrating on maximising the debt write down first.

    Cyprus will pay a high price for the degree of economic ‘Enosis’ that exists, indicating the current problems here will get worse.

  13. I am not an economist, property consultant or market researcher but a retired businessman and I would have thought that much of what has been stated sums up the situation admirably. The only small addition I would make is that as a Cypriot, and I am certain Mr Loizou is aware, I know the property market is vastly overpriced (albeit for valid reasons) in fact my predictions of some three years ago are being borne out now and until rose tinted spectacles are removed and illusions of a robust driven economy based on anything other than personal debt is evident then the property sector will remain much where it is now.

    ‘dimitri’ – Accept what you say but in many areas of commerce you do have to predict where things will go, as you put it, in order to formulate your strategy for moving forward. Getting it wrong can have disastrous effects on your business. It is all in the hands of our politicians, let us hope they have the will to steer the country to prosperity. Sadly my view is that even if they adopt the will, they do not have the capability, but at least they can buy expertise as long as they are big enough to acknowledge their limitations. We live in hope.

  14. The word is out that Cyprus is not a safe investment and people won’t risk their hard earned in a market that’s rife with corruption and law breaking on a national scale.

    If the title deeds saga was dealt with (properly) and the banks stopped trying to rob pensioners out of what they paid for, a glimmer of light might be seen but till that happens there are too many people effectively kept hostage here who are telling the world to stay away.

    And we’ll keep doing it until Cyprus either gives us what we’ve paid for or sinks without trace.

  15. @dimitri – I believe that a lot of things need to happen to prevent a further decline in the market. Problems with the €uro and the Greek haircut (there is now talk of a 70% perhaps an 80% haircut) + unemployment, currently at record levels in Cyprus, have to fall to inspire investor confidence + banks need to relax their lending criteria, which is dependent on a satisfactory resolution to the problems in the €urozone and the Greek debt.

    As for British buyers, UK unemployment is now at its highest level since since January 1996 + there are the on-going problems with Title Deeds, developer mortgages, etc, etc, that have yet to be resolved.

    High prices are a problem for everyone and these need to fall to more realistic levels to entice buyers back to the market and the number of building permits authorised, which constitute a leading indicator of future activity in the construction sector, continues to fall.

    I would like to be optimistic about the future, but there are no positive signs that I can see.

  16. Not an attempt to try and rubbish peoples hard work, I still don’t believe that anyone no matter how experienced can give any sort of prediction on where things will go….if only we could.

  17. It would appear that in his talk, Mr. Loizou has grasped the nettle by telling his audience of the realities of the situation and hasn’t skated over the impact of the many problems, including those connected with title deeds.

    Would that the Cypriot government, developers, bankers and lawyers reacted appropriately and decisively.

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