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BY GEORGE MOUSKIDES and GEORGE MAVREAS
The medium-term prospects of the economy and the property sector are positive, following the recent developments, especially the discovery of significant gas reserves.
Let's start by looking at the prospects that exist today:
– The positive ramifications to the Cyprus economy and government budget concerning the natural gas and general energy resources that were found in the subsoil of our country:
– Investments related to the natural gas and expected agreements to be signed with our neighbours (Israel, Greece);
– Other investments to be made in Cyprus, such as property ventures with Qatar, the potential investment by an American-Israeli who is interest to develop a casino, etc;
– The positive developments in tourism with the arrival of new airlines in Cyprus. The use of Cyprus as a hub to attract customers by Ryanair, for example, is an important development;
– Development projects such as golf courses, enhancing our tourism product, etc;
– Cyprus will be in the centre of attention when it assumes the EU presidency in the second half of 2012;
– The positive comments we received from Europe on the fiscal measures taken to improve the deficit of the Cyprus government, probably the first positive remarks we got in a long time;
– The reduction of VAT rate from 15% to 5% charged on new units (on certain properties) and the elimination or reduction of transfer fees for some categories of property that will help the creation of mobility in the property market;
– The gradual creation of new jobs because of the positive developments with the natural gas and other major investments.
Of course, we would be turning a blind eye if we did not recognise the dangers or difficulties posed by the situation in Greece especially for Cypriot banks, and the recent negative assessment by Standard & Poors. But it seems that the final decision in regard to the settlement of the Greek debt has almost been reached. Cypriot banks seem destined to raise the required capital and meet the tougher rules and continue their important role for the economy.
Let us now examine the issue of prices. We believe that there are many factors resisting further significant price decreases.
A key reason is that the sales price of some properties reflect the cost of construction. Therefore, the profits for developers fell to zero and they cannot reduce prices any further unless they wish to build with the intention to make losses.
That is the reason that the construction of new buildings has been significantly reduced.
And, consequently, supply decreases and thus prices are restrained.
Banks are at a critical junction in terms of property collateral for mortgages. Property values and therefore collateral values have decreased to be equal or lower than the corresponding loan balances. The banks will not allow the sale of properties in large numbers if the proceeds of the sale will mean the write-off of big chunks of loans.
And despite the fact that the banks are pressuring owners to sell off properties, they cannot make them sell in a speedily manner because of the lengthy legal process of liquidation.
In addition, as prices have dropped significantly to the present levels many owners are discouraged to sell at the current prices and wait until the market recovers whenever that happens.
Ultimately, with these facts, we believe that prices will remain rather steady for some time until the positive prospects give impetus for the start of a new cycle of a rise in prices.
George Mouskides is President of the Association for the Promotion of Property Development and Manager, FOX Smart Estate Agency; George Mavreas is a Registered Assessor BBA (RE) and a sponsor of the Association for the Promotion of Property Development.
