Cyprus: Real Estate Market

Homebuyers are opting for more cautious and considered purchases, so it will take estate agents and other real estate professionals longer to assist customers in finding their dream home.

According to the Central Bank of Cyprus, new loans in Cyprus saw a significant decrease in April 2023. They dropped from 922.5 million euros in March 2023 to 473.9 million euros in March 2023. This decline affected various areas, including consumer loans, loans for home purchases, and loans to non-financial firms.

Cyprus has some of the highest lending rates in the Eurozone, as per the latest ECB data. Specifically, Cyprus boasts an average house loan interest rate of 4.45%, in contrast to the Eurozone's average of 4.03%.

Current pricing levels are under serious threat when we consider the anticipated decrease in demand, evident from the decline in loan activity and the fact that borrowing capacity diminishes as interest rates rise. This raises doubts about the sustainability of current prices and necessitates a reevaluation of market dynamics.

The price index for construction materials has largely remained unchanged since the beginning of the year, as reported by the Statistical Service of Cyprus.

It is anticipated that property sellers will list their homes, thereby increasing the supply of properties available for sale due to expected increases in non-performing loans. Especially individuals who purchased houses as investments may find themselves facing a dilemma, needing to decide whether to continue making loan payments or whether selling their property would be a more prudent course of action.

Furthermore, there is an expectation that the GDP will experience a slight contraction, adding extra pressure to the job market and, consequently, increasing the chances of higher unemployment or, at the very least, creating certain challenges. This leads to additional factors explaining why the availability of previously owned homes and the inclination of current owners to sell are expected to rise in 2023 and throughout 2024, in addition to the decrease in household purchasing power.

Nevertheless, it is anticipated that the supply of previously owned homes from investment funds will remain steady.

Despite fewer construction licenses and projects in the pipeline, it is likely that more homes and larger projects will enter the market.

The total number of residential building permits witnessed a nearly 9% decline from January to May 2023 when compared to the same period in 2022, as reported by the Cyprus statistics office. However, there has been an increase in size/area (m2) by 3%, in the number of units by 3.5%, and in value by approximately 18%. Recent legislative announcements regarding reduced VAT policies that impose size (and value) restrictions can be attributed to this trend of expanding size and unit sales. Consequently, developers have rushed to obtain valid building licenses to ensure that their forthcoming medium-term projects remain unaffected by the new regulations. Increasing construction costs are another factor driving the rise in value. In conclusion, it is expected that an additional 4,135 residential units will be introduced to the Cyprus market in the coming years, solely based on data from licenses issued between January and May 2023.

The above-mentioned trends indicate that price stabilization is currently underway. It is expected that this will be accompanied by downward pressure, resulting in a slight drop in nominal prices. Nonetheless, it is crucial to bear in mind that if inflation persists at high levels and nominal prices remain