Continued decline in building permits

David Crowther
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33

THE NUMBER of building permits issued in May 2012 stood at 618 compared with the 691 issued in May last year; a decrease of 10.6%, according to the latest figures released by the Cyprus Statistical Service.

Compared with May 2011 the total area of these building permits fell from 180,882 square metres to 134,085 square metres (-26%) and their value fell from €173 million to €127 million (-27%).

During May, building permits were issued for:

  • Residential buildings – 401 permits
  • Non-residential buildings – 95 permits
  • Civil engineering projects – 74 permits
  • Division of plots of land – 42 permits
  • Road construction – 6 permit

During the period January – May 2012, 3,114 building permits were issued; a decrease of 6.4% compared to the same period last year, while the total value of these permits fell by 30.1% and their total area fell by 33.9%.

New home construction

The 401 residential building permits that were approved in May provided for the construction of 459 new homes comprising 236 single houses and 223 multiple housing units (such as apartments and other residential complexes).

This is a fall of 33% compared with May 2011 when building permits were issued for the construction of 686 new homes.

Cyprus new home construction May 2012
Source: Cyprus Statistical Service

During the first five months of 2012, the number of new homes for which permits have been issued has dropped 42.3% compared with the same period last year.

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

Cyprus may need more than €10 billion for bailout

Editorial
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10

CYPRUS may need more than the 10 billion Euros ($12.4 billion) staffers have estimated for a financial lifeline after bigger shortfalls than anticipated were found on the government’s balance sheet, according to the minutes of a meeting of international and Cypriot officials.

A mission of officials from the European Commission, European Central Bank and the IMF, the so-called troika, met with Cypriot lawmakers on July 27 to present findings from their analysis of the country’s economy. On June 25, Cyprus became the fifth of the euro area’s 17 member states to seek external aid.

“Your public finances are in a worse shape than we expected,” Maarten Verwey, a troika official and a deputy head of the commission’s Directorate General for Economic and Financial Affairs, said according to the minutes of the meeting obtained by Bloomberg News. “It is clear you have problems in your banking sector. It is not just the major banks in Cyprus, but the problems affect the entire banking sector.”

Euro-area finance ministers approved the bailout request from Cyprus on June 27. No amount was specified for the rescue, which will encompass the public sector as well as banks. Cyprus also sought assistance from the IMF and Russia.

‘Further Economic Cooperation’

Cypriot banks lost more than 4 billion Euros in Greece’s debt restructuring earlier this year. The government had to rescue the island’s second-largest lender, Cyprus Popular Bank Pcl, in May by underwriting a 1.8 billion-euro capital increase. On June 27, Bank of Cyprus Pcl requested 500 million Euros in temporary aid to meet regulatory requirements.

Russian President Vladimir Putin and his Cypriot counterpart, Demetris Christofias, discussed “further economic cooperation” between the two countries during a phone conversation today, the Cypriot government said in an e-mailed statement.

Christos Christofides, a government spokesman, declined to say if the two leaders discussed Cyprus’s request for a 5 billion Euro loan.

Mainly Russian non-residents hold one of every two Euros deposited at Cypriot banks, directly or indirectly, according to Theo Parperis, chairman of the Institute of Certified Public Accountants of Cyprus.

Budget Deficit

The EU’s Verwey declined to speculate on how much assistance Cyprus may require in the troika’s meeting with lawmakers, according to the minutes, which were verified by two officials involved in the talks. The officials declined to be identified because the meeting was private.

Spokespeople for the commission and the ECB couldn’t be reached immediately for comment.

Cyprus could return to financial markets after it tackles its budget deficit and structural reforms, the troika said. The government needs to trim its payroll and spending on social programs, overhaul the pension system and wage indexation and enhance supervision of banks, according to the minutes.

The Cypriot government intends to narrow its budget deficit to as little as 2.5 percent of gross domestic product this year from 6.3 percent in 2011.

The Cypriot economy, which has contracted for three straight quarters, will see a “deep recession” continue into 2013, Verwey said. [Bloomberg]

Larnaca port transformation agreed

Nigel Howarth
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14
Larnaca port transformation agreed

CYPRUS and the Zenon Corporation have signed a contract for the joint transformation of the Larnaca port and marina, in a project costing in excess of €700 million.

The Cyprus government Minister of Communications and Works, Efthimios Flourentzos said that the project is very important for both Larnaca and Cyprus as a whole, noting that such projects will boost the economy and create new jobs at a time of financial recession.

The Zenon Consortium will carry out the construction of the new harbour and marina and will manage the facility for a period of 35 years. Zenon will also provide land to developers for the construction of residential units that will be sold on a 99 year lease.

The project will be carried out in three phases – the construction of the marina and port infrastructure, including a new passenger pier, an offshore jetty, a yacht club and marina and commercial buildings at an estimated cost of €130 million. Extensions to the port and marina will be constructed at a further cost of €55 million.

Under the agreement, Zenon is required to secure funding for the project within six months, while the first two phases of the project are to be completed within the next three years

Zenon will also provide some of the 200,000 square metres of land designated for the residential developments, bringing its total cost to €700 or €800 million.

Once completed, the new port will become the main passenger port of Cyprus and will be able to accommodate large cruise ships – and have the potential to serve commercial vessels.

Initially, the port will have the capacity to berth 500 vessels, but this could be expanded to berth 1,000 vessels depending on demand.

The project will also include parks, restaurants, recreation space, shops and other public areas.

 

Property sales plunge to new depths

Nigel Howarth
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5

PROPERTY sales in Cyprus during July fell to their lowest level since we started keeping records in 2006. During the month, a total of 408 contracts for the purchase of property were deposited at Land Registry offices compared with the 605 deposited in July 2011; a fall of 33%.

Of those 408 contracts, which include the purchase of residential & commercial properties and land, 69 (27%) were in favour of overseas buyers and 339 (63%) were in favour of Cypriot buyers.

Domestic sales

Overall 144 fewer properties were sold in July, a fall of 30% compared with July 2011. Sales in Nicosia fell by 65 (-45%), in Limassol they fell by 55 (-37%) and in Famagusta they fell by 30 (-44%).

On a more positive note, 4 more properties were sold in Larnaca and 2 more were sold in Paphos compared with July 2011.

In the first seven months of 2012 sales to the domestic market stood at 3,249 compared with 3,084 in the same period last year; an increase of 165 (5%).

As reported by Pavlos Loizou MRICS in his commentary on the RICS Cyprus Property Price Index that we published yesterday “The first half of 2012 saw investors postpone their decision making and look for safe havens. Property, both commercial and residential, was increasingly viewed as a risky asset and one with negative prospects in the near to medium term.

“This led to a reduction in interest from both local and overseas buyers, resulting in low transaction turnover. Local buyers in particular were the most discerning as the increase in unemployment and the worsening prospects of the local economy led to a sharp reduction in interest.”

Source: Department of Lands and Surveys

Overseas sales

The overseas market continues to deteriorate, with the number of sales dropping in all areas once again during July (despite the alleged interest being shown by Chinese buyers).

The hardest hit area was Nicosia, where sales were down 13 (-68%) compared with July last year. Nicosia was followed by Limassol -12 (-41%), Famagusta -11 (-55%), Larnaca -8 (-32%) and finally Paphos -9 (-31%).

During the first seven months of 2012, sales to the overseas market stood at 869 – a decrease of 21% on the 1,098 sales in the same period last year; a fall of 229 (-21%).

Cyprus property sales - overseas market - jul12
Source: Department of Lands and Surveys

Once dominated by buyers from the UK, the island’s overseas property market collapsed in 2009 and is unlikely to fully recover in the foreseeable future. The collapse has resulted in thousands of unsold holiday homes and apartments littering the island and property developers slashing prices in efforts to offload their unsold stock.

The collapse was a consequence of the global financial turmoil and the Title Deed scandals. The Title Deeds-cum-fraud mess, in which buyers found themselves being duped and mislead by the ‘crooks’ masquerading as ‘honest’ property developers and lawyers, has resulted in many potential overseas investors looking at safer places for their money.

In spite of some half-hearted attempts by the government to resolve the Title Deed fiasco there remain thousands buyers (both Cypriot and foreign) who although having paid for their properties in full do not have legal ownership.

Some of these buyers now face the very real threat of losing their homes as developers who mortgaged the land on which they were building, without the knowledge of the buyer, have collapsed – and the banks are looking to recover the debt.

Having exhausted local legal remedies in efforts to save their homes, buyers have taken their cases to the European Court of Human Rights. These have been accepted and will be heard in the coming months.

House prices in the west and east holding up

Nigel Howarth
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4

RESIDENTIAL property prices continued to fall in most areas of the island during the second quarter of 2012, according to the eleventh issue of the Property Price Index published by Royal Institute of Chartered Surveyors (RICS).

Quarter-on-quarter, the average prices of residential apartments fell by 2.0% and those of houses fell by 2.0%. Limassol was worst affected with prices for apartments and houses dropping by 3.4% and 2.3% respectively.

House prices in Paphos and Paralimni/Famagusta remained unchanged over the quarter, bringing hope that the market has bottomed out in these areas and perhaps showing some early signs of a recovery. However, the prices of residential apartments continued to fall across all the main urban areas of the island.

Prices of commercial property also fell over the quarter. Retail properties fell by an average of 3.0%, office were down 2.1% and warehouses fell 3.2%.

Reporting on the latest figures Pavlos Loizou MRICS, who is in charge of the RICS Cyprus index, said “During the second quarter of 2012 Cyprus’ economy bore the consequences of the political turmoil in Greece and the progressive decoupling of the local economy.

“The worsening state of Cyprus’ economy and the growing political and economic uncertainty across the eurozone, led to a pronounced slowdown in mortgage and corporate lending and a further rise in the rate of unemployment.”

Mr Loizou went on to say “The first half of 2012 saw investors postpone their decision making and look for safe havens. Property, both commercial and residential, was increasingly viewed as a risky asset and one with negative prospects in the near to medium term.

“This led to a reduction in interest from both local and overseas buyers, resulting in low transaction turnover. Local buyers in particular were the most discerning as the increase in unemployment and the worsening prospects of the local economy led to a sharp reduction in interest.”

Compared to the second quarter of 2011, apartment prices have fallen by 10.2% and house prices are down 6.4%. The prices of retail premises have fallen 10.8%, while those of offices and warehouses are down by 9.0% and 12.0% respectively.

Yields are a useful tool showing the relationship between rent and property prices. During the second quarter of 2012, average gross yields stood at 3.8% for apartments, 2.0% for houses, 6.0% for retail, 4.7% for warehouses, and 4.5% for offices.

Derived from the RICS Cyprus Property Price Index for Q2 2012

The parallel reduction in capital values and rents is keeping investment yields relatively stable and at very low levels (compared to yields overseas). This suggests that there is still room for re-pricing of capital values to take place.

Outline of properties used to calculate the index

Apartments: Residential, two bedroom, 85sqm, Medium quality.
Houses: Residential, three bedroom with garden, Semi-detached, 250sqm, Medium quality.
Retail: High-street retail, 100sqm ground floor area with 50sqm mezzanine.
Warehouse: Light industrial area, 2,000sqm, which includes 200sqm office space.
Office: Grade A, City centre location, 200sqm

(All property types used to calculate the index are: freehold, have all licences and permits in place, have their Title Deeds, are subject to VAT and are in a good state of repair).

Methodology

The methodology underpinning the RICS Cyprus Property Price Index was developed by the University of Reading UK and may be viewed by clicking here.

Nicosia and Limassol home price falls accelerating

Poly Pantelides
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3

PROPERTY prices for buyers may be down but so are rents on apartments, warehouses and offices, the latest figures show.

The latest index from the Royal Institute of Chartered Surveyors (RICS) shows “significant falls across Cyprus’ major urban areas, with prices and rents falling across all districts” in the second quarter of 2012.

Over six months, the average rental price of a Nicosia two bedroom apartment went from €555 in March to €535 in June. In Limassol, rental prices for apartments went down from €502 to €479 in the same time period.

In just three months, about €2,631 got shaved off the average buying price of a two bedroom apartment in Cyprus falling from €131,120 in March to 128,484 € in June.

Compared to the second quarter of 2011, prices dropped by 10.2% for apartments, 6.4% for houses, 10.8% for retail, 9.0% offices, and 12.0% for warehouses, according to the RICS Cyprus property price index.

“[Prices] are going down. The country’s bankrupt and so are the banks. It’s as simple as that,” said Pavlos Loizou MRICS who is in charge of the RICS Cyprus index.

“Eighty-three per cent of Cypriots own their home so we don’t really have lots of people who want to buy… at this point you have almost 11 percent unemployment which means that people who want to buy are putting it off,” he said.

Most investors in Cyprus and abroad, such as property developers who would have an interest in buying a property, are “also sitting on the fence waiting to see how they play it out,” Loizou said.

If the state of the economy and property prices were the only thing concerning investors then they might be buying, Loizou said.

What is going on is that no one knows if and what changes there will be in taxes and legal requirements.

Cyprus is due to borrow money from its EU partners and will be asked to restructure its economy and increase its income.

Property developers cannot calculate what their income will be from renting out a property for the following year, since they might soon be asked to contribute a bigger proportion of their turnover, Loizou said.

Or they might not. The point is that no one knows, “there are questions, e.g. are things playing out as they are in Greece?”

So what next for the following year or two?

“Paphos and Famagusta have seen their prices drop for years. Nicosia and Limassol started six months ago so prices for them are dropping at an accelerating rate,” Loizou said.

Nicosia – relying more on the state and the banks – will suffer more in the following year, Loizou said.

“But the fact prices are falling is a sign the market is rebalancing,” he said.

“Between 2004 and 2008 when prices tripled we had just had a decade of stability and employment, banks gave loans out very easily. There was a state of euphoria, as if we were drunk,” Loizou said.

Prices are adjusting to a long-term average, he said.

Loizou said that when rent prices stop falling investors will know how much rent they will get from an investment and it will be a sign that offices are feeling robust enough to pay rents.

But it will be a year and a half before that, he said.

Of course when it comes down to specifics, sweeping generalisations are useless, another member of RICS said.

“The index is a mirror of what is happening now,” she said.

However, unless investors feel they can track their property’s future, they will postpone making choices.

And prices will probably continue dropping.

Nicosia and Limassol home price

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