Cyprus property prices continue to represent one of the biggest risks to the country’s financial stability, according to the Central Bank of Cyprus (CBC), which has warned that persistent growth in the real estate market is increasing the banking sector’s exposure to a potential market correction.
In its Financial Stability Report 2025, the Central Bank identifies rising property values as one of the most significant domestic risks facing the financial system, alongside geopolitical tensions, volatility in international financial markets and vulnerabilities linked to growing global public debt.
Banks remain heavily exposed to the Cyprus property market
Although Cyprus’ banking sector demonstrated resilience throughout 2025, the report says important vulnerabilities remain because banks continue to hold substantial portfolios of loans secured against real estate.
The Central Bank notes that property collateral provides an important safeguard against borrower defaults. However, it cautions that the banking system’s heavy dependence on real estate leaves it vulnerable should Cyprus property prices experience a significant correction.
The report adds that this risk is amplified by continued price growth and long-standing structural weaknesses within the property market.
Close monitoring of property market risks
The report dedicates a separate section to the financial sector’s exposure to real estate, highlighting the importance of closely monitoring developments across the Cyprus property market.
The Central Bank says existing macroprudential measures remain in place for residential mortgages and other secured lending. These include limits on the:
- Loan-to-Value (LTV) ratio
- Debt Service-to-Income (DSTI) ratio
According to the regulator, these safeguards are designed to contain credit risk and preserve the quality of banks’ loan portfolios.
Capital buffers maintained to strengthen resilience
As part of its strategy to reinforce the banking system, the Central Bank confirmed it has maintained the Countercyclical Capital Buffer (CCyB) at 1.5%.
The measure is intended to ensure banks retain sufficient capital reserves to absorb losses if economic conditions deteriorate or loan defaults increase.
Banking sector enters 2026 from a position of strength
Despite its warnings over Cyprus property prices, the Central Bank says the country’s banking sector entered 2026 with strong capital adequacy and high liquidity levels.
The report also highlights a further improvement in asset quality, with the ratio of non-performing loans falling to a historic low of 1.6%.
However, policymakers stress that the close relationship between banks and the real estate sector means vigilance remains essential. A significant decline in property prices could reduce the value of collateral backing loans and ultimately undermine financial stability.
While the sector is considerably stronger than in previous years, the Central Bank concludes that continued monitoring of the Cyprus property prices and the wider real estate market will remain critical to safeguarding Cyprus’ financial system.