Cyprus house price index up 4.7%

Nigel Howarth
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Cyprus house price index up 4.7%

The Cyprus House Price Index (HPI) rose by 4.7 per cent in the fourth quarter of 2020 compared to the previous quarter according to preliminary figures in a press release issued by the island’s Statistical Service (CYSTAT).

The HPI also reports that residential property prices in Cyprus rose by 2.4 per cent on an annual basis.

According to CYSTAT, the Cyprus House Price Index (HPI) “is a quarterly index which measures the change in the average prices of residential dwellings. It captures all types of residential properties, both new and existing. The land component of the residential property is included.

“The data source used for both, indices and weights, is the Department of Lands and Surveys, Ministry of Interior. The data cover all areas which are under the control of the government of the Republic of Cyprus.

“Data are marked as provisional and are revised as soon as new information is available.”

Year Quarter House Price Index (2015=100) Quarterly Change (Compared to the previous quarter) (%) Annual Change (Compared to the same quarter of the previous year) (%)
2010 Q1 114.37 -1.6 -6.6
Q2 112.79 -1.4 -6.9
Q3 112.39 -0.4 -5.7
Q4 112.05 -0.3 -3.6
2011 Q1 111.56 -0.4 -2.5
Q2 113.99 2.2 1.1
Q3 111.22 -2.4 -1.0
Q4 107.60 -3.2 -4.0
2012 Q1 106.40 -1.1 -4.6
Q2 106.02 -0.4 -7.0
Q3 110.14 3.9 -1.0
Q4 108.22 -1.7 0.6
2013 Q1 104.54 -3.4 -1.7
Q2 104.77 0.2 -1.2
Q3 103.05 -4.7 -9.3
Q4 100.78 0.9 -6.9
2014 Q1 98.08 -2.7 -6.2
Q2 103.55 5.6 -1.2
Q3 102.70 -0.8 2.8
Q4 101.56 -1.1 0.8
2015 Q1 97.52b
Q2 100.59 3.1
Q3 102.49 1.9
Q4 99.40 -3.0
2016 Q1 97.29 -2.1 -0.2
Q2 99.18 1.9 -1.4
Q3 101.87 2.7 -0.6
Q4 102.72 0.8 3.3
2017 Q1 99.64 -3.0 2.4
Q2 102.74 3.1 3.6
Q3 102.46 -0.3 0.6
Q4 105.24 2.7 2.4
2018 Q1 103.10 -2.0 3.5
Q2 104.01 0.9 1.2
Q3 103.12 -0.9 0.6
Q4 107.04 3.8 1.7
2019 Q1 107.93 0.8 4.7
Q2 112.73 4.5 8.4
Q3 105.64 -6.3 2.4
Q4 106.51 0.8 -0.5
2020 Q1 109.13 2.5 1.1
Q2 109.48 0.3 -2.9
Q3 104.21 -4.8 -1.3
Q4 109.10 4.7 2.4

b There is a break in the series in the first quarter of 2015 due to redefinition of the model variables.

Cyprus house prices and rents fallen since 2010

Nigel Howarth
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Cyprus house prices and rents fallen since 2010

House prices and rents in Cyprus fell 3.4 per cent and 4.1 per cent respectively between 2010 and the fourth quarter of 2020, according to the European statistical service Eurostat.

Between 2010 and the second quarter of 2011, prices and rents in the EU followed similar paths. Since the second quarter of 2011, they have followed very different paths: while rents increased steadily throughout the period up to the fourth quarter of 2020, house prices have fluctuated significantly.

After a sharp decline between the second quarter of 2011 and the first quarter of 2013, prices remained more or less stable between 2013 and 2014. Then, there was a rapid rise in early 2015, since when house prices have increased at a much faster pace than rents.

Over the period 2010 until the fourth quarter of 2020, rents increased by 14.9% and house prices by 28.6%.

When comparing the fourth quarter of 2020 with 2010, prices increased more than rents in 18 EU states.

House prices

Prices increased in 23 states and decreased in four, with the highest rises in Estonia (+112.8 per cent), Luxembourg (+99.8 per cent), Hungary (+90.6 per cent), Latvia (+85.6 per cent) and Austria (+81.4 per cent). Decreases were observed in Greece (-28.1 per cent), Italy (-15.2 per cent), Spain (-5.2 per cent) and Cyprus (-3.4 per cent).

Rents

Concerning rents, when comparing the fourth quarter of 2020 with 2010, prices increased in 25 states and decreased in two, with the highest rises in Estonia (+143.5 per cent), Lithuania (+109.2 per cent) and Ireland (+61.8 per cent). Decreases were recorded in Greece (-25.2 per cent) and Cyprus (-4.1 per cent).

Further reading

Eurostat Press Release

Building permits fall in number, value and area

Nigel Howarth
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Building permits fall in number, value and area

Although there was a small increase in the number of building permits authorised for the construction of new homes in Cyprus during January 2021, the total number of permits authorised fell in terms of their number, value and area compared to January 2020.

The total number of permits fell to 494 (-8.2%), their total value fell to €160.1 million (-10.3%) and their total area fell to 143,6 thousand square meters (-14.4%.)

The 494 permits were authorised for the following:

  • Residential buildings – 374
  • Non-residential buildings – 65
  • Civil engineering projects – 23
  • Division of plots of land – 29
  • Road construction – 3

Building permits for new homes

The 374 residential permits provided for the construction of 702 new homes (dwellings). These comprised 206 single houses, a fall of 4.6% compared to the 216 authorised in January 2020, and 496 multiple housing units including apartments, semis, townhouses and other residential complexes; an increase of 3.3% compared to the 480 authorised in January 2020.

Building Permits Issued for the Construction of New Homes
(Number of Dwellings)

Month 2020 (Dwellings) 2021 (Dwellings) Increase/Decrease %age Change
January 696 702 6 0.9%
Totals 696 702 6 0.9%

Of those 702 new homes, 324 are destined for Limassol, 167 for Nicosia, 99 for Paphos, 94 for Larnaca and 18 for Famagusta.

According to the Cyprus Statistical Service “Building permits constitute a leading indicator of future activity in the construction sector.”

Further reading

Press release – Building Permits: January 2021

Rethinking the value and cost of real estate

Pavlos Loizou MRICS VRS
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Rethinking the value and cost of real estate

This article doesn’t concern itself with the etymology of the cost, price, value and worth of real estate; it focuses on the mess these terms are causing to the banking system.

In everyday language, cost, price, value, and worth are often interchangeable, but they have special meanings in the Real Estate business.

Cost is the construction cost of a building and of the land on which it is built upon.

Price is the amount at which a property is actually sold, whilst value is the estimate of what a property could sell for in the open market, i.e., an estimate of the price.

Worth is the specific value that an individual assigns to a given property or uses the property for a particular purpose.

When it comes to real estate project finance, the bank will grant a loan partly based on a project’s expected income (in the case of a residential development, from the sale of individual units.)

This (expected) income will typically come from a valuation undertaken by a property valuer the bank instructs to estimate how much the developer will sell the individual units in the specific project.

The bank will also instruct a quantity surveyor to estimate the construction cost of the proposed building.

It will then model the cash flow of the development to test the project’s repayment capability and stress the cash flow under various scenarios.

With everyone having done their job, the bank complies with the regulator and the valuer moves on to fight the good fight.

Practice not theory

That is precisely the point where practice needs to overcome theory and where one needs to look beyond the report (and its footnotes.)

Valuers are often civil engineers or individuals who are somewhat detached from the real estate market; this invariably leads them to ‘linking’ their values close to cost, as they either think that property having a value lower than its cost is pure heresy or that cost is the best indicator of price in a market with few transactions.

In a falling market where prices are often below construction cost, this leads to overvaluation, especially land.

Worth has puzzled valuers for years, as specific assets have a particular value to their owner or a limited group of buyers, e.g. an olive oil processing plant in an olive grove in the middle of nowhere.

In such cases, the asset is worth considerably more to its existing owner than to the open market; it has also cost its owner substantially more to build than someone willing to pay for it.

The valuer is ‘trapped’; they need to assess what someone would pay for the processing plant in the open market, knowing that the asset has cost its current owner a sizeable amount and that it is worth to them and their operations a lot more than that.

The ‘default setting’ for the valuer is to base their estimate on replacement cost and put a note saying that there is a limited market for this asset. Job done.

The valuer may be happy, but the bank shouldn’t be.

What is the purpose of using real estate as collateral? For it to be the fall-back position if the borrower is unable to repay their loan, with the repayments coming from their operations, i.e., the bank is engaged in cash flow lending.

If the valuer puts an amount on the theoretical and not realistically achievable collateral, then the bank has just granted a loan without adequately pricing its risk that its fall-back position is smaller.

That brings us to the matter of liquidity.

I will commit sacrilege by disagreeing with Warren Buffett, who said, albeit in a very different context, “Price is what you pay. Value is what you get”.

Price is what you put in your pocket. Value is what someone thinks you will get.

Just because someone thinks their property is worth a lot of money or because it cost them a bundle, it doesn’t mean that is the amount the bank will get when they put it on the market.

It essentially means that banks and valuers should consider what is achievable rather than what theory or regulations dictate.

Only by making the transition from ‘aspirational values’ to ‘realisable prices’ can banks make effective decisions regarding their collateral, carry out an effective restructuring of their loans, and allow the market and their balance sheet to clear.

About the Author

Pavlos Loizou is the Managing Director of WiRE FS

Cyprus property sales surged in March

Nigel Howarth
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Cyprus property sales surged in March

After a disappointing start to the year property sales in Cyprus surged in March, 12 months after the country went into lockdown according to official figures released today by the Department of Lands and Surveys.

During March, the total number of contracts deposited at Land Registry offices for the sale of residential property, commercial property, building plots and land reached 826; a rise of 62 per cent compared to the same month last year.

As you will see from the chart below sales during March rose in all districts and, at the end of the first quarter of 2021, they were almost back to where they were a year ago.

Cyprus Property Sales March 2021
Total Property Sale Transactions – 2020/2021 Comparison

As Pavlos Loizou noted in his article, the Department of Lands and Surveys was in lockdown during the first three weeks of January and the Department was understaffed. As the restrictions have eased, more staff have returned to their offices and caught up with their work.

According to the Kritonas Onisiforou, who heads up the BidX1 operation in Cyprus, Cypriots looking to buy a home encouraged by the government’s incentives, such as the interest subsidy scheme. Speaking to the Financial Mirror Mr Onisiforou said:

“Housing interest rates are also at an all-time low, going from more than 8% a few years ago to around 2.5%.

“We carried out a survey in March that showed 85% of people asked said that they plan to buy a property within the next six months.

“The crisis has affected people’s ability to buy, but there is a significant number of people who have survived the crisis, coming out unscathed with money available to buy, or are credit-worthy.”

Cyprus seeks to attract long term investors

Esme Palas
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Cyprus seeks to attract long term investors

To further attract foreign investment to the island and help economic recovery, Cyprus announced amendments to Regulation 6 (2) of the Aliens and Immigration Regulations, which came into effect on March 24.

The regulation gives non-EU nationals the right to reside in Cyprus permanently. The revision is in line with the Government’s objective to stimulate foreign investment in areas other than real estate and promote Cyprus funds.

The amendments introduced to the Cyprus Residency Programme are more than welcome, especially after the previous Cyprus Investment Programme was suspended.

We are optimistic that the Residency Programme, as amended, will continue to attract those investors who are searching for a Plan B to safeguard their families, in addition to merely protecting their wealth.

Cyprus offers a unique combination of benefits, including quality of life, low cost of living, excellent education, a high standard of healthcare, tax advantages, a strategic business location, and the international business environment, which are important reasons for those looking to obtain Permanent Residency in Cyprus.

As it has become necessary during the lockdown to spend an extended amount of time in one place, investors are now looking for a country where they are happy to stay for a lengthy period.

Thus, countries such as Cyprus that are welcoming to international residents are at the forefront of their consideration. We hope that these amendments will make the Programme more attractive to investors.

The most significant amendments are as follows:

Additional Investment Criteria

Though the required amount of at least €300,000 for the investment remains the same, the criteria have been expanded and are no longer solely related to real estate investment.

All the categories now are:

(a) Investment in a house/apartment:

Purchasing a house or apartment from a development company should relate to a first sale of at least €300,000 (plus VAT).

(b) Investment in real estate (excluding houses/apartments):

Purchase of other types of real estate, such as offices, shops, hotels or similar developments, or a combination thereof with a total value of €300,000. Resales are acceptable.

(c) Investment in the share capital of a Cyprus company with activities and staff in Cyprus:

An investment worth €300,000 in the share capital of a company that is registered, based, and operates in Cyprus, employing at least five (5) people.

(d) Investment in units of a Cyprus Collective Investment Organisation (type AIF, AIFLNP, RAIF):

An investment worth €300,000 in units of a Cyprus Collective Investment Organisation.

No Fixed Deposit

Another significant amendment is the applicant is no longer obliged to deposit €30,000 in a fixed deposit account, locked for three years. This requirement has now been removed.

Secure Annual Income

In addition to making the investment, the applicant should show a secure annual income of at least €30,000, which increases by €5,000 for each dependent and €8,000 for each dependent parent of the applicant or his/her spouse.

If the applicant makes an investment under criterion a) above to purchase a house or apartment, it is essential, as it was previously, the applicant can prove their income derives from abroad.

However, when it comes to investing in criteria b), c), or d), the new amendments provide that the applicant’s source of income may be derived from activities within the Republic.

‘No intention to work in the Republic’

It has been a requirement of the ‘residency programme’ that the applicant and his/her spouse had to certify they did not intend to work in the Republic.

This continues to be the case, except for their employment as Directors in a company they have chosen to invest in under this policy. It is now permitted, provided they do not receive a salary.

It is clarified in the new amendments that where the investment does not relate to a company’s share capital, the applicant and/or the applicant’s spouse may be a shareholder in companies registered in Cyprus. The income from dividends in such companies shall not be considered an impediment to obtaining Permanent Residency.

Proof of Residence

The amended regulations provide that where the applicant chooses to invest under criteria B, C, or D above, they should present information concerning the place of residence in the Republic, which can be a title deed, sales agreement, or rental agreement.

Investment in Real Estate

When investing under criteria A and B above (real estate), it continues to be the case that at least €200,000 plus VAT needs to be paid before submitting the application. Evidence should be provided that funds for the investment emanate from abroad and are not a product of internal borrowing; these funds need to be deposited in a Cyprus financial institution in the vendor’s bank account.

The purchase of real estate can be made by a legal entity in which the applicant and/or spouse are the sole shareholders or UBOs, and the entity is legally established in the Republic of Cyprus or another EU Member State or the European Economic Area.

Under criterion A in relation to the purchase of a house/ apartment (dwelling):

  1. The applicant may purchase up to two (2) units of residential property (apartments or houses), provided that the total market value meets the minimum requirement of €300,000 plus VAT.
  2. This purchase must relate to dwellings sold by a land development company for the first time (not resales) unless the purchase of the dwellings took place before 07/05/2013.

Contract of Sales relating to the resale of dwellings which were deposited in the Land Registry before 07/05/2013 will be accepted for implementing this policy.

The properties do not have to be purchased by the same land development company.

Investors Dependants

The Immigration Permit is issued to the applicant; it can include his/her spouse and dependent children up to 18.

As before, an Immigration Permit can be granted to unmarried children of the applicant between the ages of 18 and 25, only when it is proven that, at the date of the application, they are attending higher education institutions abroad and provided they are financially dependent on the applicant.

Such dependent children shall submit their own separate applications for an Immigration Permit upon payment of the appropriate fee.

If the children of the applicant between the ages of 18-25 are enrolled as students in Cyprus higher institutions, they will have to apply for a Temporary Residence Permit in their capacity as students under the relevant legislation (EU Directive).

After completing their studies, they will be entitled to apply for a Permanent Residence Permit, irrespective of their age. The only prerequisite is that the main applicant provides evidence of an additional annual income of €5,000 per annum.

The Permit will continue to apply after the age of 25, even if the children marry by then, and they are no longer students or financially dependent on the applicant. Their spouse and their minor children may not be included as dependent persons in such a Permit.

Parents and the main applicant’s in-laws can apply based on the main applicant’s investment by presenting an additional annual income of €8,000 for each dependent parent or parent-in-law.

Higher Value Investment

An important addition to the Regulations is that it is now possible for the main applicant to make an investment of a higher value for his adult children to obtain an Immigration Permit (Permanent Residence) even though they are not financially dependent on the Main Applicant.

The market value of the €300,000 investment needs to be multiplied according to the number of adult children, which will rely on such investment to obtain an Immigration Permit.

If the investment relates to real estate (as described in criteria A or B), a receipt of payment of at least 66% of the market value of the properties should be submitted with the application.

In such cases, each adult child must be able to prove a secure annual income of at least €30,000, which will increase by €5,000 for each dependent person.

Such investments can be made jointly in the applicant’s name and the adult child or exclusively in the name of the applicant.

Clean Criminal Record

It remains a fundamental requirement the applicant provides a clean criminal record from his country of origin and residence and generally does not pose any threat to public policy or security.

Investors Application Procedure and Examination

The Civil Registry and Migration Department will process the application, forwarded for examination and decision to the Interior Minister, provided that all the criteria and requirements are met. It is estimated that the examination period will be two months from the date of submission.

This article is intended to provide a general guide; it does not constitute legal advice.

About the author

Esme Palas is a UK qualified Barrister at Law, partner at Michael Kyprianou & Co LLC, Paphos office. Her areas of specialization are immigration & immovable property law.

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