Real estate agents in Limassol and Paphos are reporting the highest demand from foreign buyers and Cypriots for homes since 2020 when the government ended the disgraced citizenship for investment scheme.
The boom is amid a global crisis, with the war in Ukraine raging and sanctions hitting Russian investors, who up to 2020 were the number one buyers for properties in Limassol and Paphos.
Talking to the Financial Mirror, Esme Palas, Barrister at Law, Partner at Michael Kyprianou and Co LLC Paphos, has said the number of foreign nationals looking to buy property in the town has shot up.
She said the influx in demand is powered mainly by UK expats looking for a retirement home, Israelis, and Germans looking to relocate.
“Sales in Paphos are flying. This is the most traffic we have seen in recent years, with our clientele growing rapidly as more foreigners are looking for a home on the island,” said Palas.
It may be too soon to draw conclusions as to how long the boom will last, but “it certainly will be boosting Paphos’ real estate sector in 2022”.
“This is the biggest movement we have seen in the local market since the end of the citizenship for investment scheme, which also coincided with two years of inaction due to COVID restrictions.”
The majority of properties sold in recent months were to non-EU citizens.
Land Registry data compiled by real estate analyst Nigel Howarth, the highest number of sales were recorded in Limassol, followed by Paphos, Larnaca, Famagusta and Nicosia.
Overall sales during the first five months of 2022 reached 5,090, a 42% increase from the 3,577 achieved in the same period of 2021.
In Paphos, the increase was 80%, with 1,080 sales recorded from January to May.
Overall property sales to foreigners rose 94% compared to May 2021, with sales rising in all districts except Nicosia.
Paphos has seen sales to foreign nationals rise by 113% in the first five months, compared to last year, as 746 sales documents were submitted with the Land Registry.
Of the 746 properties sold, 415 were bought by non-EU nationals, and non-EU citizens bought 186 in the first five months of 2021.
Palas said that the increase in sales comes from COVID restrictions being lifted.
“People in the market to buy residential property for investment or in search for their family home are looking to do so as quickly as possible before prices go up”.
Building costs have increased by almost 20% in the past year, with many people preferring to buy now, as indications are that prices will only rise.
“We had seen a large number of UK retirees looking to buy new properties, in contrast to what we have been seeing in the past when expats preferred used properties.”
Eleni Averkiou, a Danos/BNPRE Group property consultant, said the island’s west coast is a real estate hot spot.
“In recent months, we have seen sales and interest in properties in Limassol and Paphos really take off.
“It may seem strange, not only to outsiders but to real estate agents, that amid a global crisis with inflation rates reaching their highest peak in the past four decades, property sales would be going up,” said Averkiou.
She said, “interestingly enough, we have a lot of demand from Russian-speaking clients and people from Ukraine”.
She noted that demand had been pushed up by non-EU nationals looking to obtain a residence permit
Driving demand is a mixture of the market restarting after COVID, while real estate agents argue buyers are keen to put their money to good use during high inflation.
“Keeping money in the bank in these conditions does not make much financial sense, so people with money much rather invest in assets that will not depreciate,” said Averkiou.
She also argued that buyers are following developments in the market and are aware of another aspect that might be pushing prices up.
MPs will soon be incorporating a European Union directive into local legislation to reduce the size of homes entitled to a lower 5% VAT.
“This will definitely happen, as refusing to do so could invoke sanctions by the European Union.”
The EU directive obliges member states to introduce legislation of 5% VAT on homes up to 140 square metres.
In Cyprus, the reduced rate of 5% VAT applies for homes up to 200 sqm of buildable area.
“The construction industry has argued against this, noting the new directive would push up construction costs, which are already on the rise due to an increase in the cost of building materials by 15% to 20%,” said Averkiou.
Under the new law, a home of more than 140 sqm gets the standard 19% VAT for every square metre over the limit.
But a home covering more than 200 square metres would not be eligible for the lower VAT rate of 5% and instead incur 19% for the whole project.
Currently, this is applicable for homes over 275 square metres.
In earlier comments to the Financial Mirror, the Technical Chamber of Cyprus (ETEK) chair, Constantinos Constanti, said building a home of 201 square metres would cost an additional €42,000.
“As things stand today, the average cost of building such a home would be around €315,000, with the VAT due amounting to €15,000.
“Should the directive be adopted, couples will be called to pay €42,000 on top of the initial €15,000,” said Constanti.
A source from one of the Big Four audit firms confirmed the west coast boom but warned against getting carried away with increased sales.
The source, not wanting to disclose their identity, said the market is volatile due to developments in Ukraine, and subsequent sanctions on Russian interests, as construction costs have not yet stabilised.
“We would rather wait a few more months before jumping to conclusions on where the market is going.”