Cyprus property prices rise

rics_property_price_indexTHE TWENTY-SEVENTH edition of the RICS Cyprus Property Prices Index issued yesterday reports that the average price of residential apartments and houses across the island rose by 0.2% and 0.3% respectively during the second quarter of 2016.

During the second quarter of 2016 the Cyprus economy showed some signs of stability, with the economy’s performance being better than expected and tourism mildly outperforming forecasts. Unemployment remained at relatively high levels, on a downtrend to approximately 12% (from the high levels of 17%).

Given prevailing economic conditions and the turbulence in the Cyprus banking system, there were relatively few transactions during the quarter although volume was higher on a year on year basis. Local buyers in particular were the most discerning as unemployment and high debt for locals maintained lack of interest. Furthermore, those interested are trying to access bank-finance.

Property prices

The Property Price Index has recorded increases in almost all cities and asset classes, with significant increases being recorded in Larnaca area, whilst other cities are progressively bottoming out.

Larnaca recorded the largest quarterly increase in apartment prices (1.1%), while the largest rise in house prices (1.1%) was recorded in Paphos.

The values of holiday homes rose 2.7% for apartments and 1.1% for houses.

Rental values

Across Cyprus, on a quarterly basis rental values increased by 0.4% for apartments, 0.5% for houses, 1.5% for retail, 0.6% for office while warehouses rents decreased by 0.4%.

Compared to Q2 2015, rents increased by 4.9% for flats, 4.9% for houses, 0.5% for retail and 5.2% for offices. Warehouses dropped by 1.2%.

The majority of asset classes and geographies are bottoming out, with areas that had dropped the most early on in the property cycle e.g Paphos, Famagusta and Larnaca are showing some signs of price stability.

Gross yields

At the Q2 of 2016 average gross yields stood at 4% for apartments, 2.0% for houses, 5.3% for retail, 4.3% for warehouses, and 4.5% for offices. The parallel reduction and/or stabilisation in capital values and rents is keeping investment yields relatively stable and at low levels (compared to yields overseas). This suggests that there is still room for some re-pricing of capital values to take place, especially for properties in secondary locations.

Coops to offer defaulting borrowers a discount

Cyprus cooperative bank to offer discount to defaulting borrowersBORROWERS at the Cooperative Central Bank may receive up to 50 per cent discount on terminated loans if they decide to take advantage of a pilot scheme which the state-owned lender recently launched, a co-op official said.

The scheme which applies in cases of unsecured, terminated loans which have not been serviced for 1,000 days or longer is offering borrowers the opportunity to settle their outstanding debt within a three-month period and receive up to 50 per cent discount on the total amount due within a year and then receive a 45 per cent discount, Yiannos Stavrinides, the CCB’s head of strategy and communication said in a telephone interview on Friday.

The scheme which applies to terminated loans lacking any form of security, including guarantors, with a balance exceeding €100 and up to €50,000, includes both corporate and individual borrowers and credit cards, while it excludes former co-op-officials and politically-exposed persons as well as deceased and insolvent borrowers, Stavrinides said.

The bank, which received in 2014 and 2015 two capital injections from the government worth €1.5bn and €175m respectively, and is in the process of preparing for its listing on the Cyprus Stock Exchange, has already tasked three independent law offices to get in touch with the borrowers, he said.

The initial number of loans specially selected for the purposes of the pilot scheme which will run for a month “is very limited” and their value is “less than €5m,” Stavrinides said. “It is the first time this measure is applied and we want to test the response. If the pilot programme runs well, we shall announce a fully-fledged campaign and we shall determine the exact amount”.

Borrowers not selected for the pilot scheme who are interested of taking advantage of its provision will also receive the same treatment if they get in touch with the co-op bank, like borrowers who will be contacted by the tasked law firms, provided they meet the scheme’s criteria, he said.

Stavrinides added that the CCB decided to launch the scheme in order to comply with a requirement from the European Central Bank’s Single Supervisory Mechanism, which jointly supervises it and three other Cypriot banks, with the Central Bank of Cyprus.

The CCB posted a €122.7m after tax loss in 2015 after it booked €379.1m in new provisions to almost €3.5bn, compared to a €42.9m profit the year before when it increased its provisions by €166.1m. The bank reduced its non-performing loans to €7.3bn in June from €7.6bn in December, which in both cases was 59.3 per cent of its total portfolio. In December 2014, non-performing loans stood at €8.4bn or 55.8 per cent.

“The more time passes, the more difficult things are getting with restructurings,” Stavrinides said. “The cases remaining are harder”.

NPLs at post December 2014 low

NPLs in the Cyprus banking system at a post December 2014 lowTHE TOTAL non-performing loans (NPLs) held by all Cypriot banks fell for the seventh consecutive month in August to €24.55 billion (a post December 2014 low) according to statistics released by the Central Bank of Cyprus (CBC).

NPLs are the biggest problem faced by the Cypriot banks since Cyprus was saved from bankruptcy by a €10 billion bailout package from the troika of international lenders – the International Monetary Fund (IMF), the European Central Bank (ECB) and the European Commission (EC).

The CBC noted in its announcement that “the downward trend in the level of banks’ aggregate non-performing facilities has continued.”

Non-performing loans have fallen by €2.8 billion since December 2014, while overall lending has fallen by €7.1 billion.

The report that followed the troika’s recent post-programme surveillance mission to Cyprus, the mission underlined the need to pursue more forcefully the loan restructuring efforts, by making full use of all available tools, in order to accelerate the pace of reduction of NPLs.

And in its recent decision to upgrade Cyprus’ long-term credit rating to ‘BB’, Standard & Poor’s rating agency noted that non-performing loans “remain a key concern for financial stability and economic performance.”

Paphos’ water guzzling golf courses

Cyprus golf coursesTHE LACK of sustainable water policies could have a particularly negative impact on Paphos, home to a number of golf resorts, which ‘eat up’ water, yet it has no operational desalination plant as a backup, sources at the water development department have said.

“We need to find a new approach to water development and sustainable policies,” a source told the Sunday Mail.

Developers, especially those building golf courses, should be held accountable if they don’t provide their own water sources.

“Everybody is taking from the existing water supplies. More and more developments, particularly golf ones are being constructed in Paphos, the demand is increasing. If there is only a little rain this winter, there is a real possibility that the reservoirs won’t be full and we could have severe water shortages in Paphos again next year.”

He stressed that radical changes need to come from the top and that the government needs to reassess their policies, including whether new golf projects are beneficial in the long term.

“The commerce ministry has to carry out a study to see what is the cost-benefit, if any, of a golf project, in general terms. Developers want golf to expand, but why should ordinary citizens pay the price for that?” he asked.

The domestic use for the coast of Paphos is about nine million cubic metres a year.

“The four golf courses use more than four million cubic metres a year and on top of that around five to six million is used in irrigation,” he said.

The source said that it angers him that the public has to buy water of ‘questionable’ quality, instead of having fresh water in their taps.

He also said that Paphos urgently needs a small desalination plant at the least, after a final decision to remove a mobile unit, which cost €24 million but was only used for four months, was made two weeks ago. Paphos is now the only city without a desalination plant.

The initial decision to install a mobile desalination unit by the Xeros River in Kouklia in Paphos was taken in the aftermath of the 2008 drought.

But it was hardly ever used as a rainy winter followed which ensured the Asprokremmos reservoir filled up and covered Paphos’ needs.

The acting director of the Water Development Department (WDD), Nicos Neocleous, confirmed that just over two weeks ago the legal service of the government’s central committee said that the desalination unit contract – which was made with a private company – states that the plant should be removed at the end of the term and that ‘they couldn’t find a way to extend this.’

“The obligation was to remove it by the end of 2013, but they asked for an extension and negotiations tried to find a way to buy it or start a new agreement, but unfortunately it was not possible to find a legal way to do it,” he said.

He added that the dismantling of the desalination plant in Paphos will start ‘very soon’ and be completed by the end of the year. He said that a new desalination plant for Paphos is a necessity, although the amount of water produced would be around half of the first facility’s capability.

“We are planning to go for open tenders, we have applied to the ministry of agriculture and our minister will take this to the Council of Ministers.”

Although Paphos generally has more water than other areas, alternative solutions for Paphos must be found, he said.

One suggestion is to examine if other reservoirs in other areas such as Limassol could be connected to Paphos. Currently the ‘Southern Conveyor System’ connects towns and villages from the Kourris dam and runs all the way to Paralimni.

“An alternative study will be carried out in a few weeks,” he said, “but the main solution is for a desalination plant in Paphos which would be smaller than the temporary one and cost far less.”

The previous contract signed with a Greek company that owned the unit, saw the government buy water at €1.21 per cubic metre. According to the terms, the company was compensated for the time the unit was inactive.

The plant was only used for four months, the rest of the time it was on standby and cost 24 million euros. “It cost 24 million for four months of water,” Neocleous reiterated.

Sources say that the WDD had tried to establish the Paphos unit as a permanent plant but were informed that they hadn’t complied correctly with the necessary legal process, including the practice of tenders. The use of desalination plants is an expensive way of producing water, but temporary units are even more expensive than permanent ones.

Currently the Paphos area has 26 million cubic metres of water in its reservoirs, short of the annual requirement of 28 million for the region.

Neokleous said that less water in reservoirs could cause other problems as well as water shortages. Less water means what is there is poorer quality, he said, and this could also have an adverse effect on fish and wildlife.

July building permits fall

Cyprus: July building permits fallTHE NUMBER of building permits authorised in July 2016 stood at 442 compared with the 479 authorised in July 2015; a fall of 7.7 per cent according to official figures released by the Cyprus Statistical Service.

Compared with July 2015, the total area of these permits rose 1.4% to 90.8 thousand square metres from 89.6 thousand square metres. However, their value fell 34.4% to €84.6 million from €129.0 million.

During July, building permits were issued for:

  • Residential buildings – 305 permits
  • Non-residential buildings – 77 permits
  • Civil engineering projects – 18 permits
  • Division of plots of land – 37 permits
  • Road construction – 5 permits

Building permits for new homes

The 305 residential building permits approved in July provided for the construction of 382 new homes comprising 231 single houses and 74 multiple housing units (such as apartments, semis, townhouses and other residential complexes).

This is an increase of 13.4% compared with July 2015 when building permits were issued for the construction of 337 new homes.

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

Month 2015
(Dwellings)
2016
(Dwellings)
Increase/Decrease %age
Change
January 204 243 39 19.1%
February 384 312 -72 3.0%
March 297 306 9 3.0%
April 147 201 54 36.7%
May 276 278 2 0.7%
June 239 287 48 20.1%
July 337 382 45 13.4%
Total 1,884 2,009 125 6.6%

Year to date

During the first seven months of 2016 the number of building permits authorised for both residential and non-residential projects increased by 2.7% to 3,053 compared with the 2,974 authorised in the same period last year.

However, the total value of these permits fell 10.4% to €574.8 million and their total area fell by 0.3% to 546.2 thousand square metres, while the number of housing units increased by 6.6%.

According to the Cyprus Statistical Service, building permits constitute a leading indicator of future activity in the construction sector.

Home prices continue to fall

Cyprus home prices fallingSTATISTICS release by Eurostat and the Cyprus Statistical Service (CySTAT) report that home prices in Cyprus fell 0.6 per cent during the second quarter of 2016.

Eurostat home price index

According to a Eurostat news release published yesterday, home prices in Cyprus fell 0.9 per cent during the second first of 2016 compared with the previous quarter and by 8.9 per cent on an annual basis.

House prices in the Euro area rose by 2.9% and by 4.0% in the EU over the second quarter of 2016 compared with the same quarter of the previous year.

Compared with the first quarter of 2016, house prices rose by 1.4% in the Euro area and by 1.6% in the EU in the second quarter of 2016.

Highs and lows

The highest annual increases in house prices in the second quarter of 2016 were recorded in Hungary and Latvia (both +10.3%), Austria (+9.0%), the United Kingdom (+8.8%) and Sweden (+8.7%), while falls were observed in Cyprus (-8.9%) and Italy (-1.4%).

Compared with the previous quarter, the highest increases were recorded in Latvia (+6.6%), Estonia, Lithuania and Portugal (all +3.1%) as well as the United Kingdom (+3.0%), while falls were observed in Croatia and Cyprus (both -0.9%), Italy (-0.4%) and Hungary (-0.2%).

CySTAT house price index

The CySTAT house price index, which uses data from the Department of Lands & Surveys, also reports a fall of 0.9 per cent during the second quarter of 2016 compared with the previous quarter.