Cyprus Property Market: recent trends and future outlook

CEO of Ask Wire Pavlos Loizou, has hands-on experience in setting up large scale real estate platforms and in repositioning real estate assets, having established and being the head of the real estate platform of Gordian Holdings, having established and being the head of asset management of the real estate management unit (REMU) of Bank of Cyprus, and an equity partner at Resolute Asset Management.

The Cyprus real estate market has experienced a notable boom in recent years, driven by a combination of local and international factors. According to the latest Ask Wire Index for Q1 2024, property prices and rental values have shown significant annual growth. Apartment prices increased by 6.3 per cent and rents by 9.3 per cent since Q1 2023. Office rents saw a notable increase of 8.2 per cent, reflecting the robust demand for commercial spaces despite minor quarterly price growth. Retail and warehouse prices remained stable on a quarterly basis, but warehouse rental values saw a slight annual decrease of 0.6 per cent, indicating subtle shifts in market dynamics​.

Factors Influencing the Market

Several key factors have influenced the recent property boom in Cyprus:

Geopolitical tensions and foreign demand: regional unrest has significantly influenced the Cyprus real estate market, driving increased demand from foreign investors seeking stability and security. This influx of foreign capital has accelerated property price increases, particularly in high-end residential and commercial properties. Limassol, for instance, has seen the highest percentage increase in both apartment and house prices, indicating strong demand in this district.

High mortgage rates and local buying power: persistently high mortgage rates have diminished the buying power of local residents, balancing the market dynamics. While this has tempered local demand, it has not deterred foreign investors, who continue to view Cyprus as an attractive investment destination.

Construction costs and supply dynamics: rising construction costs have impacted the supply side of the market, affecting new developments and renovation projects. These increased costs, coupled with high demand, have contributed to the upward pressure on property prices.

Cyprus residency programme: the cyprus residency by Investment programme, commonly referred to as the Golden Visa, has been a significant driver of foreign investment in the property market. This programme allows non-EU nationals to obtain permanent residency by investing at least €300,000 in real estate.

Implications for Various Stakeholders

The property boom has diverse implications for different parties involved in the Cyprus real estate market:

Local Buyers: The increase in property prices and high mortgage rates have made home ownership more challenging for locals. However, the market’s stabilisation offers some relief as demand adjusts.

Foreign Investors: Cyprus remains an attractive destination for foreign investors, thanks to its strategic location, favourable tax regime, and visa programmes. The stability and growth in property values offer promising returns on investment.

Immigrants: For new immigrants, the booming market presents both opportunities and challenges. While the high property values can be a barrier, the diverse range of properties available, from apartments to luxury villas, caters to varying needs and budgets.

Banks: Financial institutions benefit from increased mortgage lending but face challenges from the high number of non-performing loans (NPLs) in the market. Even though the majority of these NPLs are outside the banking system, owned by finds and managed by specialist loan servicers, they still weigh-down on small businesses and households. The pressure to manage these NPLs continues to shape their lending strategies and risk management practices.

Developers: Real estate developers are capitalizing on the high demand, particularly in areas like Limassol, Paphos and Larnaca, which have seen the highest percentage increase in property values. However, rising construction costs and regulatory changes pose challenges to their operations.

Market Outlook

Short Term (1-2 Years)

In the short term, we can expect the market to continue its current trajectory of moderate growth. The high interest rates are likely to persist, which will stabilise demand and prevent overheating. Regional geopolitical tensions will continue to drive foreign investment, sustaining the demand for high-end properties. However, the market will also face challenges from rising construction costs and regulatory changes aimed at increasing transparency and compliance.

Medium Term (3-5 Years)

Over the medium term, the market is likely to see a more balanced growth pattern. As construction projects initiated during the boom period come to fruition, there will be an increase in supply, which could ease the upward pressure on prices. The introduction of new technologies and data analytics, such as those provided by Ask Wire, will enhance market transparency and efficiency, helping stakeholders make informed decisions. Additionally, efforts to manage NPLs and improve financial stability will contribute to a healthier real estate market.

Long Term (5-10 Years)

In the long term, the Cyprus real estate market is expected to stabilise further, with sustainable growth driven by a balanced mix of local and foreign demand. Demographic changes, such as an aging population and smaller family sizes, will influence housing preferences, leading to increased demand for smaller, more affordable housing units. Environmental and climate risks will become more prominent considerations, with a greater emphasis on sustainable and resilient property development. The continued integration of technology and data analytics will play a crucial role in shaping the market’s future, providing stakeholders with the tools to navigate a complex and dynamic environment.

Two-Tier Market Dynamics

The Cyprus property market is increasingly splitting into a two-tier system. On one hand, local buyers, often constrained by lower salaries and reliant on mortgage financing, struggle with affordability, particularly as they also grapple with a significant burden of non-performing loans. On the other hand, foreign investors are targeting the premium segments of the market. These investors benefit from lower taxes and are less affected by local economic fluctuations, allowing them to focus on high-end properties and developments. This dichotomy is creating distinct market dynamics, where the luxury real estate sector thrives while affordability issues persist for the local population.

Conclusion

The Cyprus real estate market has demonstrated remarkable resilience and growth, driven by a combination of local and international factors. While the market faces challenges from high mortgage rates, rising construction costs, and regulatory changes, the overall outlook remains positive. Strategic planning, technological integration, and effective risk management will be crucial for stakeholders to navigate these challenges and capitalise on the opportunities presented by this dynamic market.