THE HOUSING market in Cyprus is set to slowdown in the medium term according to the 93 page European Commission report 2020 European Semester country report for Cyprus released on Friday.
The report says that the registration of contracts for property sales considerably decelerated during the second half of 2019, 0.7% year-on-year, compared to 24.4% in the first half.
Adding that this possibly reflects the slowdown of applications for the investor citizenship scheme pointing to a modest expansion of the sector in the near term as there is only a slight upturn in domestic demand.
Foreign demand for housing
Foreign demand for high-end new residences has been the key driver of the housing market’s recovery in the aftermath of the crisis. From 2014 to 2017, sales of properties rose in double digits. In 2019 and 2018, sales of properties increased by 12.2% and 5.8%, respectively. Foreigners, predominately non-EU nationals, accounted for almost 50% of the total properties sold since 2014.
Sales were concentrated in the coastal areas and concern mainly luxury apartments and villas. In the first half of 2019, a spike of sales was observed reflecting the surge of applications to the investor citizenship scheme following the announcement in May 2019 of revisions to the scheme.
The compulsory purchase by a resident of a property worth at least €500,000 under the scheme coupled with the traditional foreign demand for second homes in a holiday destination are the main drivers of the housing market’s recovery after the crisis.
Residential property prices are picking up, but so far remain contained. Housing prices increased for a fourth year in a row, but remain below the pre-crisis levels.
The rise is greater for new residences, with foreign demand leading to substantial price differences among regions.
A possible slowdown in foreign demand and re-sale of properties acquired through the investor citizenship scheme after the compulsory holding period, as well as rising sales of collaterals by banks and by credit acquiring companies should also curb housing prices rises in the medium term.
Rental prices are increasing and the market is highly segmented. Rental prices increased by 3.4% in 2019. The rental market consists of two categories of properties and two sets of rules:
Properties that were built before 2000 are subject to a rental control law that cap rental increases. Initially, the law allowed for a rental increase of up to 14% every two years, but since the crisis, any increase in rent is prohibited.
For properties built from 2000 onwards, rental conditions are defined by the market.
The increasing housing cost, mainly in coastal areas stemming from the investor citizenship scheme has put pressure on the government to announce policies for affordable housing and to increase rent allowances for vulnerable groups of the population.