Central Bank influence being felt?
Property prices slipped for the second month in a row in October according to the BuySell Home Price index, dropping by 0.9% over the previous month, after a fall of 0.8% in September.
However, prices are still 6.7% higher than they were in January and 5.7% higher than in October 2005.
The Average Home Price is now CYP 91,625, compared with CYP 83, 226 in January 2005, according to S. Platis ECONOMIC RESEARCH, the independent research organisation that devised and maintains the index for BuySell
Tighter monetary policy a likely cause
Although the end of the year is probably not the best time for property prices generally, there are also three key reasons, all relating to central banks, for an easing off of prices.
First, the Central Bank of
(Readers may remember that at the same time, the Bank increased the bid rate on the main refinancing operations from 3.25% to 4.50% but emphasised that the increase in the cost to borrowers was just 0.25%).
Second, in the past few months the Central Bank has also tightened up on mortgage-lending by “clarifying” that the minimum down-payment must be 30%, not the 20% threshold that some lenders had been using.
Third, the many local borrowers who have taken out mortgages in euros will have seen their borrowing costs rise four times since December 2005 as the European Central Bank raised interest rates by a cumulative 1.25% in the past year.
It is little wonder, then, that house prices have eased in response.
“But my house has risen 20%”
While the prices of individual properties in prime areas may well have risen in the past two months, it should be noted that the BuySell Home Price Index does not just add up asking prices or opinions about asking prices and divide by the number.
It is based on large database of actual asking prices and a complex methodology of hedonic prices that takes into account improvements in quality (such as provision for air-conditioning).
The explanation of methodology devised by its creators, Stelios Platis and Marios Nerouppos, runs to some 40 pages and can be found on the BuySell website.
The BuySell Home Price Index was rebased in September 2005, in order to keep the Index updated with respect to the most recent quality characteristics of the housing market in
Fiona Mullen
Sapienta Economics Ltd
