THE FEDERATION of the Building Constructors Associations of Cyprus (OSEOK) says things are looking as developers see a bright future as big projects are in the pipeline, while others are expected to be announced.
The manager of OSEOK, Frangos Prokopas said that the sector has seen an upward swing that begun in 2017 and has continued into 2018.
He said the federation’s Activity Index has recorded a positive trend for the first time since 2010, standing at +12%. The Activity Index measures the percentage of developers who stated that they saw their business grow in 2017.
Meanwhile, the Work Cycle Index of the Federation measuring the percentage of contractors who have declared that their work load for 2017 was above normal or expected, minus the percentage of those who declare it to be below the norm, recorded a significant improvement too, standing at -37%. The index improved from -92% at the end of 2013, with the base year being 2007
“However, these indices should not be taken literally but should be used as indicators rather than measurements of how many developers actually saw their business grow,” Prokopas said.
He explained that one should look at the trend of the index.
“For example, the Activity index in December 2013 stood at -74%. It was a time were a lot of smaller developers closed shop. Now we see these smaller developers, reopening their businesses and taking on projects along with bigger contractors,” said Prokopas.
He said smaller developers are being sub-contracted by bigger firms who, due to layoffs and other cuts made during the 2013 crisis, do not have the necessary staff or infrastructure to cope with big projects.
But now developers are rather optimistic regarding the future as major projects are in the pipeline or expected to be announced.
“Public works had been put on ice during the previous years and the sector is now anticipating the declaration of big public projects by the government,” added Prokopas.
Between 2013-2018, apart from road works, no big construction projects were put forward by the state. Prokopas said that public works to be announced coupled with the construction of a number of high-rises on the Limassol and Paphos coast – which are to take off in the next few years – will give a serious boost to the sector.
Prokopas is encouraged that the sector has started to disengage itself from its dependence on projects connected with the investment for citizenship scheme. He said that the focus of the construction sector is currently concentrated in two main activities, apart from luxury projects on the southwestern coast of Cyprus. He said that there is a significant number of houses being built in the capital.
“In Nicosia we see houses of all sizes being built, with a large number of luxury houses also being raised,” said Prokopas. He added that in Limassol there is a rise in demand for apartments as offshore companies, involved in the natural gas exploration, are bringing more employees to the town.
Prokopas insistence that a significant part of the industry’s activity is concentrated on housing are backed by Cystat figures showing that 70.4% of the 1,984 building permits issued in the first four months of 2018 were for residencies.
Furthermore, fortifying the argument that the industry is turning to the local market, 744 of building permits were issued for projects in Nicosia, a market dominated by Cypriot buyers.
A real estate analyst told the paper that is comes as no surprise that a significant chunk of activity regards the construction of houses. “It’s only natural that the key finding of all reports surrounding the sector is that a significant chunk of the industry’s activity concerns housing.”
“Neither should it come as a surprise that Nicosia is leading the statistics regarding building permits,” the analyst added.
Similar surveys found that Nicosia has seen property sales go from 1,200 in 2016 to 1,485 in 2017.
The analyst explained that the housing needs of locals were put on ice during the years of the crisis as people were living with uncertainty of the times.
“Now as the economy is stabilizing, people feel more confident to take out a mortgage, as the banks have started to give out loans, or to invest cash they have been saving up over the past five years.”
The analyst also said that the significant increase in numbers of students studying at the Nicosia based universities has created a shortage in housing which has pushed up demand. That along with the various student dorm projects being carried out, a significant number of blocks of flats are being build.
“I’m encouraged that the building sector is reinventing itself and becoming more diverse and less dependent on one type of investment.”
A word of caution
Veteran property watcher Nigel Howarth is not so convinced about the sector making positive strides.
“I believe there’s another bubble in the making and I give it two or three years before it bursts,” said Howarth the editor of Cyprus Property News.
He said nearly 50% of the property contracts deposited at Land Registry offices in the first half of the year were for properties purchased by non-Cypriots – and out of the total number of 4,470, almost a third (1,522) were for properties bought by third-country nationals.
“I don’t know how many of these third-country nationals bought in the hope of obtaining Cypriot citizenship. But as the government is restricting the number to 700 a year, I expect quite a few are going to be disappointed. “
Howarth said selling expensive properties like high-rise developments was not really benefitting the economy.
“And how many of these expensive developments are going to be occupied permanently? How long is it going to take them to fall into disrepair?”
There is also the problem in the banking sector with non-performing loans.
“The Cyprus construction sector has the highest ratio of non-performing loans in Europe (74.9%) – it’s even worse than Greece (67.1%). The real estate sector doesn’t do much better – it’s non-performing loan ratio is 39.3%, the third highest level in Europe.”