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Severe property slump grips the island

The second quarter of 2013 saw property prices across Cyprus experience one of their sharpest falls in recent years as a consequence of decisions taken by the Eurogroup on 15th and 27th March.

THE FIFTEENTH edition of the RICS Cyprus Property Price Index, which is produced in conjunction with the Association of Quantity Surveyors and Construction Economists, reveals that the fall in property prices across the island accelerated in the second quarter of 2013

Over the quarter, prices of residential apartments and houses fell by an average of 4.2% and 5.0% respectively.

Apartment prices in Paralimni/Famagusta fell 6.7% over the quarter, followed by Nicosia (-5.2%), Limassol (-3.9%), Paphos (-3.3%) and Larnaca (-2.4%).

House prices in the Larnaca fell 9.2% over the quarter, followed by Paralimni/Famagusta (-6.6%), Nicosia (-4.1%), Paphos (-3.0%) and Limassol (-2.6%).

RICS Cyprus commentary

During the second quarter of 2013 Cyprus bore the consequences of the decisions of the Eurogroup on 15 and 27 March to “bail-in” the depositors of two of Cyprus’ largest banks, to close down Laiki Bank, and to impose capital restrictions. The implications of these decisions were unfolding throughout the quarter, with no bank finance being available and deposits being blocked in bank accounts.

Given prevailing economic conditions and the turbulence in Cyprus’ banking system, there was a lack of transactions during the quarter. 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. Furthermore, those interested were unable to access bank-finance or their deposits.

Price changes over the past year

Compared to Q2 2012, the average price of a residential apartment has dropped by 12.6%, while the price of an average house has fallen 11.2%.

Prices for commercial property have also fallen, with the price of retail units falling by 23.3%, while the prices of offices and warehouses have fallen by 13.0% and 14.8% respectively.

Gross rental yields

Yields are a useful tool showing the relationship between rent and property prices.  At the end of Q2 2013 average gross yields stood at 3.8% for apartments, 2.0% for houses, 5.6% for retail, 4.5% for warehouses, and 4.3% for offices.

Derived from the RICS Cyprus Property Price Index for Q2 2013

Derived from the RICS Cyprus Property Price Index for Q2 2013

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).

Monitoring Process

The estimation of price levels is carried out by accredited RICS property professionals who are active in the relevant markets.

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.

Readers' comments

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  • Gavin Jones says:

    Statements from the likes of Pan and others are indicative as to why Cyprus has disappeared down a black hole. In short, there’s an inbuilt inability and/or unwillingness to face reality and react accordingly.

    The Cypriot property market is bust, just like the state and banks. Bust, bust, bust. And this is just the beginning. Weasel words, wishful thinking, unprofessional behaviour and downright corruption have brought the island to its knees. The property buying public as well as the international community have rumbled it – at last – and it’s endgame.

  • john rose says:

    I thought I was on a comic site

  • Martyn says:

    Pavlos: I have had the greatest respect for much of what you have written on Cyprus/Cyprus Property in the past. But I’m afraid your formulae for these reports seem to contain no provision for major shocks, aberrations, ‘black swans’, massive sudden downturns in economic performance, massive bankruptcies and failures in the business markets, bank bailouts, bail-ins, bank failures, capital movement controls and the like, all deliberately delayed over 5/6 years of total denial (that there were any problems!).

    All this together equals ‘Catastrophic’, I’m sorry but I can’t think of any more appropriate word, Cyprus economy and Cyprus property markets generally are imploding, the huge uncontrolled growth of property and land development has finally exposed far too many ‘cosy’ arrangements between developers, their bankers, their lawyers – which will take years to unscramble even with a government that commits to ‘sorting’ the problems – and still the politicians of the day would like us to think ‘things really aren’t as bad as they’ve been painted’.

    I’m afraid that ‘on the ground’ many of us can see little or no sales activity, masses of unsold and unfinished properties abound and there are long-term quality and legal disasters, including Title Deeds fiascos, being aired almost everywhere. Add to this the Troika are insisting that much greater taxes will have to paid from next year on almost all Cyprus properties, which, however necessary economically will merely push ‘values’ down even further.

    I do hope your next quarterly surveys take into account many of the serious problems, challenges regularly mentioned on this Forum.

  • Steve says:

    The TV programmes on buying property abroad are, so my wife tells me, punting Cyprus and Greece as the places to look for bargains, but, just as happens in the share market, the bargain hunters are waiting for the bottom and every fall in the index serves to encourage them to wait longer.

    When the market does turn, the gains will probably be impressive, but off a low base. Attention will turn then to the infrastructure that buyers need to furnish and maintain their properties, fix the garden and so on. These services are disappearing, as anyone driving in and out of Paphos or Limassol can see, in particular the shops targeting goods and services to British buyers. The sight of these rows of empty shops, offices, supermarkets (Orphanides, for one) and warehouses will slow the recovery just as effectively as will lack of title deeds. Here, the basic cause is the surreal, Walter Mitty world of the Cyprus property industry where Chinese buyers are quoted €300,000 for poky one-bedroom flats.

    Buying property is akin to going to the watering hole in the jungle; no one drinks until everyone drinks and everyone is nervous about making a mistake.

  • Cydee says:

    Any landlord with property in the Paralimni area asking €421 p.m. rent for a 3-bed semi has the house left empty; even for a detached 3-bed new tenants will not pay this rent.

  • Pavlos Loizou says:

    Dear commentators

    The full report of how the index is calculated is at the bottom of the article.

    In summary, the RICS has defined what a “standard” unit for each type is. These units are theoretical (ie they are descriptions of buildings and not existing buildings). All of these buildings are assumed to be in predefined central locations (plus we exclude all properties with sea view or properties which target the overseas market). In this way we have standardized property across Cyprus, which allows us to compare across districts (same property) and over time (as these are hypothetical properties they don’t age, so we are always comparing like for like).

    These units are then valued by three valuers per district – 15 in total – so that no one valuer can significantly affect the index.

    The above is very similar to how most price indices in the UK and in other countries are produced. Its almost identical to how the big international consultants – CBRE, JLL, etc – build theirs also.

    Pavlos Loizou – Leaf Research – In charge of RICS Cyprus’ price and rental index.

  • David says:

    Having always wanted to move to Cyprus and having now retired. We have over the last 10 years been an avid viewer of the property market. From the outside looking in, it’s obvious that advertised prices have no credibility. You can ask what you think your property is worth, but if no one wants to buy at that level (eventually) it will fall if you really want to sell. Against other countries Cyprus looks so overvalued it’s no point in buying. When prices have been reduced by at least another 30% to 50% Cyprus will come back into line with the other countries.Cyprus has become an expensive country to live in.

    HOWEVER there is still the fear of buying in Cyprus for the well documented reasons.

    By the way, I think Pan’s comments come over as though he has a vested interest in being overly positive !!!

  • Stuart says:

    Irrespective of whether the Property Price Index is right or wrong, the overall message can only be that Cyprus is now, to all intents and purposes, a “no-buy-zone”.

  • Costas a Fortune says:

    With all the bad publicity Cuprus gets regarding property it’s no wonder prices are falling and nobody wanting to buy on this island. Demonstrations at property fairs in England, court cases against developers, banks, and lawyers all mean there is little trust left to give this island . Purchasers from all over the world read blogs on the Internet and hear so many horror stories they are constantly being put off from even setting foot on this time bomb of an island .

  • Martyn says:

    Firstly, Pan:

    This is not ‘one guy’, this is the Royal Institute of Chartered Surveyors, Cyprus and their Report gives their methodologies. Most of us know and respect RICS in the UK, they seem to be known and respected throughout the world for their knowledge and analyses of ‘all things land and property’

    BUT If you think the Values are too LOW then read the other Comments….and here I will add mine:

    The Majority of us reckon that the Values quoted are too high, there is virtually NO market, other than at ‘distress’ or ‘repossession’ prices, nor will there be in the estimation of many of us for several years to come.

    Cyprus is, like Ireland, Spain, Greece & Portugal before it, going through massive economic adjustment, here very belatedly because of incompetent previous government, extremely poor banking practice, banks, property developers and lawyers often in the past ‘in cahoots’ to keep the Cyprus property bubbles alive. Now, via Troika and Bailout/Bail-In, the harsh truth is emerging. Thousands, probably 10s of thousands of houses empty, many more part-built and/or abandoned. The Bubble has well and truly burst. It’s a Mess…. But read on:

    earlier this week we read that many, many more properties and developments supported by ‘non-performing’ bank loans will via so-called ‘Bad Bank’ very likely be hurried onto an already highly depressed market, sold off at ‘bargain basement’ prices, pushing values yet lower,

    In my personal view the RCIS Cyprus Report reads altogether too optimistic. On freehold/long leasehold values take a further 20% off their main estimates would be my advice, and the try find a Buyer. There are very, very few out their – and the Euro vultures are likely to swoop very soon to take advantage of plummeting values and prices. This we have seen over recent years in the US, in many parts of Spain and Portugal, and in ‘little old Ireland’ where many property values fell by 50-60% until some of their rigorous ‘austerity’ measures finally began to work.

  • Denton Mackrell says:

    Yes these prices don’t look right. Are these means or medians? I suspect the latter i.e. skewed in practical terms. For example, a typical 3-bed house in Larnaca would be hard to sell at Euro 289k, more like 250k or less. If 289k is a median price in a range, say, of 189k to 389k then it has some validity as a figure.

    However, if it is a mean asking price in that same range it is nonsense. The reality on the ground is a mean somewhere around 210-250k, with an actual sale price less than this.

  • MarkD says:

    I would say these prices are wildly optimistic. It took me 2 years to sell my apartment (un lived in) for €75,000 on the outskirts of Paphos! This was before the bailout!

  • Konstantin says:

    To other commentors. What are you talking about? Have you heard about recent crisis? Are YOU both from other planet? Prices are falling down for sure. My apartment is on sale for 1 year and nobody interested. In reality prices are much lower than official statistics, don’t fool yourselves.

  • Costas Apacket says:

    Pan, I’m very interested in your comments at 12.33 today.

    Are you a property professional?

    What and where are your sources of infomation that support your claims that the figures and commentary above are pathetic and nonsense?

  • Brian J. Newton says:

    Don’t see the point of continually quoting official figures, which bear little resemblance to reality.

  • Pan says:

    I think this guy is on a different planet, seriously.
    The figures he gives are pathetically low, has has no idea.

    Check this comment:

    (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).

    Yeah, ok, so he has checked all the details has he, and title deeds, give us a break. This loses him any credibility. It is idiots like this that paint an even bleaker picture on Cyprus by spout such nonsense.

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

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