Cyprus’ changing demographics are causing havoc to the real estate market, accentuating socio-economic imbalances, and creating polarised communities. A bit dramatic? Let’s see.
According to the latest census, the population in the government-controlled areas of Cyprus rose to 918,100 in 2021, up 9.2% from 840,000 ten years ago.
Anecdotal evidence suggests the increase is higher, as many failed to complete the various submissions due to Covid restrictions.
Since January 2022, more than 20,000 Ukrainian, Belarussians, and Russians have moved to Cyprus because of the Russia-Ukraine war.
The Minister of Interior recently announced that up to August, 4,524 families applied to be relocated to Cyprus as part of the “headquartering initiative”, i.e. encouraging overseas companies to set up operations on the island.
Assuming an average size of 4 persons per family, that’s an additional 18,000.
In sum, since 2011, the population has increased by circa 150,000 persons, i.e. equivalent to the population of Larnaca.
Cyprus’ current fertility rate is 1.31 births per woman, well below the replacement level and lower than the EU average of 1.55.
As a result, the average household size has decreased from 2.8 persons in 2011 to 2.6 in 2021.
Furthermore, those over 65 have increased as a proportion of the total population from 13.3% in 2011 to 16.7% in 2021.
In a recent speech during an event of the association for large families, President Nicos Anastasiades recognised that Cyprus is faced with a “demographic problem”.
He added a patriotic element “the protection of Hellenism” is “an obligation, which is becoming necessary today, unlike those countries that take advantage of refugees and migrants to boost their populations”.
Hilarious? Worrying? Dangerous? All of the above.
Let’s summarise what has been happening.
For the past three decades, the country has encouraged foreigners to holiday, buy real estate, and do business in Cyprus.
This was and is viewed as being positive, with considerable sums of money moving into the economy, know-how being transferred to locals, and businesses benefiting from having more and wealthier clients.
The pace of investment and immigration has increased since Cyprus acceded to the EU in 2004, which, combined with changes in the ownership structure of some key companies across the island (e.g., banks, telecommunication companies, airports, ports), have resulted in a much different socioeconomic landscape to what Cypriots were accustomed to up to a decade ago.
The recent increase in population has pushed residential rents considerably higher than what locals can afford, with many finding themselves priced out of various submarkets, especially in Limassol.
Furthermore, several restaurants, shops, and other leisure destinations now exclusively target foreigners, and the upper class is out of reach for most of the population.
The influx in population has also caused an increase in traffic (more rental cars) and growing waiting lists for private schools (overflowing), in addition to putting a strain on medical services and the education system (not geared to assimilating non-Greek speakers).
The country is increasingly bursting at the seams with younger, richer foreigners moving to the island.
This segmentation will likely increase further as a series of new developments planned across the island, especially in West Limassol and Larnaca city centre, target overseas buyers and inhabitants, i.e., more immigration.
Indeed, some companies are acquiring and developing real estate to accommodate their staff, potentially creating small, organised communities under a corporate identity.
That’s a bit too Orwellian for my liking.
With interest rates rising, high construction costs, and inflation affecting the disposable income of local households, it is logical to expect that demand will slow.
Indeed, this is also evidenced by the recent reports by banks on loan demand (a lot lower than before).
At the same time, we are seeing high levels of demand coming from overseas, mainly due to companies bringing/hiring staff from overseas and investors looking to capitalise on rising rents/prices, more recently from Lebanon and Israel.
Experience has shown that this is short-lived and doesn’t end well for anyone.
Suppose the island manages to become and maintain its appeal as a place for companies to have a physical presence and do business. In that case, demand will continue unabated (albeit prices, due to an upcoming increase in supply over the next 2-5 years, will adjust accordingly).
Either way, locals are unlikely to benefit from this over the near term unless they already have/ own real estate assets.
Over the longer term, it’s a matter for the government to change the education system, improve assimilation, provide opportunities to locals, and upgrade the provision of services to all its people.
To be clear, the government’s actions in attracting businesses and know-how from overseas are, broadly speaking, in the right direction.
However, these appear to be ad-hoc rather than part of a wider plan, have put local businesses at a disadvantage, and, to date, have failed to be matched with decisive actions to reform the modus operandi of government, improve accountability and transparency, and provide assistance to households and businesses to protect them from the damaging effects of soaring prices.
By Pavlos Loizou, CEO Ask Wire