Real estate stabilizes after mini-boom

The real estate sector in Cyprus is stabilizing after reaching a record number of sales since 2008, as the post-pandemic growth comes to a halt due to rising construction costs and interest rates.

According to the Real Estate Registration data, the number of submitted sales documents for the first 11 months of 2022 amounted to 12,074, which is 33% more than last year (9,063). This is the best result for an eleven-month period since 2008, when sales reached 14,043 units. Analysts predict that the year will close with more than 13,000 registered sales.

However, in November, a slowdown was recorded, and experts expect the market to undergo stabilization in the coming years. George Mouskides, the chairman of the Association of Property Owners in Cyprus, stated in an interview with the Financial Mirror that the expectations of stakeholders in the sector for the upcoming years are low. "The rise in construction material prices has increased the costs of building and renovation, and the increase in interest rates does not allow stakeholders in the sector to have high expectations," Mouskides said.

He reminded that according to some estimates, the cost of construction has risen by more than 20%, which has affected prices, noting that prices could have been even higher if it weren't for the increase in supply. Reports suggest that mortgage interest rates could rise to 5%, up from 2.5% by the end of next year, which may not affect the initial capital needed to buy a home, but will impact the buyer's costs. "However, here we face another difficulty, as banks refuse to lend, and when they do, they take too long to approve loans, pushing away interested couples," said Muskides.

He noted that the sector is confused about how banks are processing new loan applications, given the high level of liquidity. According to the Central Bank of Cyprus, the total amount of loans has been decreasing for the fifth consecutive month and stands at 27.1 billion euros, while the total liquidity in the system is 24.6 billion euros. "On the other hand, the increase in demand for rental homes, driven by banks' reluctance to issue loans and the influx of highly skilled workers, mainly in the information technology and fintech sectors, makes the option of purchasing a home more attractive." Muscides stated that the government's program to attract high-tech companies to Cyprus has paid off. "These companies and their employees bring real business to the island, engaging in all aspects of society and the economy, from buying clothes to renting apartments.

Panos Danos, the CEO of DANOS International Property Consultants & Valuers, stated in an interview with Financial Mirror that he expects the real estate inventory in Cyprus to remain relatively high in 2023. "This is not bad news, as more inventory means more options for buyers and more flexible prices." However, mortgage rates will remain high, and banks will still be reluctant to agree to loans. This may mean that sellers could see lower profits, but they are likely to still make a profit. "It is unlikely that 2023 will be a significant turning point in the real estate market in Cyprus. A sharp increase in buyer demand is not expected, and sellers are not planning to drastically change prices." Danos mentioned that the real estate market and prices will depend on supply and demand, and investors still view the real estate market as a reliable investment. "However, buyers and sellers will need time to adjust to the new norms, likely in the first quarter of 2023, and to get used to the new adjusted prices. A risky but reasonable long-term forecast is that significant improvements in prices or interest rates are unlikely to be expected in 2024. Average prices will remain at the same level, which will complicate the affordability of real estate, especially residential."