"What to expect from the real estate sector in2023?"?"

The positive trend in real estate sales, driven by foreign buyers from EU and non-EU countries, is expected to continue throughout 2023. At the same time, there is an increasing upward trend in sales and rental prices due to high demand and rising prices for construction materials.

It should be noted that the financial environment in 2023 looks set to influence some important fiscal parameters. The GDP growth rate in 2023 is expected to be around 3%, which is a healthy increase after a higher growth rate of 5.7% in 2022, a reaction to the recession in 2020. Inflation in 2023 is expected to improve from 2022 to around 4% compared to 8.1% in 2022. Within this framework, the construction sector is operating at full capacity as many public and private projects are underway in addition to the private sector, and large European recovery funds are expected.

New builds, especially residential, may face lower demand due to rising sales prices, as well as higher interest rates and the expected reduction in VAT subsidies, which will become clear soon. It is worth noting that foreign buyers accounted for 54% of all sales in January 2023. It should be noted that 2022 saw a 30% increase in the number of real estate transactions (contracts registered in the Real Estate Registry), with Limassol at the top of the list, followed by Paphos. Of the 13,409 real estate transactions in 2022 (the highest number since 2008), 5,928, i.e. 44%, were foreign buyers. This significant increase suggests that foreign buyers may also have a strong and healthy presence in 2023. It should be noted that while 50% of foreign buyers in 2022 were from EU countries, in January three out of four were from non-EU countries. This trend of increasing sales to foreign buyers is expected to continue, with foreign buyers leading the way this year.

It goes without saying that this upward trend in the real estate market will depend on whether and how much sales prices and interest rates will rise. Another factor that will certainly influence the course of the real estate market in 2023 is a possible further increase in sale prices, especially for new apartments, mainly due to the rising cost of construction materials. An even higher increase in sale prices is also expected when the full increase in the cost of materials is included in the sale prices.

Another area of the real estate market is the rental sector. The increase in rentals in 2022 was more prominent than the increase in sale prices. This is mainly due to increased demand from Cypriots as well as foreigners. The facts are quite clear for all to see. Students are returning to universities after the pandemic and the number of highly paid foreign workers is increasing as many foreign companies are opening branches in Cyprus due to the incentives provided by the country. It should be noted that the volume of available rental properties, especially new ones, is low. Therefore, even a small increase in demand significantly increases rental payments. It is expected that rents will stabilize at current levels in 2023 if the flow of high-paid foreign workers continues. It should be emphasized that the volume of available older apartments for rent due to the Rent Control Act continues to create problems such as ghetto formation, security risks and of course poor conditions for tenants.

All of the above facts are another reason to address the problems caused by the Rent Control Act as well as the multifamily building legislation.

Expectations for 2023

This brief analysis leads to the following projections for 2023:

• Increased interest in sales and leases from foreign buyers.
• The upward trend in new and used residential real estate prices.
• Slight increase or stabilization of rental prices.
• Based on price increases, the new VAT status and interest rates, we can expect a stabilization or even a decrease in the interest of Cypriots in purchasing housing. Increased interest in buying used apartments cannot be ruled out.
• An increase in interest from investors is expected, as rental income continues to remain at a satisfactory level.

These forecasts can change at any moment due to unstable international economic and political conditions. Therefore, the forecasts should be interpreted with the possibility of changes in today's international and domestic market conditions in mind.

About the author

Stafis Efstathiou Real Estate Consultant at FOX Smart Estate Agency