Cyprus property price slump continues

ACROSS Cyprus, property prices continued to fall in most areas of the island during the third quarter of 2012, according to the twelfth edition of the Property Price Index published by RICS Cyprus in conjunction with the Association of Quantity Surveyors and Construction Economists (??????).

Over the quarter, the prices of residential apartments and houses fell by an average of 0.4% and 1.1% respectively.

The price of apartments in Paphos increased by 3.8% compared with the previous quarter, while those in the Paralimni/Famagusta area remained steady. However, prices in Limassol fell by 1.5%, while those in Nicosia and Larnaca fell 1.3% and 2.1% respectively.

House prices in Paphos and Paralimni/Famagusta area remained steady. But prices in Nicosia fell by 0.3%, while those in Limassol were down 1.1% and those in Larnaca were down 4.6%.

Commercial property prices also declined. The prices of retail properties fell by an average of 7.1%, while those of offices and warehouses fell by 3.3% and 2.8% respectively.

RICS Cyprus commentary

During the third quarter of 2012 the Cyprus economy bore the consequences of the slowdown in the economy, the lowering of the sovereign’s and the banks’ rating, and the continuing political turmoil in Greece. The worsening state of the Cyprus economy and the growing political and economic uncertainty across the eurozone, led to a pronounced slowdown in mortgage and corporate lending and a further rise in the rate of unemployment.

There has been a minimal number of investment transactions during the first half of 2012, with the third quarter lacking any notable transactions except the sale of some prime homes in the Limassol area.

Property, both commercial and residential, is increasingly viewed as a risky asset and one with negative prospects in the near to medium term. Local buyers in particular were the most discerning as the increase in unemployment and the worsening prospects of the local economy led to a sharp reduction in interest.

Price changes over the past year

Compared to Q3 2011, the average price of an apartment has fallen 6.4% and the average house price has fallen 6.7%.

Commercial property prices have fallen 15.1% for retail, 10.8% for offices, and 10.8% for warehouses.

Gross rental yields

Yields are a useful tool showing the relationship between rent and property prices. During the third quarter of 2012, average gross yields stood at 3.8% for apartments, 2.0% for houses, 6.2% for retail, 4.8% for warehouses, and 4.6% 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). This suggests that there is still room for re-pricing of capital values to take place.

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

(All property types used to calculate the index are: freehold, have all licences and permits in place, have their Title Deeds, are subject to VAT and are in a good state of repair).

Methodology

The methodology underpinning the RICS Cyprus Property Price Index was developed by the University of Reading UK and may be viewed by clicking here.