Cyprus’ construction industry is enjoying a revival and continuing to regain the lost confidence of the crisis years, with stakeholders encouraged by an increase in diversified activity such as demand for student accommodation.
Stakeholders feel that the barren years of the real estate crisis are behind them, however, the industry is still heavily dependent on the passport for investment scheme which focuses on new properties.
The Federation of the Building Constructors Associations of Cyprus (OSEOK) said developers see a brighter future as big projects are in the pipeline, while others are expected to be announced.
Manager of OSEOK, Frangos Prokopas said that the sector has seen the upward swing that began in 2017 continued in 2018, with indications that it is to continue in 2019.
He said the federation’s Activity Index continues to record a positive trend since recovering in 2017 for the first time since 2010.
The index now stands (July-December 2018) at +16% compared to +12 in 2017. The Activity Index measures the percentage of developers who stated that they saw their business grow.
Meanwhile, the Work Cycle Index of the Federation measuring the percentage of contractors who have declared that their workload for 2018 was above normal or expected, minus the percentage of those who declare it to be below the norm, recorded a significant improvement too, standing at -20%.
The index improved from -37% in 2017 and -92% at the end of 2013, with the base year being 2007.
“However, these indices should not be taken literally but should be used as indicators rather than measurements of how many developers actually saw their business grow,” Prokopas said.
He said what’s important is the trend of the index, which has taken a positive swing in the past few years.
“For example, the Activity index in December 2013 stood at -74%. It was a time when a lot of smaller developers closed. Now we see these smaller developers, reopening their businesses and taking on projects along with bigger contractors,” said Prokopas.
Noting that the driving force behind the growing construction industry remains foreign money coming in through the country’s Citizenship for Investment scheme, there is a diversification of the market taking place which will keep the industry together in case the CIS weathers out.
“Public works had been put on ice during the previous years and the sector is now anticipating the declaration of big public projects by the government,” said Prokopas.
He is encouraged that the sector has started to disengage itself from its dependence on projects connected with the investment for citizenship scheme.
He said that apart from luxury projects on the southwestern coast of Cyprus, there is a significant number of houses and other projects being built in the country’s capital, an indication of participation of local buyers.
“I’m encouraged that the building sector is reinventing itself and becoming more diverse and less dependent on one type of investment.”
“In Nicosia, we see houses of all sizes being built, with a large number of luxury properties also being raised,” said Prokopas.
His insistence that a significant part of the industry’s activity is concentrated on housing is backed by Cystat figures showing that 69.5% of the 6,408 building permits issued in 2018 were for residencies. Building permits recorded an 11.9% increase compared to 2017.
Underpinning the argument that the industry is turning to the local market, 2,355 building permits issued were for projects in Nicosia, a market dominated by Cypriot buyers mainly for residential purposes.
A real estate analyst told the Financial Mirror that it comes as no surprise that a significant chunk of activity regards the construction of houses.
“It’s only natural that the key finding of all reports surrounding the sector is that a significant chunk of the industry’s activity concerns housing.”
“Neither should it come as a surprise that Nicosia is leading the statistics regarding building permits. There is an upward trend since 2017 when building permits for Nicosia jumped to 1485 from 1200 the previous year,” the analyst said.
The analyst explained that the housing needs of locals were put on ice during the years of the crisis as people were living with the uncertainty of the times.
He also said that the significant increase in numbers of students studying at Nicosia-based universities has created a shortage in housing which has pushed up demand.
That along with the various student dorm projects being carried out, a significant number of blocks of flats are being built.
Also encouraged by the industry’s diversification, a Larnaca-based property developer sees the market not losing its dynamic, despite the decrease in sales to foreign investors eyeing the country’s CIS.
Marwan Bechara, managing partner of Infinity Properties, said he is encouraged by the industry’s diversification, noting that Larnaca will see its share of development as Limassol is at saturation point and to some extent so is Paphos.
“Larnaca is set to see the development of its marina with a number of housing units, while it will see its share of high rises being built.
These high-rises, however, will not be targeting buyers eyeing the CIS, but rather locals and foreigners who are interested in making a long-term investment rather than a short term one,” Bechara said.
He said a number of foreign investors from countries like Lebanon and Jordan are interested to buy property in the town, either as an investment or as a holiday getaway.
“Larnaca could well be the next best thing.”
Bechara noted that there a number of smaller housing projects either in the pipeline or to be announced.
He also added that an increase in the country’s student population has put pressure on the industry, as demand for student housing was not immediately met.
Nicolas Ioannou, Danos Real Estates Associate, while agreeing that the CIS is still the driving force of the industry, believes the industry is diversifying.
“Increased demand for grade A offices at prime locations in the city centres, apartment units within close proximity to employment hubs, and housing units in specific suburbs, has pushed the industry to diversify,” said Ioannou.
He said this demand has brought about an increase in prices and rents due to the fact that the supply has been limited in the past few years mainly due to the unavailability of financing.
“It is expected that prices will continue on an upward trend for the next couple of years before finally stabilising, as the economy is completing a 7-year cycle of continuous expansion”.
Ioannou added: "It will be interesting to see how the high numbers of properties that the financial institutions have acquired through divestments or debt-to-asset swaps, will enter the market and the effects that they will have on the supply-demand equilibriums.”