THE seventh issue of the Property Price Index, published by RICS Cyprus, reports that prices and rents across Cyprus’ major urban areas continued to fall during the second quarter of 2011.
In his commentary on the Index, Pavlos Loizou MRICS, Board member of RICS Cyprus writes: “During the second quarter of 2011 Cyprus economy and banks, in particular, bore the consequences of the decoupling of the Greek economy. This led to a loss of optimism as discussions by parliamentarians and government officials escalated as to the measures that the government should take in order to reduce its expenditure.”
“Whilst the first quarter saw some signs of price stabilisation and muted economic growth, the second quarter saw foreign investors postpone their decision making as companies, funds, and individuals took a “wait and see” approach. In turn this led to a low transaction turnover and to reduced interest by local buyers as they were affected by the increased tension between government and parliament.”
During the second quarter of the year (before the devastating blast at Mari naval base), average residential prices for houses and apartments fell by 1.0% and 2.7% respectively. The biggest drop for both took place in Larnaca, where house prices fell by 3.2% and apartment prices by 7.2%.
Average values of retail properties fell by 4.4%, whilst those of offices and warehouses fell by 2.2% and 1.7% respectively.
Compared to the fourth quarter of 2009, prices for apartments have fallen by 15.1% and those for houses by 9.9%. Retail prices have fallen 12.2%, offices are down 9.0%, and warehouse prices have fallen 6.4%.
Over the quarter, average rental values for apartments fell by 3.1%, retail units by 4.1%, warehouses by 5.4%, and offices by 2.0%. In contrast, rents for houses rose by 1.3%.
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 to attract tenants.
Yields are a useful tool showing the relationship between rent and property prices. At the end of the second quarter of 2011, average yields stood at 3.6% for apartments, 2.0% for houses, 6.1% for retail, 4.6% for warehouses, and 4.8% for offices.
The parallel reduction in capital values and 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.
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.