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Double-digit falls forecast for property prices

The fall in prices of residential real estate and land in Cyprus are forecast to reach double digits by the end of next year (2014) and they will continue to fall until 2015, but to a lesser extent.

A REPORT published by Leaf Research, a real estate advisory firm, states that property prices will continue to fall over the course of this year and next, with the fall in residential real estate and land prices reaching double digits.

Based on similar parameters employed by PIMCO for its due diligence exercise, Leaf Research concludes that, in the extreme scenario, the fall in property prices will approach 25% by 2015 from their present level.

Based on Leaf Research’s extreme scenario, over the next two years:

  • The price of residential plots is predicted to fall by 30% – 35%, while the price of commercial plots will fall 18% – 22%.
  • The price of apartments situated in central and other urban areas are anticipated to fall 15%, while those in secondary and tourist areas by 15% and 10% respectively.
  • Depending on their category, the price of offices will fall between 13% and 25% (larger falls for Grade B/C space).
  • The price of shops will also fall, as local’s spending power is eroded by higher unemployment, an increase in taxation and a decrease in average salaries due to pay cuts and pay freezes. Those in the commercial centres will fall by 26%, those in other urban areas by 22%, while the value of shops in tourist areas will fall by 8%.

Leaf Research expects that property prices will reach their lowest point in 2015/2016, when they will have fallen from their 2008 values by:

  • Residential property: 40% – 50%
  • Commercial real estate: 45% – 55%
  • Land: 60% – 70%

(These percentage falls are quite similar to those in Ireland and Spain).

Leaf Research believes that at their present values, properties are overpriced and beyond the purchasing power of the domestic market.

The local market currently accounts for around 80% of transaction volume; with household debt being one of the highest in the Eurozone having increased by 91% since 2006 (housing loans have increased by 201% over the same period). This high level of indebtedness combined with a high and rising unemployment rate may lead to a situation of a prolonged recession as local households are trapped in negative equity as the economy continues to contract.

As a result of their non-performing loans, banks may have to sell-off the collateral (real estate) underpinning those loans. This will put further downward pressure on property prices especially as the situation with the creation of the asset management company (AMC) which will take over the loans becomes clearer.

On a more positive note, the Company anticipates that the top end of the market will continue to improve as the recovery in the global economy continues.

Further reading

Cyprus Economy and the Property Market (2013-2014) – in Greek

Readers' comments

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  • Costas Apacket says:

    When you have ‘artfully’ made your bed, you have to ‘artfully’ lie on it.

  • John Swift says:

    How long did some people expect it to last? Back around 1999 when we started looking regarding settling here when I retired in 2008 we could have sold our 3 bed semi and still had a nice little nest egg after buying in Cyprus, in 2008 it was the other way round we’d have had to take cash out of our pension funds to top up a purchase in Cyprus a country where the basic wage is well below that of the UK.

    The days of listening to ex-pats in Tala Square boasting “My property is now worth £X pounds up £30k from 3 months ago” are over for the time being.

  • Martyn says:

    We are well into the ‘No Surprises’ zone now. The Golden Geese are dead or dying, little got done, even started, by the outgoing government to ‘stop the rot’, address fundamental flaws in the economic, financial and social, employment structures.

    The predictions by Leaf and others seem to reflect also the potentially massive backlog of banks’ property-related problems and of course the huge stock of unsold new and ‘unfinished’ ‘sub-standard’ properties. We have seen over the last 5 years the severe impacts in the US, Ireland & Spain and can now only expect the same, or, because of the ‘heads in the sand’ attitudes, worse, in Cyprus.

    The image of Cyprus property, it’s flawed legal, financial and and funding systems, is now fully tainted and the dire impacts can be expected to work their way through for many years. So predicted 40-50% falls in values seem to be realistic. And when might the Nadir be reached? Can’t personally see less than 5 years hence – and that would be with a pragmatic government starting next week to seriously address the bucket-loads of inter-connected problems – and ensure the flow of early new revenues from Med-gas. Meantime expect growing social and other problems that we have evidenced elsewhere. We should make sure our Safety belts are fully fastened and, if we can, keep back some funds to reap some of the belated benefits when the Upturn finally arrives. 2018 maybe?

  • The views expressed in readers' comments are not necessarily shared by the Cyprus Property News.

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