The steady increase in property prices is a serious challenge that has not been adequately addressed by the state, Founding Director of Limassol property developer Imperio and Deputy Chairman of the Land and Building Developers Association, Yiannis Misirlis said.
At least four to five years are needed to stabilise both property prices and rent levels, he added. This is why it is imperative that the government offers a few incentives to reverse the continuing trend of low supply. In this way, Misirlis stressed, the current increased demand will be adequately covered, leading to a stabilisation in property prices.
Based on official government statistics, apartment prices have been increasing over the past few months. Why are apartment prices rising at a higher rate than houses?
The increase in the prices of apartments is a major challenge, especially for young couples. To find solutions, we need to explore this issue in depth, focusing on the real reasons behind the sharp increase in prices.
The recent report of the Central Bank of Cyprus (CBC) on the house price index, as well as articles that attempt to analyse some aspects of the problem, identify only a few of the ways in which it could be addressed, such as monitoring the continuously increasing prices of construction materials globally.
However, perhaps the most important, yet often neglected, factor that contributes to the increase of prices is the reduced supply of suitable properties. For years, the supply of apartments has been lower than demand, and this situation is not expected to improve any time soon. On the contrary, it is safe to say that supply will drop even more over the next three to four years, as developers are putting off new projects.
How can we solve the issue of rising prices?
In the long run, the market tends to correct itself. This however, requires the existence of favourable conditions. And this is where a low level of state intervention could come in to correct any distortions.
Take Limassol for example, where rent prices have skyrocketed in recent years. And since the CBC likes to compare price growth rates with the average GDP growth rate of the Cyprus economy, it is worth pointing out that rent prices outpaced the country’s GDP growth rate in the last five years.
The market will correct this distortion in the long run. However, given the small size of the market, it may take another four to five years to achieve the desired level of rental prices. Until then, tenants will continue to be victimised by paying high rents. That is why the state must intervene, until rents are stablised by the market.
What initiatives should be taken by the state in this direction?
It is extremely important that the private and public sectors work together to create the proper conditions for the consolidation of the real estate, and ensure there are enough affordable properties on the market, as well as the right financing conditions, so that home ownership does not become the privilege of the few.
The state should start offering incentives that will encourage and allow the private sector to deliver more properties that are now in high demand, such as apartments. Increasing the supply of apartments will also help solve the problem of high rents.
The proper conditions must also be created for the rental market, to favour the penetration of institutional real estate investors – something that is missing from the Cypriot rental market, compared to other countries.
Institutional investors should be incentivised to invest in a large number of apartments, with the obligation to subsequently make them available to the rental market, thereby solving the problem of high rents.
Supporting new buyers
Misirlis also stressed that Cyprus’ home ownership rate is quite low compared to other European countries.
He pointed out that new buyers should be supported with the right initiatives, such as creating the required supply that will make homes and apartments affordable, so that acquiring a home is not out of reach for them. “For these reasons,” he added, “at the Land and Building Developers Association of Cyprus, we have already repeatedly said that the real estate sector is one of the most highly taxed of the economy.
“Today’s real-estate market, amid an environment of high prices of construction materials and limited supply of homes, cannot handle the introduction of any new taxation. On the contrary, Millennials and young buyer-occupiers should be given special tax breaks to be able to jump on the home-ownership ladder. We must find ways to create more home-owners and less tenants”.