PROPERTY prices and rental values across the Island continued to fall during the first quarter of 2011 according to the sixth issue of the RICS Cyprus Property Price Index, which tracks property prices and rents across 46 locations.
Residential prices for houses and apartments fell by 1.6% and 0.9% respectively over the quarter. The biggest drop in house prices took place in Limassol, where they fell 2.9%, whilst the biggest drop in apartment prices was in Paphos, where they fell 4.1%. Values of retail properties fell by an average of 0.8%, whilst those of offices and warehouses rose by 0.1% and remained stable respectively.
Compared to the first quarter of 2010, prices have fallen across the board; apartments (- 8.3%), houses (-7.0%), retail (-6.5%), offices (-7.4%) and warehouses (-2.0%)
Across Cyprus, rental values for apartments fell by 0.9%, houses fell 1.3%, retail units fell 1.0%, warehouses fell 0.7%, and offices fell 1.3%. Compared to the first quarter of 2010, rents have dropped 6.1% for apartments, 10.7% for houses, 7.1% for retail, 6.3% for offices and 5.8% 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.
Yields are a useful tool showing the relationship between rent and property prices. At the end of Q1 2011 yields stood at 3.6% for apartments, 1.9% for houses, 6.0% for retail, 4.8% for warehouses, and 4.8% for offices.
The parallel reduction in capital values and in rents is keeping investment yields relatively stable and at very low levels (compared to yields overseas). 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 first quarter of 2011 Cyprus bore the brunt of the consequences of the increased uncertainty regarding the Greek economy and the, partly consequential, series of downgrades by rating agencies of Cyprus and of Cypriot banks.
Whilst the first quarter saw some signs of price stabilisation and muted economic growth, the lack of credit and the on-going events in Greece affected sentiment. In turn this led to a low transaction turnover and to reduced interest by local buyers (transaction volume, as recorded by the Land Registry, is circa 40% down from the ten year average).
The renewed investor interest experienced at the latter part of 2010 almost vanished, as companies, funds, and individuals took a “wait and see” approach. There seemed to be some limited investor interest for city centre, prime, properties, although evidence of this is anecdotal.”
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.