2012 will be a year of stability

By George Mavreas and George Mouskides

In a few days we bid farewell to 2011 and say hello to 2012.
There are many who wonder: how will the new year evolve in terms of the economy and especially the property sector? Will the same situation continue or will it change? Opinions are varied.
Starting with the interest rates for housing loans that currently range from 5 – 5.5% and from 7 to 9% for other loans, these will remain approximately around the same levels.
Due to the high levels of interest rates, businesses and individuals that are highly leveraged, i.e. owe a significant ratio of their assets to the banks, should try to reduce their exposure to banking loans.
In terms of housing loans, whose interest rates buoy at reasonable levels, only those whose financial situation justifies should buy property using housing loans.
Generally, as regards the prospects of various sectors of our economy, an area that warrants increased investment and borrowing is the sector of energy and ‘green’ growth. Most of the other sectors probably justify stabilisation or shrinking their exposure to financing because of the high rates.
The fiscal position of European governments and the exposure of European banks to government bonds is being gradually handled by a more unified and determined Europe. It is a matter of weeks before the new situation in the European Union becomes more transparent.
Cyprus took most of the important and difficult decisions with regard to the finances of the government. We believe that regardless of the financial burden to be imposed on Cypriots, if these measures are deemed satisfactory, they will lead to a normalisation and stabilisation of the economy. When the results of the measures voted by the Cyprus parliament kick in, the mood and psychology will improve and the markets will return to a more normalised pace.
This implies that households will continue to live modestly watching costs and expenditure and the economy will have marginal or no growth.
For the property sector, we believe that the number of transactions will increase in 2012 in comparison to 2011. Prices, though, are not expected to change significantly.
Our banks and the consequent liquidity of the market will constitute the greatest challenge. They will continue to attempt to address the problems created by the "haircut" of the Greek bonds and exposure to the Greek loans market. It is probable that some bank will require capital injection by the government through European financing. It is not yet clear what type and how much capital will be needed but it seems that European solutions are falling into place.
The profit margins of Cypriot banks are still pretty good but in 2012 profitability will be affected by the bad debts each bank faces with unknown results.
2012 will be a crucial time for developers. Those who rely mainly on the local market (in Nicosia and Limassol) will continue to have some sales and thus, whether with difficulty or more ease, will cope.
Certainly those involved exclusively with holiday homes for non-Cypriots, mainly British (Paphos, Protaras etc) will have a hard time surviving.
We find generally that there will be difficulties in 2012, but gradually normalisation will start to prevail as people realise that they will need to become accustomed to living with the new state of affairs.
Overall, 2012 will be a year of stability. What we hope is that the measures put forward are the last and that these are sufficient and will deliver the expected results. What needs to be avoided is the imposition of additional taxes, because we will end up with negative growth, closure of the small and medium size enterprises, more unemployment, all of which will see the Cyprus economy nose dive. Do not forget that we have important positive news in anticipation. The developments with the exploration of natural gas, potential large foreign investments, the Cyprus presidency of the EU, and potential developments with the Cyprus issue.