'Residential property prices in Cyprus are not going down anytime soon.'

Cyprus-based fintech company Ask WiRE and its CEO Pavlos Loizou said in an analytical paper examining the state of the domestic real estate market next year that residential property prices are likely to remain stable compared to the previous year due to increased demand and a robust economy.

Global events and the economy

Loizou noted some global developments that affect prices, including the European and Cypriot economies, which by the end of 2021 had begun a gradual recovery from the Covid-19 pandemic and the negative effects of related measures such as lockdowns. In addition, he noted that at that time the stock market had reached all-time highs, a''inflation was gradually rising.

Two years later, Loizou says supply chain problems have become less visible. This is evidenced by a global container freight cost index that has fallen 74 percent, from 9,304 to 2,404, a 19.5 percent drop in the S&P 500 stock market index, from 4,750 to 3,800, and inflation that appears to have peaked at around 8 to 9 percent.

"The war in Ukraine, related geopolitical changes, the European Union's rapid abandonment of Russia as a major energy supplier and rising interest rates have led (and continue to lead) to a significant reassessment of risk in various asset classes, especially those with high levels of debt, such as real estate," Loizoux said. "Such reassessment''will continue in 2023, especially as more investment opportunities emerge,' he added.

Analysis of market conditions in Cyprus

Analysis Loizou firstly set the valuation framework and then used it to make sense of the situation in Cyprus. He noted that "high levels of disposable income, population growth, looser lending requirements and low interest rates are contributing to rising housing costs." Moreover, he noted that, just as with residential real estate, commercial real estate prices typically rise with GDP expansion and fall when interest rates and returns on other investments are higher. "International investors influence the dynamics of real estate prices both in''residential as well as commercial real estate,' he said.

Influencing factors for 2023

With regards to the factors influencing 2023, the Ask WiRE CEO explained that disposable income is likely to have declined due to rising prices, high inflation and rising interest rates. In addition, banks have tightened their lending criteria for all types of real estate and interest rates on mortgages, development and investments continue to rise. "On the other hand, the population has increased significantly due to the arrival of citizens from Ukraine, Russia, Belarus and other countries, which has caused rental prices and house prices to rise in some areas," Loizou said, noting that "the arrival of foreign investors, especially from Lebanon and Israel, is also affecting price increases in''certain property types', which mainly affects smaller residential units and tourist establishments in Larnaca.

The state of commercial real estate

When it comes to commercial real estate, Loizou said that Cyprus' GDP continues to grow, but with higher interest rates and high yields from alternative investments, investing in real estate for income or capital growth is becoming less attractive. "For example, the yield on the Cypriot government's 10-year bond is currently at 4.2 percent, while banks in Greece and Cyprus are issuing preferential and Tier 2 bonds with coupons of 7.0-10.0 percent," Loizou said.

The market split

As a result of all of the above, Loizou indicated that it is reasonable to expect the market to split into two distinct segments, one for domestic buyers and the other for international investors. One factor here, according to Loizou, is whether international investors and buyers will be able to stay long-term to maintain the current price range. "The likely answer is yes, since the local''The business environment and political stability, given what is happening in the region, as well as the ability to work everywhere, play to Cyprus'," Loizou said.

Meanwhile, Loizou emphasized that the aforementioned "limited supply" is causing prices to rise, before noting that this is something that is "likely to change in the medium term as new projects come on stream, especially in West Limassol and parts of Larnaca." He continued that new housing construction has yet to fully recover from the real estate crisis in 2008 and the banking crisis in 2013, and the supply of residential property remains close to historic lows. "This limited supply has made housing unaffordable for many people, especially first-timers''homebuyers,'" Loizou said. "In addition, those who purchased homes in recent years at extremely low mortgage interest rates remain in place, further limiting the overall supply of housing," he added.

What's more, he noted that the demand side has been hit hard by the increased population over the past decade, which has happened for several reasons. "We do not expect the real estate market in Cyprus to undergo a significant correction as the economy remains strong and demand for housing is still relatively strong," Loizou said. 'However, a possible slowdown in house price growth and lower sales volumes next year could ease access to affordable housing for potential buyers. We are less optimistic''attuned to commercial real estate, where the choice of alternative investment opportunities has increased significantly over the last year,' he added. "This, combined with rising interest rates, is likely to lead to a revaluation in the near term, especially for smaller properties and older properties," Loizou concluded.

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