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Thursday 6th August 2020
Home Investor Centre Property price correction is not over

Property price correction is not over

property pricesIT IS IMPOSSIBLE to share the view that property prices had hit rock bottom and would now start moving upwards. This opinion, expressed in this paper by the sales director of a big estate agent, could only be described as wishful thinking.

The property market is such a complete mess that nobody could say with any degree of certainty that it has bottomed out.

Even the figures do not support this claim. Since the last quarter of 2008, just after the peak of the housing boom, residential property prices have fallen by an estimated 23 per cent. This is a very small percentage considering we are talking about a property bubble, financed by easy bank credit. Given the crazy prices at which land and apartments were selling for in 2006 and 2007 a 50 per cent plus decline in values would be a more realistic correction.

Of course, in Cyprus because of the size of the market and the low number of transactions it is very difficult to have reliably accurate price indices. A few transactions could influence the price index, in either direction. There is also the habit of Cypriots to set a price for a property and refuse to sell for anything less even if there are no buyers at that price; the person would still claim that this was the value of the property.

This is set to change over the next few years as the foreclosures begin. People with bank debts they cannot repay would be forced to sell while the banks would put an amount of properties on the market. There would be a relatively large supply and a relatively small demand because of the illiquid banks, something that is certain to push prices down. Even if the banks try to control supply in order to protect property prices the trend would be downward.

Perhaps we should ignore economic data and apply some common sense. Is €700,000 a realistic price to pay for even a luxury 3-bedroom flat in a new block in Nicosia, given the average salaries and the tiny size of the economy? This is Nicosia, not Paris or London. But during the bubble years common sense went out the window. Now that most people have come back down to earth, they will not rush to buy a property until they feel there has been a full correction of the market. And if current prices are anything to go by, we have still some way to go before the correction is complete.

8 COMMENTS

  1. My sister (against my advice) wanted to buy in Cyprus but the prices asked for seem not to have changed significantly. In fact, a big developer website shows increased prices compared to June 2013. I don’t understand how prices can go up now or am I missing something.

    After talking to other people with title issues, she is reconsidering. Cyprus with its beautiful weather and lifestyle is very attractive and I would highly recommend it only if you can ensure your investment is protected from unscrupulous people.

  2. Overheard at a coffee shop in Limassol (of which there are many) between Andros and his expat friend Bob (no relation).

    Bob: Andros, you seem happy.
    (He follows Andros’ gaze through the window which leads to a beautiful, shiny new Mercedes (illegally parked)).

    Bob: Wow, nice motor!

    (Andros smiles appreciatively. Smile is curtailed as a mask of horror sweeps Bob’s face as realisation dawns).

    Bob: But Andros, where did you get the money? You can’t service your existing loans, you haven’t sold a property nor even had a viewing for years and, if truth be told, with the amount of debt you’ve got stacked against your portfolio, that I‘m sure even YOU don’t know all of, only a completely CRAZY person would buy one of your flats as more is owed against them than they could EVER be worth!

    (However, Andros’ smile does NOT fade. Bob feels slightly reassured). Realisation dawns.

    Bob: You’ve sold another flat, haven’t you? You old devil!!

    (Andros looks sheepish, but proffers a nervous explanation…)

    Andros: Well, you know Christos (a frenemy also with properties on the market, probably for longer than Andros)? He’s a very clever man, very educated. Well, he recently read an article in Buy/Sell magazine and saw a Cyprus RICS report that confirms the worst is over and that now is a good time to buy property. So, he put up the price of his flats.

    Bob stares incredulously. Andros continues.

    Andros: MY flats are much nicer than his, agreed?

    Bob nods concernedly. Andros continues.

    Andros: So, mine are definitely worth more. He has 10 unsold at now €50,000 more, so he’s now worth half a million Euro more! I’m a modest man and will only increase my price by €30,000, so now I’m worth €300,000 more. So, not only can I buy the Mercedes, I can take Fanoulla and the kids on holiday to Disneyworld in Florida this year! Christos and Maria went to Disneyland Paris last year; they had a great time. (He smiles sweetly at the thought of the marital-brownie points the holiday will score with Fanoulla).

    Bob: So, let me get this straight. The property that you WERE NOT SELLING at the old price has gone up in value not because there are people willing to buy it for more but because your friend’s property, THAT HE WAS NOT SELLING at the old price has gone up in price. So you now have 10 properties on the market for a higher price at which YOU WILL NOT SELL. For God’s sake Andros, how does that make you richer (apart from on paper)? What does your Bank Manager say?

    Andros: My koombarro? He’s the one who lent me the money for the car!

    Bob bangs head on table repeatedly, dislodging sugar from bowl. Waitress comes over to table concerned but before she reaches, her vision is captured by shiny new car being ticketed by Parking Warden. She smiles appreciatively.

    Andros (to Waitress, suggestively, puffing out hairy chest and, on cue, another button on shirt pops open to reveal more man-rug): Yes, it’s my car. You like…?

  3. @John Swift – Property prices were fuelled by the boom, when demand outstripped supply – plus ‘exaggerated’ claims/promises by the more nefarious developers.

    Prices now are probably back to their 2005/6 levels.

    As RICS remarked in its latest Property Price Index “there is still room for re-pricing of capital values to take place.”

  4. Am I missing something here? How do you put a price on something which doesn’t have clear ownership? If the property has a valid title deed then you could make a reasonable estimate in its value. If it doesn’t have a clear title then, in my laymans opinion, it’s worth a purely speculative sum. It becomes a gamble. That means it’s only worth what the speculator wants to pay. That’s assuming the seller is up front and tells the speculator that it doesn’t have a title or the speculator’s lawyer bothers to tell them it’s worth jack s**t as there isn’t a title!

  5. I feel sorry for those who bought in the ridiculous times when Cypriot properties exceeded UK prices (obviously not London).

    In 1998 we decided to eventually retire to Cyprus in 2008 on my retirement.

    In 2008 due to the fantasy-land prices being asked we would need to take out a mortgage in Cyprus to top up the price as our UK house would no longer cover the cost a modest Cyprus property i.e. 2 bed detached bungalow/house. By that time we were down to an apartment or town-house.

    Even renting had got expensive 600euros PCM for a small 2 bed bungalow up in the hills.

    Our friends bought a bungalow in Tala in 1997 for £45k by 2006 it was valued at £275.

  6. As this article refers to a previous one by the Sales Director of BuySell Cyprus which was generalising then generalisations are acceptable. As far as I am aware there are no break even points for properties for sale, they either sell at whatever the market is prepared to pay or remain unsold at the price the seller will not compromise on. I’m sure we all aware of properties offered for sale (invariably via BuySell) in 2005 which remain unsold to this day at the original or subsequently inflated price.

    I believe the opening sentence is justified in that anyone believing that prices are about to increase are definitely living in cloud cuckoo land and I would add suffering delusions from their position in the property sales business.

  7. Generalising can be misleading.

    Nicosia is perhaps the last one expected to recover but it seems that prices have reached and in some cases surpassed their break-even level making it hard for sellers and banks to reduce prices further.

    Properties in seaside areas should not be grouped as one but rather one should examine individual markets e.g. properties on the beach or at a walking distance from it have their own market as opposed to properties directed toward the local market. Furthermore, good quality properties with good property management cannot be compared to property of lower quality usually without property management.

    Generally, good quality property is retaining its value and does have appreciation prospects in spite of the crisis.

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