Troika highlights concerns over Cyprus economic growth

Nigel Howarth
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Troika highlights concerns over Cyprus economic growth

Although Cyprus’ economy is experiencing strong growth, the Troika of international lenders have identified key concerns during their 18th post-memorandum audit.

The Troika’s primary focus is on government spending, energy costs, judicial reform, and unfinished public works. While the economy and banking sector appear stable, these challenges pose risks to long-term financial sustainability.

Rising government spending

A major issue flagged by the Troika is the escalating state payroll. Wage increases and enhanced public sector benefits, including the Automatic Cost of Living Adjustment (COLA), have significantly raised personnel expenses.

The Fiscal Council warns that inelastic spending, which makes up 60% of the budget, could rise to 70% by 2027. By then, public sector wages alone are projected to account for 31.7% of total government expenditures, reducing flexibility in government spending.

While Cyprus’ public debt remains manageable, unchecked payroll costs could strain the country’s financial health.

Energy sector concerns

The Troika has also scrutinised the Cyprus Electricity Authority (EAC) and the overall energy sector. Electricity costs remain high, raising concerns about Cyprus’ transition to a more sustainable energy system.

EAC has previously been criticised for inefficiencies, and its role in Cyprus’ green energy plans is under examination.

Projects such as the Vasilikos power station remain incomplete, further delaying progress in energy sector reform.

Judicial reform delays

Another persistent issue is the slow pace of judicial reform. The Troika has long urged Cyprus to overhaul its courts, but significant progress has yet to be seen.

Reforming the judiciary is a prerequisite for accessing EU Recovery and Resilience Fund (RRF) support, making it a key priority.

The inability to modernise the legal system affects efficiency and economic confidence.

Unfinished public projects

The Troika has raised alarms over stalled public works, particularly in the energy sector. Delayed projects are seen as bottlenecks to economic growth.

The incomplete Vasilikos power station, among others, is a particular concern, as infrastructure delays hinder overall development.

Banking and healthcare stability

On a positive note, Cyprus’ banking sector is stable, with no major concerns raised in the audit.

The General Health System (GHS) has also been removed from the Troika’s list of concerns, as costs remain under control.

The road ahead

The Troika’s audit will continue until Cyprus repays 75% of its European Investment Bank loan. Addressing government spending, energy, judicial, and infrastructure issues is crucial for ensuring long-term economic stability.

(Further details of the Troika’s Bailout Programme for Cyprus may be found at Economic Adjustment Programme for Cyprus.)

Lawyer acquitted in Al Jazeera passports scandal case

Nigel Howarth
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Lawyer acquitted in Al Jazeera passports scandal case

Antonis Antoniou, a senior lawyer formerly employed by the Giovani Group, was acquitted on Tuesday of all charges related to alleged illegal naturalisations exposed by news organisation Al Jazeera.

His acquittal followed the legal service’s decision to suspend the charges due to a key prosecution witness, Anthony Kay, refusing to testify.

Prosecution lawyer Charis Karaolidou informed the court that Kay had submitted a written statement declaring that he “did not see and was not aware of any offence related to the defendants,” contradicting his previous statements to the police.

Given that counts 4 and 5 of the indictment relied heavily on the testimonies of Kay and Al Jazeera journalist Sarah Yeo (who also declined to testify) Ms. Karaolidou, the Spokesperson of the Prosecuting Authority, announced that the Attorney General had decided to suspend these charges.

Meanwhile, former House President Demetris Syllouris and ex-Akel MP Christakis Giovanis remain on trial, facing serious charges, including conspiracy to subvert the Republic and attempting to influence a public official, in violation of anti-corruption laws.

Initially, four individuals stood accused in this case. Antoniou, Giovani, and Syllouris were joined in the dock by lawyer Andreas Pittadjis, who gained notoriety for his infamous remark, “This is Cyprus,” during the documentary. Pittadjis was acquitted in 2023 and subsequently served as Antoniou’s defence lawyer.

The scandal came to light in October 2020 when Al Jazeera aired an almost hour-long exposé, prompting both Syllouris and Giovanis to resign from their positions.

The documentary featured undercover journalists posing as agents representing a fictitious Chinese businessman with a criminal record, seeking Cypriot citizenship. Despite the businessman’s criminal background, Syllouris, Giovanis, and others appeared willing to facilitate his application.

In response to the revelations, the Cypriot government “definitively and irrevocably terminated” the controversial citizenship-by-investment scheme (more commonly known as the Golden Passports scheme) in November 2020. The European Union subsequently initiated legal proceedings against Cyprus, alleging that the programme had been exploited to grant passports to questionable individuals.

A damning report put together by a probe committee headed by former supreme court judge Myron Nikolatos said over half (53%) of the 6,779 golden passports were granted illegally, encouraged by a due diligence vacuum or insufficient background checks. In light of these findings, the government has since begun the process of revoking the citizenships of individuals who obtained them improperly.

Antoniou’s acquittal marks a significant development in the ongoing legal proceedings, while the remaining defendants continue to face serious charges.

The case has drawn widespread scrutiny, underscoring concerns over corruption and the integrity of Cyprus’ disgraced Golden Passports scheme.

How many properties and loans do vulture funds own?

Nigel Howarth
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How many properties and loans do vulture funds own?

At the end of 2024, the total value of loans held by Credit Acquisition Companies (better known as vulture funds) in Cyprus was €20.3 billion according to a report in the local media.

This was a slight drop from €21 billion recorded at the end of the first half of 2024, according to data released by the Central Bank of Cyprus.

Of these loans, around €10.3 billion were given to individuals, while approximately €10 billion were loans to businesses, as of December 2025.

Most of these loans, about €19.1 billion or 94%, were classified as non-performing (see below). This was a small decrease from €19.6 billion in June 2024.

By the end of 2024, vulture funds also owned a total of 8,118 properties, worth around €1 billion. This was an increase from 7,610 properties, valued at €1.1 billion, at the end of the first half of 2024.

What is a non-performing loan?

A non-performing loan (NPL) is a loan that a borrower has stopped repaying for a certain period, usually 90 days or more. This means the borrower has missed multiple payments and is unlikely to repay the full amount without special arrangements.

Banks and financial institutions classify loans as non-performing when they are at high risk of default (meaning the borrower might never pay back the full loan). These loans can cause financial problems for banks because they reduce profits and increase risks.

To manage NPLs, banks often sell them to Credit Acquisition Companies. These companies try to recover some of the money by restructuring the loan, negotiating with borrowers, or selling assets like properties.

Vulture funds

Credit Acquisition Companies are better known as ‘vulture funds’. “Vulture” is a metaphor that compares vulture funds to the behaviour of vultures, birds that scavenge for food by eating dead animals to extract whatever they can from their defenceless victims.

House prices in Cyprus continue to rise, but at a slower rate

Nigel Howarth
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0
House prices in Cyprus continue to rise, but at a slower rate

The General House Price Index (covering both houses and apartments) from the Central Bank of Cyprus (CBC) showed a slower annual increase during the third quarter of 2024. The Apartment Price Index slowed down more significantly than the House Price Index.

The House Price Index recorded a quarterly increase of 0.9%, lower than the 1.6% rise in the second quarter. On an annual basis, house prices increased by 6.5%, compared to 8% in the previous quarter.

Apartment prices showed the biggest slowdown, rising by 8.8% annually, compared to 12% in the last quarter. House prices also slowed slightly, increasing by 6% compared to 6.2% previously.

Local Buyers driving demand

Demand from local buyers increased, while purchases by foreign investors dropped slightly. The total number of sales contracts reached 4,081, marking an annual increase of 6.6%. Transactions by local buyers rose by 13.7%, while foreign purchases fell by 2.3%.

Most property transactions took place in Limassol, followed by Larnaca, Nicosia, Paphos, and Famagusta. Paphos remains the most popular location for foreign buyers, while local buyers dominate in other districts.

District variations in house prices

Property prices showed different trends across districts. On a quarterly basis, house prices rose by:

  • 1% in Nicosia
  • 3% in Famagusta
  • 9% in Limassol
  • 1% in Larnaca
  • 2% in Paphos

Annually, the highest increases were in Paphos (11.8%) and Famagusta (11.1%), while price growth was lower in Limassol (7.4%), Larnaca (8.1%), and Nicosia (2.7%).

For apartments, the highest annual price increases were in:

  • Famagusta (19.2%)
  • Larnaca (15.1%)
  • Paphos (14.4%)

Price growth was slower in Nicosia and Limassol

These differences reflect local supply and demand conditions. Limassol and Nicosia have more new properties available, while Larnaca and Paphos have a tighter supply, pushing prices up. In Famagusta, limited supply and new developments have also driven price increases.

Factors affecting the market

Several market trends are influencing property prices:

  • More new properties: The number of residential units approved for construction rose by 4% in the first half of 2024 compared to the same period in 2023.
  • Construction costs: Prices of building materials dropped slightly by 2% year-on-year.
  • Mortgage rates: Housing loan interest rates stood at 59% in the third quarter, slightly higher than in the previous quarter.
  • Loans: New mortgage lending rose by 5%, reaching €270 million, though banks are keeping strict lending criteria.

Outlook for the property market

The slowdown in price increases is expected to continue in the coming months. More properties are becoming available, and demand from foreign buyers has weakened, helping to stabilise prices.

According to European Commission research, expectations for future property price growth are lower than in 2023. Buyers and investors appear more cautious, suggesting the market is moving towards a period of stability. Prices will likely continue to rise but at a slower pace, as supply increases and demand moderates.

Urban Planning Amnesty Scheme application deadline extended

Nigel Howarth
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0
Urban Planning Amnesty Scheme application deadline extended

The Ministry of the Interior has announced an three month extension of the Urban Planning Amnesty Scheme until 23 June 2025.

Since the scheme started on 23 September 2024, a total of 948 applications have been submitted across Cyprus. These include:

  • 310 in Nicosia
  • 279 in Limassol
  • 92 in Larnaca
  • 204 in Paphos
  • 63 in Famagusta

The majority of applications (89%) are for legalising changes made to residential buildings.

After reviewing interest in the scheme and following advice from the Cyprus Scientific and Technical Chamber (ETEK), the Ministry has decided to extend the deadline by three months, until 23 June 2025. The decision was made due to a recent surge in applications.

The scheme allows for the legalisation of minor planning infringements or exceeding building limits, in exchange for a fee paid to the Special Affordable Housing Fund of the Cyprus Land Development Corporation (KOAG).

It applies to various types of buildings, including homes, offices, factories, farms, warehouses, shops, and leisure venues such as restaurants.

To qualify, the building must have a valid planning and/or building permit, and any unauthorised changes must have been made before 13 September 2024. A private consultant must confirm the date of these changes with an official declaration.

Applications must be submitted online through the “Ippodamos” system to the relevant local authority.

Cyprus’ housing shortage crisis: causes & possible solutions

Nigel Howarth
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Cyprus’ housing shortage crisis: causes & possible solutions

There has been much in the news recently about the housing shortage, caused by a combination of factors that have intensified in recent years.

In this article I summarise what has caused the housing shortage, the solutions put forward by Government to address the issue, and other suggestions.

Housing shortage cause & effect

One major factor is increased demand from foreign investors, particularly through the Cyprus Investment Program (Golden Passport scheme), which granted citizenship to nearly 7,000 individuals from its launch in 2007 to its ignominious termination in November 2020. This led to rising property prices, making homes less affordable for locals.

The rise of short-term rentals on platforms like Airbnb has further reduced long-term rental availability, increased rents and making housing inaccessible for local residents.

Additionally, insufficient new housing supply has worsened the issue. Economic uncertainties, including the COVID-19 pandemic, have slowed construction, leading to an imbalance between supply and demand.

Housing costs have also risen significantly relative to income, with many households spending over 40% of their income on rent or mortgage payments. This has made homeownership difficult, especially for middle-income and young buyers.

Finally, declining homeownership rates reflect the growing affordability crisis. Two decades ago, 78% of Cypriots owned homes; today, that figure has fallen to 68.8%, slightly below the EU average.

Government solutions to the housing shortage

To tackle the crisis, the government has launched several initiatives. A €77 million housing investment plan (2023-2028) aims to provide financial aid to middle-class and young homebuyers.

The Renovate-to-Rent program incentivizes property owners to renovate unused homes and rent them at affordable rates, with a target of adding 1,000 units in two years.

For low-income families, building plots are being allocated, with around 1,300 beneficiaries since 2019 and plans for 300-500 more in the next three years.

The government is also exploring funding from the European Investment Bank (EIB) as part of a €10 billion initiative to support affordable housing projects and help the housing shortage..

The Interior Ministry has implemented a fast-track building licence procedure designed to simplify and shorten the time taken to issue building permits and speed the delivery of new homes to market.

Lastly, the Cyprus Land Development Corporation (CLDC) is implementing a development program to expand affordable housing for purchase and rent.

Other suggested measures

A call to limit the number of short-term Airbnb rentals by allowing each person or company to register only two properties has been rejected by the Attorney-General’s office.

Another suggestion is changing rules by which non-EU citizens are permitted to acquire as many properties as they wish through companies. Although EU countries generally permit non-EU citizens to own property, many impose restrictions.

AKEL has proposed scrapping the 5% reduced VAT rate for non-EU citizens buying or building homes in Cyprus arguing the reduced VAT rate should help lower and middle-income families rather than benefiting foreign investors.

Summary

The housing shortage in Cyprus remains a major issue, affecting both the property market and residents’ daily lives.

Addressing this crisis will require collaboration between the government, the construction sector, and the local community to ensure affordable housing for all.

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