In the near future, the Cyprus property market is expected to continue on its dynamic path, however, it will not be a bed of roses, and strategic planning will be crucial to navigate changes and challenges ahead.
In the next couple of years, we should expect to experience moderate growth as high interest rates stabilise demand and projects are set to come online to satisfy demand. The Central Bank of Cyprus (CBC) has reported a deceleration in the House Price Index (HPI) for houses and apartments in the first quarter of 2024.
The index reveals that there is a normalisation in real estate demand, indicated by a marginal increase in the number of sales documents. According to the quarterly data, the HPI for homes and apartments rose by 1.6% in the first quarter of 2024, down from a 2.3% increase in the previous quarter. This rise was driven by a 0.8% increase in house prices and a 3.4% increase in apartment prices, the CBC stated.
Annually, house prices in Q1 2024 saw a 7.8% increase, compared to an 8.3% rise in Q4 2023. Apartment prices surged by 13.9%, while house prices increased by 4.7% during the same period. Additionally, there’s an uptick in supply, with more homes available for rent and sale. This trend is anticipated to continue to contribute to a significant slowdown in sales documents in the next couple of years.
Construction Costs and Foreign Investment
Continued foreign investment, spurred by regional geopolitical tensions, will play a significant role, although the market will face challenges from rising construction costs and regulatory changes. The Cyprus Residency Programme, known as the “Golden Visa,” which has been a significant driver of this foreign investment, will continue to drive demand and prices.
Meanwhile, rising construction costs have further impacted new developments, contributing to the upward pressure on property prices. Cyprus remains an attractive destination for foreign investors, offering promising returns on investment. These dynamics present distinct implications for various stakeholders.
Things are not expected to get easier for local buyers, as home ownership will become more challenging due to high property prices and elevated mortgage rates. In contrast, for developers, the high demand, especially in areas like Limassol, Paphos and Larnaca, presents lucrative opportunities despite the challenge of rising construction costs.
Overall, the market conditions in Cyprus favour foreign investment and development, with the completion of new projects. At the same time local buyers are being marginalised from the market, as high inflationary pressures, especially in the energy sector, continue to erode citizens’ disposable incomes, impacting their standard of living.
Cypriots are being further marginalised, as renting a flat or a house has become a nightmare, especially in Limassol and the capital Nicosia, where they have been outpriced. The ever-increasing number of high-tech and fintech firms moving to Cyprus, while boosting the economy, has made things difficult for locals looking for a flat to rent.
Balanced Growth and Future Projections
In the mid-term period, that is the next five years we should expect to see growth balance out even more, as construction projects, either already in the pipeline or were initiated in this latest period of boom will be coming online. According to the island’s statistical service Cystat, building permit issuance in Cyprus increased by 8.3% from January to April 2024 compared to the same period in the previous year.
Local authorities issued 2,545 permits in the first four months of 2024, up from 2,351 in the same period of the previous year. The value of these permits rose by 8.9%, and the total area covered expanded by 15.7%. There was also a significant 24.2% increase in the number of planned residential units.
Expected improvement of financial stability along through a more effective management and eventually the further reduction of NPLs. Long-term, that is in the next ten years to come, growth will stabilize, with local demand increasing, while foreign demand is expected to balance out.
Demographic changes carried out, coupled with regulatory changes, such as the change in VAT regulations, will bring about a shift in housing preferences. Demand for residential properties will be mostly driven towards smaller, more affordable units. At the same time, EU regulatory changes will push the construction sector to put more emphasis on sustainable and eco-friendly properties.
Concluding, stakeholders on the island will need to recognise the writing on the wall, closely monitor trends and adopt a strategic plan to address challenges from rising costs and regulatory changes.
Kyriacos Kiliaris is Chief Marketing Officer at Danos International Property Consultants & Valuers www.danos.com.cy www.danos-group.com
