Real estate salesman Michael Cartwright wasn’t sure he’d still have a job when he flew back to Cyprus from London in December.
His company, Leptos Estates, is struggling to sell vacation homes on the Mediterranean island to British buyers after the pound lost almost a quarter of its value against the euro and U.K. unemployment climbed to a nine-year high.
Two thousand miles away, Cyprus is feeling the aftershocks of the end of a British housing binge. Prices for apartments in the resort towns of Paphos and Paralimni fell as much as 25 percent in the past four months, after more than doubling since 2002, according to data compiled by broker Antonis Loizou & Associates Ltd. in Nicosia. Building permits for homes on the island, a gauge of future housing starts, declined 2.4 percent during the first 11 months of last year.
“The industry has just stopped,” said Stuart Crouch, who was managing director of Parador Properties until the company filed for bankruptcy in August. Parador was the U.K.’s second- largest broker of second homes in countries including Cyprus.
Britons are pulling out of second-home markets after the deepest recession since the 1980s cut U.K. house prices 20 percent since the August 2007 peak. The economy shrank 1.5 percent in the fourth quarter from the previous three months as the financial crisis led to a collapse in consumer spending and investment.
Bad News
Aristo, the biggest homebuilder in Cyprus, reported a 41 percent decline in sales during the first 10 months of 2008 as demand from U.K. buyers fell by about 75 percent.
At Leptos’s sales office in north London, dozens of customers planning for retirement were unable to sell their homes to finance a move to Cyprus, and investors seeking a holiday home or rental property have similar problems, Cartwright said. As a result, Leptos has reduced prices and slowed its development program, he said.
“Business isn’t good, but we’re surviving,” Cartwright said. “The biggest problem is the value of the pound and the weak U.K. housing market.”
British investors owned 425,000 foreign homes valued at about 58 billion pounds ($83.4 billion) in mid-2008, up from 10 billion pounds in 1998, according to London-based broker Savills Plc. Since last year, purchases of assets ranging from villas in Spain to ski chalets in Bulgaria have almost ground to a halt.
‘Jet to Let’
“Discretionary second-home buyers will put their money back in their wallets for the next two years or so,” said Dominic Farrell, founder of Jet-to-Let Investments and author of the “Jet to Let Bible” on overseas rental property investment.
The pound’s slide has stretched the finances of most British owners, particularly those with overseas mortgages. Foreign Currency Direct Plc, which handled money transfers for 30,000 property transactions outside the U.K., said the number of British customers repatriating money rose by as much as 31 percent in the 12 months through January.
“We’ve noticed a significant increase in the number of our British clients selling property abroad,” Chief Executive Officer Peter Ellis said. “Many are willing to discount the sale price of their property to secure a sale.”
Cyprus, a British colony until 1960, depends more on U.K. buyers than any European property market. In the past five years, the British accounted for about 10 percent of new-home sales on the island and two-thirds of all foreign purchases, according to three brokers on the island. That’s proportionately higher than for larger holiday-home markets, like Spain or France.
Turkish Occupation
Most investment went into the southern part of the island controlled by the Greek-Cypriot government. Northern Cyprus has been occupied by Turkey since 1974. In the build-up to Cyprus’s accession to the European Union in 2004, “people were fighting over properties,” Cartwright said.
Cyprus property prices have doubled since 2004, including a 19 percent increase in 2007, according an index compiled by the MAP S. Platis consulting firm in Cyprus, based on valuations supplied by brokers at BuySell Cyprus Real Estate.
In Paphos, billboards for villas or holiday apartments line the highway from the airport to the town center. Many are named after Aphrodite, the Greek goddess of love and beauty, whose mythical birthplace is a short drive away along the coast.
About 80 percent of new homes built in the area were snapped up by the British at the height of the investment boom, said Antonis Loizou, senior partner of the broker of the same name.
Taxi Drivers
“We didn’t get the guys with the yachts, we got the taxi drivers and fish-and-chip shop owners,” Loizou said in an interview. “These guys aren’t particularly insulated from the economic downturn.”
A 100 square-meter (1,076 square foot) apartment in a standard Paphos complex sells for about 170,000 euros, down from last year’s peak of as much as 230,000 euros, he said.
“People paid far too much money to developers, so if you want to sell what you bought last year, you have to take a loss of 30 percent,” said Daryl Fitzgerald, an Australian national who has sold property in the Paphos area for 17 years.
The legacy is “an oversupply of cheaply built, identikit apartments” that are a turn-off to buyers, said Farrell, who is building two holiday-rental developments near Limassol.
Cyprus’s economy will grow 1.1 percent this year, less than a third of last year’s pace, the European Commission estimates.
Central bank governor Athanasios Orphanides said Jan. 29 that the damage inflicted on the U.K. by the financial crisis is a “source of concern.” Cyprus will have to “wait and see” whether an expected decline in British visitors and purchases of homes is as bad as anticipated, he said.
Dire Forecasts
Construction and real estate accounted for about 29 percent of the country’s 15.6 billion-euro economy in 2007 and the industries employ one in 10 Cypriots, government statistics show.
The Federation of Building Contractors Associations of Cyprus, or OSEOK, told its members last year to brace for “significant performance decreases.” Now, as projects get cancelled and contractors struggle to get paid, “more problems will arise,” OSEOK said.
Cartwright is now seeking clients at trade shows and exhibitions in the Middle East, where Cyprus has previously found a source of investment. Leptos also has offices in Moscow, since the island has traditionally acted as a gateway for Russian investment overseas.
“Cyprus will recover and it will be quicker than in Spain,” said Cartwright.
To contact the reporter on this story: Simon Packard in London at packard@bloomberg.net.
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