RICS: Cyprus economy and financial system will weather the crisis

With house prices falling across Europe by the end of 2008 and prospects even gloomier, the revival of the housing sector now relies on the ability of European governments to cope with the mortgage credit shortage and on the scale and duration of the economic recession, according to the Royal Institution of Chartered Surveyors (RICS) European Housing Survey.
Despite the overall pessimism with regard to static or falling house prices in Europe and the chances of core housing markets escaping market downturns now being slim, the survey’s analysis of the Cyprus market allows for some optimism.
The survey concluded that the sustained housing boom is over, with property registrations between October 2007 and October 2008 down 24% according to the Property Valuers Association and the Real Estate Agents Association, adding that sales were 40% down in coastal areas because of a decline in foreign buyers.
The housing market had experienced buoyant conditions in recent years. When Cyprus joined the EU a few years ago, a boost was given to both the economy and the housing market, which was reinforced by accession to the euro area in 2008. In the run-up to the euro, the housing market was very active and prices rose rapidly. However, by 2008 the asking prices for houses had levelled off.
Housebuilding levels in Cyprus are very high and Cyprus seems in recent years to have the highest rate per population in the EU, with the housing stock expanding by 30% in the past decade. Though a slowing in the market is evident, the extent to which the general global economic slowdown will affect the housing market is hard to predict.
The Central Bank of Cyprus is confident that the economy as a whole and the financial system will both weather the crisis. But much depends on overseas interest in homes on the island as both UK and Russia have been badly hit by the economic crisis and have seen their currencies slump against the euro.
The government offered assistance to the construction industry in late 2008 with a EUR 25 mln stimulus package, but the survey predicts that job losses may be high.
“The world financial crisis and economic downswing have hit European housing markets badly. Some countries, like Ireland and the UK, led the decline but by the last quarter of 2008 the effects had spread across Europe,” said the report's author, Michael Ball, professor of Urban and Property Economics at the Department of Real Estate and Planning at the Business School at Reading University.
“Given the broader context in which these housing market downturns are taking place, there is greater synchronisation of housing market decline in Europe than has been seen in the past and there are going to be some tough times before marked recovery occurs.”