Evolving trends in Cyprus real estate market

Dr. Charalambos Pitros
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Evolving trends in Cyprus real estate market

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.

Brexit shatters retirement dreams

Nigel Howarth
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Brexit shatters retirement dreams

Cyprus, along with other European Union member states, has tightened the criteria for non-EU citizens wishing to retire to their country in the wake of Brexit.

‘Taking back control’ was one of the well-known slogans used by Brexiteers. It claimed that Britain’s sovereignty, its ability to make its own laws and control its borders had been eroded by its membership of the EU and that these would return after Brexit.

Residency in Cyprus before Brexit (Category F persons)

Before the United Kingdom left the European Union, retired British nationals and others could be granted residency in Cyprus if they had an annual income of at least €9,568, without having to engage in any business, trade or profession in the Republic, plus at least a further €4,613 for every dependent.

Of course, ‘taking back control’ works both ways enabling EU member states to control their borders.

Short-term residency after Brexit

In January 2023, Cyprus revised the criteria by which retired British nationals and other non-EU citizens could extend their 90-day visitor’s visa for one year.

Following Brexit, they now require an annual income from abroad of at least €24,000 for a single person, plus at least a further €4,800 for their spouse.

(Other criteria include proof of a residence in Cyprus (rented or owned), private health insurance, a clear criminal record certificate from the country of origin or residence, negative blood tests for hepatitis B and C, HIV, syphilis and a chest X-ray for tuberculosis.)

According to the latest UK Government figures, the average retirement income for a retired British couple for financial year ending (FYE) in 2022 was £26,780 p.a. (approximately €31,500) and £12,428 p.a. (approximately €14,600) for a single retiree.

These revised financial criteria are going to shatter the dreams of many Britons who were planning to retire to Cyprus and many questions still need to be answered. E.g. will the residency of a surviving spouse be revoked if their annual income from abroad falls below the €24,000 minimum?

Expedited residency

As we reported last month, Cyprus revised the criteria revised criteria regarding the expedited process of granting immigration permits to third country nationals applying to invest in Cyprus. I.e. Investor Immigration Permits.

Residency in other EU members states post Brexit

It’s worth noting that other EU countries have raised the bar for Britons and other non-EU citizens wishing to retire to their country. For example:

  • To be eligible for residency in Spain non-EU citizens require an annual income of 400% of IPREM (Indicador Público de Rentas de Efectos Múltiples) in your bank account. As the IPREM for 2023 is €600/month, an individual will need an annual income of €28,800 plus a further €7,200 (calculated at 100% of IPREM) for each dependent.
  • To get temporary (2 year) residency in Greece an annual income of at least €24,000 is required plus a further €4,800 for the spouse and a further €3,600 for each child.

 

Law on first homes reduced VAT passed

Elias Hazou
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Law on first homes reduced VAT passed

By nearly a unanimous vote, and under the watchful eye of Brussels, parliament on Thursday passed a law allowing for a reduced VAT rate of 5 per cent levied on first homes.

The discounted VAT – the full rate is 19 per cent – will apply to the first 130 square metres of a first home – for single dwellings and apartments alike – and up to a value of €350,000, provided that the total value of the transaction does not exceed €475,000 and that the total buildable area does not exceed 190 square metres.

Another clause provides that, for persons with a disability, the discounted VAT will apply to the first 190 square metres of the buildable area.

The law also provides for a transitional period, so that the new rules do not apply in cases where a town planning permit has been issued or where an application for a town planning permit has been filed within four months of the entry into force of the law.

At the House plenum, 42 MPs voted in favour, with Greens MP Alexandra Attalides abstaining.

Despite the consensus in the voting, politicians traded barbs over who was to blame for the need to change the legislation as well as the fact that Cyprus faced the threat of penalties from the European Commission.

In his remarks, the Greens’ Stavros Papadouris – who ultimately voted in favour – noted that the bill was being passed “under duress” – meaning the pressure from Brussels.

He attributed this to “maximum abuse” of the issue in the past. Papadopouris said that when back in 2016 parliament decided to do away with the threshold of 275 square metres for reduced VAT, practically everyone got to benefit from what was supposed to be a targeted social policy.

He also recalled that when in 2021 the European Commission asked Cyprus to provide data about the discounted VAT here, the Tax Department informed Brussels about the regime that had applied previously – but did not inform about the change. Subsequently Brussels sent Nicosia a letter of formal notice – the first stage in infringement proceedings.

Because of this track record of mistakes and poor handling, asserted Papadouris, the finance ministry now had “little bargaining power left” when dealing with Brussels.

On June 1 this year, the European Commission sent a reasoned opinion to Nicosia saying the latter did not correctly apply EU VAT rules for houses bought or built in Cyprus.

Cyprus had two months to address the matter. Unless it acted within the next two months, the Commission could have decided to refer the case to the EU Court of Justice.

In practice, most cases are settled before being referred to the court.

In the worst-case scenario, Brussels can impose a fine on a country for non-compliance.

It’s understood the infringement proceedings were first launched in the summer of 2021.

VAT directive 2017/541 allows member states to apply a lower rate for first homes as part of social policy. But the broad interpretation of the Cyprus provision apparently exceeds the social policy aim stated in the directive, for such an exemption.

The Cypriot policy was also flagged when it emerged that recipients of the ‘golden passports’ scheme – who invested in property in exchange for citizenship – had likewise benefited from the lower VAT rate.

House prices rose 6.6% in Q4 2022

Editorial
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House prices rose 6.6% in Q4 2022

Increased construction costs and demand led house prices to continue their upward trend during the fourth quarter of 2022, with the Residential Property Price Index (RPPI) up by 6.6% year-on-year.

It compares to a 6.3% y-o-y increase recorded during Q3 2022, according to the Central Bank of Cyprus (CBC).

Apartment prices went up by 7.7% in the fourth quarter of 2022, while house prices recorded an increase of 5.6%.

By district, house prices in Paphos registered an impressive annual increase of 10.4%, while apartment prices recorded a large annual rise in Limassol (9.3%), Larnaca (9.4%) and Paphos (8.6%).

CBC said: “The increase in key ECB interest rates and the consequent reduction in mortgage demand does not seem to have affected real estate demand substantially”.

During Q4 2022, house prices increased quarterly in all districts except Famagusta.

A marginal increase of 0.3% was recorded in Nicosia, 2.5% in Limassol, 2% in Larnaca, and 2% in Paphos, while a marginal decrease of 0.8% was recorded in Famagusta.

In terms of annual changes in housing price indices by district, an increase was recorded in all regions.

In Nicosia, house prices increased by 3.5%, Limassol by 8.7%, Larnaca by 5.1%, Paphos by 9.8%, and Famagusta by 4.4%.

On an annual basis, the growth rate of house prices in the districts of Limassol, Larnaca and Paphos accelerated, possibly related to the demand created due to the headquartering policy.

On the contrary, in Nicosia and Famagusta districts, the growth rate slowed.

Quarterly, house prices recorded increases in all districts.

In Nicosia, they increased by 0.3%, in Limassol by 1.2%, in Larnaca by 1.7%, in Paphos by 2.2% and in Famagusta marginally by 0.1%.

On an annual basis, house prices also went up in all districts.

House prices in Nicosia, Limassol, Larnaca, Paphos and Famagusta increased by 2.9%, 7.1%, 3.3%, 10.4% and 4.2%, respectively.

Apartment prices quarterly recorded an increase in all districts except Famagusta.

In Nicosia, they increased marginally by 0.2%, in Limassol by 3.6%, in Larnaca by 2.3%, in Paphos by 1.4%, while in Famagusta, they recorded a decrease of 3.7%.

On a year-over-year basis, apartment prices rose in all districts for the sixth consecutive quarter.

In Q4 2022, compared to the same quarter of 2021, prices in Nicosia increased by 4.3%, Limassol by 9.3%, Larnaca by 9.4%, Paphos by 8.6%, and Famagusta by 5.1%.

Property sales up 34 per cent (Update)

Nigel Howarth
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Property sales up 34 per cent (Update)

Property sales in May rose 34 percent compared to the same month last year according to official statistics from the Department of Lands and Surveys.

The total number of sales (as measured by the number of contracts deposited at Land Registry offices) in May 2023 reached 1,526 compared to 1,143 deposited in May 2022.

Sales rose in all districts. Limassol recorded the highest number of sales (555), followed by Nicosia (314), Paphos (301), Larnaca (295), and Famagusta (61).

Pancyprian property sales
Total Property Sale Transactions – 2022/2023 Comparison

Year to date property sales

Sales during the first five months of 2023 reached 6,292; an increase of 24% compared to the same period last year. With the exception of Nicosia, sales have risen in all districts.

Total Property Sale Transactions – 2022/2023 Comparison

Market segment analysis

Property sales to the domestic market

Real estate sales to the domestic market in May rose 36% compared to May 2022 but with Paphos reporting a fall of 7%.

Limassol saw the greatest number of sales followed by Nicosia, Larnaca, Paphos and Famagusta.

Domestic sales
Domestic Sale Transactions – 2022/2023 Comparison

Sales to the domestic market during the first five months of 2023 stood at 3,370; an increase of 15% on the 2,935 achieved during the same period last year.

Property sales to the overseas market

Sales to foreigners (non-Cypriots) were up 30% compared to May 2022 with sales rising in all districts with the exception of Famagusta.

Limassol recorded the greatest number of sales, followed by Paphos, Larnaca, Nicosia and Famagusta.

Property sales to foreign citizens
Property sales to the overseas market – 2022/2023 Comparison

Foreign real estate sales during the first five months of 2023 reached 2,922; a 36% increase on the 2,155 achieved in the same period last year.

Property sales to EU citizens

Sales to EU nationals continued their downward trend, falling by 17% compared to May 2022, with sales falling in all districts with the exception of Limassol and Nicosia.

Limassol achieved the greatest number of sales, followed by Paphos, Larnaca, Nicosia and Famagusta.

Property sales to EU citizens
Overseas (EU) Sale Transactions – 2022/2023 Comparison

Sales to EU nationals during the first five months of 2023 reached 763; a fall of 25% compared to the 1,022 achieved in the first five months of last year.

Property sales to non-EU citizens

Sales to non-EU Nationals maintained their growth rising by a substantial 64% compared to May 2022, with sales rising in all districts with the exception of Famagusta.

Limassol recorded the highest number of sales, followed by Paphos, Larnaca, Nicosia and Famagusta.

Sales to non-EU citizens
Overseas (non-EU) Sale Transactions – 2022/2023 Comparison

Sales to non-EU nationals during the first five months of 2023 reached 2,159, a 91% increase on the 1,133 achieved in the same period last year.

 

 

Real estate market facing ‘giant problem’

Andria Kades
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Real estate market facing ‘giant problem’

Real estate experts warned on Tuesday that challenges in the real estate market amounted to a “giant problem” as the impact of external issues including inflation and high interest rates are becoming increasingly felt by consumers and constructors alike.

Chairman of the council for the registration of real estate agents Marinos Kineyirou opined it is high time the government intervenes.

He highlighted increased prices for construction materials, high interest rates and inflationary pressures are “individually and combined putting pressure on citizens’ purchasing power.”

As a result, members of the public are revising their plans to purchase a house or apartment.

Kineyirou added any new regulations of the five per cent VAT for the acquisition of a first home is also expected to affect demand.

Since March 2022, the European Central Bank has increased interest rates from -0.50 per cent to 3.25 per cent – with more expected to come, he said. In Cyprus, the interest rate for housing loans increased to 4.67 per cent in March this year, up from 2.16 a year ago.

Consequently, people are increasingly turning to rent but increasing demand is also hitting members of the public hard. “Unfortunately, we are now becoming witness of unfortunate circumstances and peoples’ desperation. We see rents which were at €500 go up to €700 or €800 once their contract expires, leaving people struggling to make it.”

As time goes on, it appears “we will be going to unchartered waters” and this is why the government should touch on the problem, Kineyirou said.

“We need to re-examine the state’s housing policy, tenancy and even the issues related to the provision of houses and apartments to vacationers as well as short-term rentals such as AirBnB.”

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