Following the devastating consequences of the pandemic in the first half of 2020, we are now heading towards the second part of the year with a minor feeling of optimism as Cyprus has managed to successfully get a grip of the virus.
It was able to return back to normality within a relatively short period of time, compared to other countries which are still seeing the number of cases rising.
The Cypriot government has done extremely well in supporting the labour market as well as businesses by acting radically and in a timely manner to protect people from losing their jobs and their incomes.
It has passed legislation that will ultimately help various sectors of the economy emerge in the rebuilding period.
In regard to the real estate sector, the recent town planning incentives passed through Cabinet, for example, are particularly welcomed as they are expected to overcome long term bureaucratic obstacles and speed up the process of obtaining permits.
Additional measures, such as the subsidy on mortgage interest rates for a period of 4 years are expected to increase local demand by supporting new families acquiring their first residence.
However, it is important to remain vigilant as the virus is still among us.
The real estate market is strongly dependent on foreign demand and as long as the spread of the coronavirus is not stemmed at a global level, we will not remain unaffected.
Different markets are expected to respond differently in the aftermath of the crisis, and it remains to be seen what the effects will be on each market and to what extent.
Perhaps, the biggest issue that we need to focus on at the moment is how to improve the Cyprus Investment Scheme by creating incentives that will attract foreign investment again.
Transactions involving citizenship or passport investments fell dramatically in the last few months before the pandemic.
The Scheme was the main driver for economic recovery during the previous crisis, which helped not only the real estate market but also other significant sectors of the economy.
As for other markets, the hotel sector is currently counting the biggest losses as the initial optimistic expectations that the tourist season could be saved, are now fading away as our biggest tourist providers (England and Russia) are still in difficult positions with certain types of lockdowns still in place.
The retail sector is also expected to suffer huge losses as more people are gradually moving towards online purchases.
This may have positive effects on the industrial sector with increased demand for logistics and warehouses.
Regarding the office market, the imbalance between demand for quality office spaces in centralized locations and supply of new stock is gradually equalizing with the addition of multiple new commercial projects for which construction has returned to normal pace levels.
The residential sector can be viewed as the most difficult to predict.
Despite the fact that local demand may increase, reaching satisfactory levels, it is currently hard to predict when demand from abroad will return back to normal.
In any case, the market seems to be transforming slowly into a “buyer’s market” and the sentiment among potential buyers is that they could achieve lower prices.
The pressure for lower rates is also evident in the rental market, as businesses and housing tenants demand rental deductions or discounts.
In addition, a number of housing units allocated to the short-term rental market are now either on the market for sale or on the long-term rental market.
These factors, backed with the fact that banks are releasing housing stock into the market at decreased values, will undoubtedly put downward pressure on prices and rents in certain areas.
As for housing stock allocated to university students, it remains to be seen if educational institutions will return back to normal or whether they will incorporate more online/overseas education.
In this case, the demand for student housing units will fall dramatically.
On the other hand, if university activity continues as we know it, then perhaps a more cautious approach to safety measures towards living conditions may decrease the appetite for shared units, creating, thus, additional demand for individual units.
Nikolas Ioannou Property Studies & Valuations Dept at Danos | An alliance member of BNP Paribas Real Estate