RESIDENTIAL property prices continued to fall across the Island during the third quarter of 2010. Houses fell by an average of 0.9% and apartments fell by 2.1% according to the recently published fourth issue of the RICS Cyprus Property Price Index. Overall, the Index tracks property prices and rents across 46 locations.
Larnaca suffered the largest falls with house values down 2.1% and apartment values down 5.1% compared with the previous quarter.
With the exception of warehouses, which remained stable, the value of commercial properties fell by an average of 2.9% for retail and 2.3% for offices compared to the previous quarter.
Across Cyprus, rental values for apartments fell marginally by 0.1%, while rents for houses, shops and offices fell by 1.8%, 1.7%, 0.6% and 0.4% respectively.
The change in capital and rental values shows an interesting dichotomy between Nicosia, which continues to be relatively stable and driven by the local market, and the coastal cities which are disproportionally dominated by overseas buyers/occupiers.
The decrease in capital and rental values of retail properties, is probably an indication of the reduction in spending by households and the expected decrease in spending power due to the upcoming increases in taxation.
Yields are a useful tool showing the relationship between rent and property prices. Initial yields for commercial property increased, and now stand at 6.1% for retail, 4.8% for offices, and 4.9% for warehouses.
Yields for residential property are 3.7% for apartments and 2.0% for houses, with prices relative to rents remaining at high multiples, indicating that there is still room for rebalancing to take place.
Initial (or gross) yields, as shown in the grey/blue column in the chart below, is the total yearly gross rent divided by the price, expressed as a percentage.
According to Pavlos Loizou MRICS, Board member of RICS Cyprus “In the first half of 2010, Cyprus took the brunt of the global financial crisis, with the economy slowing and government revenues falling. The third quarter of 2010 found the Cypriot economy showing some signs of stabilization and slow growth.”
“Similarly, towards the end of the second quarter and throughout the third, there were some early signs of stabilization of real estate prices, with local buyers taking advantage of low prices for holiday homes and having renewed interest in city centre prime buildings.”
“These early positive signs however should be considered within the broader framework of the continuous reduction in property loans from banks and other financial institutions, the reduction of income due to inflation and wage cuts, and the changing people’s expectations about future changes in capital values.”
Outline of properties used to calculate the index
Apartments: Residential, two bedroom, 85sqm, Medium quality.
Houses: Residential, three bedroom with garden, Semi-detached, 250sqm, Medium quality.
Retail: High-street retail, 100sqm ground floor area with 50sqm mezzanine.
Warehouse: Light industrial area, 2,000sqm, which includes 200sqm office space.
Office: Grade A, City centre location, 200sqm
The methodology underpinning the RICS Cyprus Property Price Index was developed by the University of Reading UK and may be viewed by clicking here.