THERE was a ‘disappointing’ fall in property prices across the Island during the fourth quarter of 2010. Houses and apartment prices dropped by an average of 2.6% and 2.4% respectively according to the fifth issue of the RICS Cyprus Property Price Index, which tracks property prices and rents across 46 locations.
Residential prices for both houses and flats fell by 2.6% and 2.4% respectively, with the biggest drop for houses taking place in Limassol (-4.8%) and for flats in Famagusta (-4.2%).
Values of commercial properties fell across all cities by an average of 2.5% for retail, 3.4% for offices, and 2.4% for warehouses. Year-on-year, prices dropped by 10.8% for apartments, 7.4% for houses, 7.0% for retail, 6.3% for office, and 4.8% for warehouses.
Across Cyprus, rental values for apartments fell by 5.5%, for houses 5.9%, retail units 3.8%, warehouses 4.4%, and offices 2.7%. Year-on-year, rents dropped by 7.2% for apartments, 11.8% for houses, 8.5% for retail, 3.0% for office, and 3.9% for warehouses.
The quarterly change in capital and rental values shows that all aspects and geographies of the property market are now affected, and that landlords are lowering their rents in order to attract tenants. In parallel, many tenants are renegotiating their leases or moving to smaller or lower cost accommodation.
The reduction in rents will have a profound effect on the incomes of many local and overseas owners, and is likely to increase the downward pressure on prices as the mismatch between rent and capital values is accentuated.
Yields are a useful tool showing the relationship between rent and property prices. At year-end, yields for commercial property stood at 6.0% for retail, 4.8% for offices, and 4.8% for warehouses, while yields for residential property stood at 3.6% for apartments and 1.9% for houses. These suggest that there is still room for rebalancing to take place.
Initial (or gross) yields, as shown 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 “During the second half of 2010 Cyprus bore the aftershock of the global economic crisis, with the economy slowing down and the government’s income decreasing. The fourth quarter saw the Cypriot economy showing some signs of stabilisation and muted growth, although the increased uncertainty about Greece and the local economy affected sentiment.
Towards the end of the year there were some early signs of price stabilisation, with local buyers returning to the market taking advantage of lower prices for holiday homes and for permanent residence. Also, there seemed to be some renewed investor interest, particularly for city centre, prime, properties. Evidence of this however is anecdotal, as there have been no significant transactions to support it.
These signs need to be viewed within the wider context of a continuing curtailing of loans by financing institutions, reduced income as a result of inflation and salary reductions, and to a change in people’s expectations of 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.