What to expect from the real estate sector in 2023

A positive trend in real estate sales seems to continue into 2023, thanks to foreign buyers from both EU and non-EU countries. At the same time, there is an increase in sales and rental prices, driven by high demand and rising costs of construction materials.

It should be noted that the financial environment in 2023 is currently influencing some important fiscal parameters. The GDP growth rate in 2023 is expected to be around 3%, a healthy growth following a higher rate of 5.7% in 2022, which was caused by the downturn in 2020. An improvement in inflation is anticipated in 2023 compared to 2022, expected to be around 4% compared to 8.1% in 2022.

In this context, the construction sector is operating at full capacity, as in addition to the private sector, there are numerous government and private projects underway, and significant European funds for recovery are also expected.

New constructions

It is expected that new construction projects, especially residential ones, may experience a decline in demand due to rising sale prices, as well as increasing interest rates and the anticipated reduction in VAT, factors that should soon become clearer.

It is worth noting that in January 2023, foreign buyers accounted for 54% of the total sales volume. It should be mentioned that in 2022, there was a 30% increase in real estate transactions (contracts registered in the Land Registry), with Limassol leading, followed by Paphos. Out of 13,409 real estate transactions in 2022 (the highest number since 2008), 5,928, or 44%, were related to foreign buyers. This significant increase suggests that foreign buyers may also have a strong and healthy presence in 2023. It is important to emphasize that while in 2022, 50% of foreign buyers were from the EU, in January, three out of four were from non-EU countries. This upward trend in sales to foreign buyers is expected to continue this year, where foreign buyers will play a leading role.

It goes without saying that this upward trend in the real estate market will also depend on whether and to what extent selling prices and interest rates will rise. Another almost certain factor that will influence the real estate market in 2023 will be the potential further increases in selling prices, especially for new apartments, primarily due to the rising cost of construction materials.

Cost of materials

An even greater increase in sale prices is expected as soon as the full rise in material costs is incorporated into sale prices.

Despite the increase in selling prices, real estate prices in Cyprus remain attractive compared to similar properties in neighboring and European countries. When comparing prices to previous years, it is worth noting that they are still close to what they were in 2010, when the price indices were launched.

Rental sphere

Another area of the real estate sector is the rental market. The increase in rental prices in 2022 was more noticeable than the increase in sales prices. This is mainly due to increased demand from Cypriots as well as foreigners.

Students are returning to universities after the pandemic, and the number of high-paid foreign workers is increasing, as many foreign companies are opening corporate offices in our country due to the advantages offered by Cyprus (headquarters location).

It should be noted that the volume of available rental properties, especially new ones, is limited. Consequently, even a slight increase in demand has a significant impact on raising rental prices. It is expected that in 2023, rental prices will stabilize at current levels if the influx of high-paid foreign workers continues.

It should be emphasized that the volume of available old rental apartments, due to the rental law, continues to create problems such as the formation of ghettos, safety risks, and, of course, poor living conditions for tenants. All of the above facts are yet another reason to address the issues caused by the rental law, as well as the legislation on jointly owned buildings.

Expectations for 2023

This brief analysis allows us to suggest the following trends for 2023:

• Increased interest in sales and leases from foreign buyers.
• An upward trend in prices for new and used residential real estate.
• A slight increase or stabilization in rental prices.
• Given the rise in prices, the new VAT status, and interest rates, one can expect a stabilization or even a decrease in the interest of Cypriots in purchasing housing. Increased interest in buying former apartments cannot be ruled out.
• Inevitably, there will be increased interest from investors, as rental income remains at a satisfactory level.

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

Author: Stafis Efstathiou, Real Estate Consultant, FOX Smart Estate Agency