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COMMENT

CYPRUS: There is downward pressure on real estate prices

25 August, 2019 | Posted By: Antonis Loizou

Examining the real estate market, we note that it will be faced with some serious problems in the near future.


There is an over-supply of real estate coming into the market for sale by the financiers and various funds that have acquired mortgaged properties to resell.   

Whereas the advertised prices are not as attractive as one might think, be it that one expects to secure discounts – in the region of 10%-15% depending on the difficulty to dispose of the asset, the more difficult to sell an asset, the bigger the expected discount. 

Discounts in the market are considerable and if the financiers/funds come out more aggressively (as is expected) the situation will become more difficult. 

It is also understood that such real estate sales are not very attractive, not only for the price but the problems they entail, such as the non-existence of documents, lack of titles, shared ownership, statutory tenants, agricultural land etc. 

The existing supply is anticipated to be increased since banks still carry out debt-for-asset swaps, whereas newcomers in loans acquisitions will become even more aggressive in their sales promotion. 

Alpha Bank will be introducing its properties through Altamira, whereas Astrobank is expected soon to be involved in its real estate sales.

Good quality real estate is moving rather slowly (save prime locations) and much of the success of the sale of the high rise apartment buildings are related to the visa/ passports scheme and cannot be considered as being part of the wider active market as such. 

Yet, even this lucrative business, seems to be in doubt, not only because of the changes that the Government is introducing but also warnings by the E.U., pressure by the US/E.U. on the deposits of money and Government inaction regarding the laundering of money.

The market is moving however on certain types of property, mainly those which are of an appeal to the middle/upper-middle-income groups for locals. 

They include apartments with an average sales price of €150,000-€200,000 (mainly 2 bedrooms in good residential areas), seaside holiday homes/apartments of average cost, building plots, in the town periphery, whereas the residential investment market (units to let) has also improved.

Certain locations and areas are also experiencing a shortage of supply, such as the Paralimni/Famagusta area for holiday units, as well as apartments in the tourist development area of Paphos.

The situation has been misunderstood by some interested buyers who think that they can make an offer a very low price regardless of circumstance. 

We have offers of €50,000-€55,000 for 2 bedroom units (be it old), whereas no due care is placed on the condition of the structure and above all the state of the common areas and common expenses. 

From our experience during inspection for valuations, we can say with some certainty that apartment buildings in the region of 20%-25% of the total have a problem with non-payment of common expenses and around 10%-15% regarding the non-operation of the lifts, swimming pools not in use, gardens left abandoned etc.

Sales values depend on the above parameters and others.

Value of the property also depends on the quality of the tenants/occupiers and certain locations in the Paphos town and in Limassol is indicative of the situation (buildings in disrepair, hanging of laundry on the balconies, unruly behaviour by occupiers.

Real estate sales are not solely based on the price but some of the parameters mentioned must be checked to the best extent possible. 

In a recent case when a client bought an apartment for €80,000 in Paphos, he reported to us that repairing the lift and the upkeep of the common areas came up (as his share) to a third of the acquisition price!!

In our opinion the situation is volatile and as the banking sector is having problems (especially now with the new law causing further delays in foreclosures) it is difficult to anticipate the outcome.

We still have to ascertain the results of Brexit and the expected reduction of sterling’s value vis-à-vis the euro, affecting, to an extent, the sale of British-owned properties or expats having difficulty living in Cyprus, due to their reduction of income.