DESPITE tax incentives introduced by the Cyprus government in efforts to boost the island’s property sector, the number of properties bought during 2012 hit a record low.
The latest figures from the Department of Lands and Surveys reveal that property sales across Cyprus in 2012 fell to a mere 6,269 from 7,018 in 2011. As can be seen from the chart below, this is the lowest number of sales on record and less than half the number sold more than a decade ago in 2000.
The rise and fall of the property market
The collapse of the domestic market, which started in 2004, resulted from rocketing land prices. Although salaries kept pace with construction costs, land prices shot up more than five times between 1998 and 2008 pricing many local buyers out of the market.
The overseas market, which started to take off when plans for Cyprus to join the European Union were announced, reached its peak in 2007. Its collapse in 2008 was precipitated by the financial turmoil that engulfed the world and the nefarious activities of rogue property developers, lawyers and estate agents that received much publicity in the foreign media with questions being raised in the UK and EU parliaments.
Outlook for 2013
It will come as no surprise that the outlook for the property sector in 2013 remains bleak and that it will be significantly worse than 2012.
Speaking to StockWatch, property valuer Polys Kourousides said “The New Year will continue to be problematic and there will be no recovery because there are four factors that have negative impacts”.
According to Mr. Kourousides, the negative impacts are the lack of liquidity in the market, high interest rates that prohibit any investment, lack of confidence and the high levels of bad debts that will lead to a fall in property prices under the new methodology.
According to the Cyprus Central Bank property price index, house prices continued their downward spiral of recent years, with an annual decline of 5.8% in the third quarter of 2012. This is roughly in line with the RICS Cyprus index with an annual decline of 6.0% in residential property prices.
Lakis Tofarides, chairman of the Cyprus Land and Building Developers Association said that “things are so cold in the market that anything could be positive. The February elections will contribute to boost the negative sentiment”.
Solomon Kourouklides, vice president of the Cyprus Real Estate Agents’ Association said “With the completion of the election, uncertainty about the economy will be raised, provided that the new government will act more decisively and will fulfil all procedures on the memorandum. This will be the beginning of the beginning since liquidity will be injected in the state and banking funds”.
This will create a positive prospect provided that funds will be injected to SMEs in Cyprus while the people’s psychology will begin to stabilize and then to be reversed”.
“There is a small ray of hope that properties with the drop in prices will become more attractive for the foreigners, who seem to be the only ones who can buy without a loan”, he added, stressing, however, that recovery is not expected before 2014.
The Financial Mirror concludes that 2013 will be another “Annus Horribilis” for Cyprus based on a consensus of the views expressed by a distinguished panel of seven economists.