Cyprus’ real estate sector is continuing to thrive, building on the upward trend of previous years, as sales transactions in 2018 reached a nine-year peak, making experts feel hopeful the market is robust.
A PwC survey on the Cyprus Real Estate Market “Year in Review 2018” showed that sale transactions surpassed those of 2017 by 6%. The total number of sale contracts filed at the Land Registry Department during 2018 reached a 9-year high of 9,242 compared to 8,734 in 2017.
The total value of all property transactions (land and real estate) recorded during the year, stood at €4.2 bln corresponding to an annual drop in transaction value of -7%.
According to data in the review, compared to the market slump in 2013 (€1.1bn), in 2018 the size of investments in real estate transactions almost quadrupled.
The drop in the value of transactions last year is mainly attributed to an observed decline of large-scale sales, the top 100 transactions of 2018 in terms of value appear to be lower by €240mln (31%)
Value of new building permits issued in 2018, increased by 20%. Reflecting the rising construction activity levels, the average cost of construction materials increased by 1.7%.
“Following a 2-year period of strong recovery, where total investment value in the real estate sector more than doubled, in 2018, transaction activity levels across the island demonstrated signs of stability,” Constantinos Savvides, director of PwC’s Real Estate Advisory department, told the Financial Mirror.
“Construction activity continued to expand, primarily in the residential property segment, as evident by the increase in new permits for development, highlighting the reactivation of the private construction and property development sectors,” he added.
Interest from foreigners, and predominantly from non-EU buyers, continued to be a driving force for the market.
The high-end residential property segment continued to be momentous, primarily fuelled by the continuation of the government schemes encouraging investments in Cyprus.
PwC said the messages in the report is clearly positive despite the market still being heavily depended on foreign buyers and the investment for citizenship scheme.
In 2018, the transaction value of the residential property sector reached €3.1bn, comprising a total of 10,600 properties (6,900 apartments and 3,700 houses). The residential property sector made up 73% of the annual value of transactions (apartments: 41%, houses: 32%).
PwC’s real estate advisor told the Financial Mirror that an increase in demand from local buyers has also been recorded “helping the diversification of the market”.
Savvides said: “A 10% increase in sale contracts submitted for properties in Nicosia, the highest growth percentage across Cyprus, indicates a growing participation of local buyers. Nicosia district is a market predominantly driven by the local market.”
In terms of the number of sale contracts submitted to the land registry in 2018, the majority of transactions (37%) were in Limassol, followed by Paphos (24%).
Nicosia district, which is a market that predominantly appeals to Cypriots, comprised 17% of total transactions. Larnaca and Famagusta districts had 15% and 7% of the market share respectively.
Meanwhile, Nicosia has maintained the lead in building permits in terms of development area covered with 33%, followed by Limassol with 31%.
“The investment for citizenship scheme is still playing its role in market growth. Transactions involving foreign investors have more than doubled with Limassol and Paphos having the lion’s share with 70% of transactions involving foreigners,” said Savvides.
The highest share as regards sale contracts filed by foreign buyers was in Paphos (40%), followed by Limassol (30%).
According to the PwC report, 67% or 4,367 properties sold in Cyprus in 2018 were acquired by third- country nationals.
In Limassol, 79% of foreign transactions relate to non-EU buyers. The respective share of non-EU resident acquisitions in Paphos and Larnaca stood at 57% and 78% respectively.
Demand for high-end properties
Since 2014, following revisions to the scheme for naturalisation of investors in Cyprus, demand for high-end properties has been on an upward curve. During 2018, demand for high-end residential homes continued to be strong with the total number of transactions reaching 324 during the year, which corresponds to an annual increase of 2%.
In terms of sales value, the high–end residential property sector (≥ €1.5 mln) stood at €810 mln which is marginally higher compared to 2017 (€800 mln). The high-end residential property segment accounted for 19% of the total transaction value of the real estate in Cyprus.
In terms of numbers, the majority of high-end residential property transactions were recorded in Limassol (59% of total transactions), followed by Paphos (27%). Together, the two districts make up 86% of the market.
High-end transactions in Famagusta, Larnaca and Nicosia represented 14% of total sales. Apartments are the preferred residential property type reaching 78% of the total high-end transactions in Limassol during 2018, with the remainder 22% relating to villas.
Most of the transactions in the high-end residential segment ranged from €2mln – €3mln price band (representing 60% of high-end residential property transactions).
A shift from both the €3mln- €5mln and €2mln- €3mln price bands towards lower valued high-end properties were observed during 2018.
A word of caution
Savvides noted that real estate property prices are on the rise according to prices indices. The behaviour of residential property prices across Cyprus could be captured by two indices, namely Central Bank of Cyprus (CBC) index and the Royal Institution of Chartered Surveyors Cyprus (RICS) index. In 2017, for the first time during the 8-year period 2010-2017, both price indices behaved positively.
Further growth in residential property prices was recorded during 2018, with the CBC index demonstrating a YoY growth of 2% (Q3 2018) and the RICS Residential index recording a 7% YoY growth.
“However, from our survey we see a worrying trend building up. According to the CBC index, property prices have gone up by 8.6% in Limassol. This is of concern as the index only takes into consideration properties which were included in transactions made with the financing of a banking institution,” said Savvides.
He said this means that the index does not include high-end properties as they are paid in full and are not backed by a loan.
“This is a clear indication that high-end properties are pushing up prices of properties in the surrounding areas. We fear that if the situation is not monitored and necessary action is taken then we might have a real estate bubble on our hands,” said Savvides.
Compounding the issue is that Cyprus is still second in Europe for the number of toxic mortgages that may burden the market at a time when things are looking up.
For the first time since 2011, Cyprus in 2018, recorded a single-digit unemployment rate (8.4% compared to 2017: 11.1%).
The construction and tourism-related sectors have been key employment contributors, providing also opportunities to the young and the long-term unemployed, while improving conditions for those who would like to buy a house.