CENTRAL Bank of Cyprus (CBC) has advised commercial banks to avoid mass selling of mortgaged properties, expressing concern that this could lead to a sudden drop in real estate prices, a statement said on Monday.
“Mass selling of properties could lead to a sudden drop in real estate values, thus creating a negative interactivity between the real economy and the banking sector,” CBC warned in a report on financial stability posted on its web site.
CBC said that during 2018 the real estate market continued its gradual recovery which started in the first quarter of the previous year, thanks to the growth of the economy and the improvement in the real estate sector.
The prices of properties had contracted as much as 30 percent after the 2013 crisis.
However, the report said, since the start of 2017 an increase in demand of apartments by local buyers and luxury housing by foreign investors under the so-called residence for investment program was recorded.
Purchase deals submitted to the Land Registry Department during 2018 showed a yearly increase of 5.8 percent, the report added.
Investment by non-Cypriot buyers represented 47.3 percent of registered purchase deals, of which 15.5 percent came from EU nationals and 31.8 percent from nationals of countries outside EU.
The report said that the Paphos region recorded the biggest number of land deals by non-Cypriot nationals with 40.4 percent of the total deals in 2018, with Limassol in second place with a share of 29.7 percent.
Russians had the biggest share in property investment in Limassol.
Larnaca was third in foreign property investments with 15.8 percent, Famagusta was in fourth place with 8.8 percent and the capital Nicosia in fifth place with 5.3 percent.
“The rise in real estate prices and particularly of apartments in some areas of Limassol district reflects extensive large infrastructure projects development and demand for high-value residence housing by non-Cypriots in the context of the Cypriot Investment Program,” the report said.
The program, which has been criticized by the European Union as posing a possible security factor and as a risk of facilitating organized crime to launder money, enables non-EU nationals to invest in properties or in high yield business in exchange of a Cypriot (EU) passport of residence permit.
“Investment through the Cyprus Investment Program seem to have an indirect rising effect on real estate prices, and most notably on the prices of apartments, especially in sea-side areas of Limassol district,” the report added.
Apartment prices in Limassol went up by 6.9 percent, 6.1 percent and 8.7 percent during the first, second and third quarters of 2018 respectively, according to findings of the Royal Institute of Chartered Surveyors (RICS).
It said that these increases surpassed the increase in the price of apartments in other areas of Cyprus.