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Analysts suggest taxing unused land to tackle supply shortage

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House prices and rents are pushed up by a lack of supply, with real estate analysts proposing that authorities take drastic action to bring new properties onto the market, even by taxing unused land.

Pavlos Loizou, CEO of Ask WiRE, told the Financial Mirror that a survey carried out by his firm has shown that during this period of heightened demand, the land is being held from the market or not exploited to the maximum.

Ask WiRE has found this was the case in Limassol, which analysts have said is close to saturation, and Nicosia, where demand for housing is at an all-time high.

“Focusing on the Acropolis area in Nicosia, which is in high demand, Ask WiRE found room for another 10,180 apartments.

“The reason these properties have not been built is that land is being withheld, or project developers are not making the most of the building coefficient allowed,” said Loizou.

He argues that this, combined with an increase in the population, is one of the reasons behind the inflated prices of housing and renting.

“The population has grown by 85,000 in ten years, according to the 2021 census, while another 30,000 to 50,000 people have come in since then, either as refugees following the war in Ukraine or attracted by government incentives for high-tech companies and their employees.

“Thus, we are currently faced with a supply problem rather than a demand problem”.

Annually, average Cyprus real estate prices increased by 9.9% for apartments, 1.0% for houses, and 0.3% for offices, according to the Q4 2022 Ask WiRE property index.

Sales prices also increased by 4.7% for holiday apartments and 0.9% for holiday homes but decreased by 1.4% for retail and 3.7% for warehouses.

Nicosia stood out from other districts as sale prices of apartments continued to rise last year (2.5% in Q4 2022).

Quarterly sale values increased by 1.6% for apartments, 0.1% for houses, and 0.4% for offices and remained stable for retail and warehouses.

For rental values, it was a different story compared to Q4 2021.

There was an 18.2% rent rise for apartments, 11.6% for houses, 0.9% for retail, 6.3% for offices, 16.9% for holiday apartments and 12.8% for holiday homes, whilst warehouse rents decreased by 0.4%.

Ask WiRE’s latest survey identified 2,369 plots with a total area of 1,689,921 square meters.

Within these blocks, Ask WiRE’s surveyors recorded 9,240 residential units with a total area of 1,131,791 sqm.

Based on the existing urban planning zones, a total of 2,149,741 sqm can be built.

Therefore, the unutilized building factor is 1,017,950 sq.m.

“Our findings show that in Acropolis, just 53% of the allowed building coefficient has been used.

“If we calculated that the average flat takes up 100 sqm, we find that there is room for another 10,180 flats to be built”.

Ask WiRE contacted a similar survey in an area close to the Limassol city centre, finding similar results.

According to surveyors, there is room for another 8,000 apartments in the uptown area.

“It is clear that authorities must address the high rents and the cost of buying a home.

The solution is simple and staring us in the face.

“As we have mentioned, this can come through the taxation of idle properties in areas with high demand,” said Loizou.

He believes this would force landowners to either develop their land or sell it to third parties with the means to do so.

“Our suggestion is not for authorities to start taxing owners of homes with unused coefficient, but rather on developers not making full use of the coefficient.

“It is clear that prices of homes and rents will continue to rise in the foreseeable future, while rents in city suburbs will also start to rise if nothing is done”.