By analysing the total number of sales contracts deposited in the Land Registry Office during the first five months of each year, it becomes evident that the Cyprus real estate market is experiencing, in 2023, its most active year since 2008.
Following the same metric, it becomes evident that the Cyprus real estate market is experiencing its most foreign-dependent sales year since 2007. To be more precise, foreign sales account for 46% of the total sales in 2023, compared to 43% in 2008.
Taking this dataset analysis further, in the year 2023, the percentage rate of foreign sales in the Cyprus property market is the highest ever recorded, except for the years 2006 and 2007 when foreigners accounted for 49% and 53% respectively, on yearly average. These figures underscore the substantial reliance on foreign buyers in the current market and highlight the consistent interest and engagement of international buyers in the Cyprus real estate sector.
Real estate prices
According to the Central Bank of Cyprus, house prices recorded an annual increase in all regions. Specifically, house prices in Nicosia increased by 2.9%, in Limassol by 7.1%, in Larnaca by 3.3%, in Paphos by 10.4%, and in Famagusta increased by 4.2%. For apartments, prices saw a strong increase in all regions: by 4.3% in Nicosia, 9.3% in Limassol, 9.4% in Larnaca, 8.6% in Paphos, and 5.1% in Famagusta.
This strong price increase is mainly attributed, among other factors, to the headquarters policy, which attracted approximately one thousand foreign interest companies in 2022, according to market data. These are primarily companies from Russia, Israel, Ukraine, the United Kingdom, Lebanon, and Belarus.
Increasing costs
At the same time, the increase in borrowing costs due to the rise in ECB interest rates seems to have not significantly affected the overall demand for real estate, but on the other hand, it has affected the demand for new housing loans significantly. According to the publication of Monetary and Financial Statistics by the Central Bank of Cyprus, new housing loans in the fourth quarter of 2022 decreased by 25.2% on an annual basis.
The rise in interest rates and construction costs serve as discouraging factors for Cypriots considering property purchases. However, there is a notable group of potential buyers who are actively seeking to seize the current opportunity by acquiring properties from the existing stock of new homes, prior to the implementation of changes to the reduced VAT policy. This is especially prevalent for properties that may not meet the newly established criteria regarding size and value.
Foreign investment in real estate
While foreign investment in the Cyprus property market holds significant potential, it also poses inherent risks. Foreign investment is inherently volatile, influenced by numerous dynamic factors that are subject to constant change. In essence, if foreign investment fails to maintain its momentum, there is a substantial risk of prices eventually stabilizing/declining.
Thus, to assess the trajectory of prices, one must place confidence in estimating the direction of inflation, interest rates, GDP performance (Cyprus, EU, US, UK) and whether foreign investment rates will continue to remain robust in the Cyprus market.
Based on the overall economic environment, it appears that the most probable scenario is for prices to initially stabilize, accompanied by a potential downward pressure leading to a minor decline in prices (less likely for the short term). Yet, a significant decline of prices on a large scale is unlikely in the medium to long term given the prevailing economic conditions (except for major political events).
Nonetheless, it is crucial to note that if inflation persists at high levels and nominal prices remain stable for an extended period, the “real” prices of properties will inevitably erode.
About the author
Charalambos Pitros holds a PhD in Real Estate Economics and is a Member of the Royal Institution of Chartered Surveyors (MRICS), of the European Real Estate Society (ERES) and of the Cyprus Scientific and Technical Chamber (ETEK). He is a Lecturer in Real Estate at American University of Cyprus (AUCY) and a Chartered Surveyor Valuer at Zyprus Real Estate – Property Valuers & Estate Agents.
The views and opinions expressed in this article are solely those of the author.
