The Central Bank of Cyprus has expressed its concern over the soaring price of building materials, sending the cost of construction to skyrocket to new highs and pushing property prices further up.
In its December bulletin on the island’s economy, CBC noted that the real estate market would have to be closely monitored in a bid to stop house prices from being derailed by rising construction costs.
The monthly financial bulletin states that, “increased demand from domestic buyers is favoured by the continuing environment of low interest rates, while lending criteria remaining relatively stringent indicates that, to a large extent, new mortgage lending will continue to be viable”.
It noted that the increase in the cost construction materials, especially in the third quarter of 2021, has played a significant role in the rise of housing prices.
“This makes it particularly important to continuously monitor the real estate market to determine to what extent if it will affect prices in the sector and its recovery,” said the CBC.
Real estate stakeholders have said that the unprecedented increase in the cost of building materials pushes prices of new properties up by more than 20%.
The central bank noted that it will be monitoring how the rise in the cost of building materials will interact with the island’s epidemiological data and the commercial banks’ efforts to offload property obtained through foreclosures and debt to asset deals.
As recorded by the CBC, housing prices in Cyprus marked a recovery in the first half of 2021, especially apartments, in contrast to the prices of commercial real estate, which saw reductions during the same period.
House prices up in Q1 and Q2
According to available data from the Residential Property Price Index (RPPI), compiled by the CBC, during the first and second quarters of 2021, house prices recorded quarterly increases of 0.5% and 0.3%, respectively.
On the other hand, according to data from the RICS Cyprus index, prices of shops, warehouses and offices decreased in the first half of 2021 by 5.2%, 4.3% and 0.9%, respectively.
Apartment sales have been the driving force behind the increase of housing prices in the third quarter, according to CBC preliminary data.
“This upward trend in prices is supported by the government’s scheme for a partial interest rate subsidy for new mortgages and the low-interest environment in the domestic market. Also by the promotion of investments and incentives for headquartering high-tech companies, as well as the programme for obtaining a permanent residence permit in Cyprus through the purchase of real estate by foreign investors”, it pointed out.
As the CBC noted, the increase in house prices is in line with broader macroeconomic developments, such as the island’s GDP growth rate.
More recent indicators, such as the real estate price expectations index for the next three months published in the European Commission’s Economic Conjuncture Surveys, are in line with the upward trend of the sector, recording a positive sign in the first half of 2021.
Nicosia main driver
Once more, Nicosia has proven to be the driving force behind the industry’s recovery following the demise of the citizenship for investment scheme in late 2020, which had been powering the growing construction and real estate sectors in recent years.
During the first ten months of 2021, real estate sales recorded an island-wide annual increase of 21.6%, which corresponds to an annual increase of 29.4% and 9% in sales to domestic and foreign buyers, respectively.
Compared to the first ten months of coronavirus-stricken 2020, sales in the capital increased by a whopping 37.6%. Even more striking, sales in Nicosia increased by 38%, compared to the same period in 2019.
Although short of pre-2008 levels, before the real estate property crisis hit, property sales figures have been on the rise in recent years, seeing the market stabilise at its highest mark for over a decade.
Property prices in Cyprus have bounced back by 87%, compared to the first quarter of 2008, according to a recent bulletin from rating agency DBRS.