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Why real estate is a sound investment

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The inflation rate in Cyprus is declining but still high [at 6.7% in February].

Interest rates are low, 1.29% for household deposits and 1.27% for business deposits.

In addition, there are no other investment opportunities, as the Cyprus Stock Exchange shows low returns of about 2% per annum, while there is also the option of Government Bonds.

The inflationary effect is that it increases the cost of borrowing and, at the same time, increases the cost of production, making it more difficult to produce goods and services, including production in the real estate market, houses, and apartments.

Due to the war in Ukraine, the construction of new units has been affected, with a decrease in the issuance of building permits due to increased costs.

However, demand remains stable, especially for non-new buildings.

According to the general RICS index, the average return on real estate in Cyprus for 2022 was:

Type of property Yield
Apartments 5.30%
Houses 2.80%
Shops 5.70%
Warehouses 4.30%
Offices 5.30%
Holiday Apartments 5.40%
Holiday Houses 2.70%

It is obvious from the sales results in 2022 that the real estate market is strong and has reached the amount of almost €6 bln in sales.

According to the Land Registry, the leader in sales is apartments, as total sales not only reached 2018 levels but surpassed them (20,799 sales in 2022 vs 18,336 in 2018), with local buyers accounting for over 80%, about 13% from the EU and others at 7%.

A recent report by the Land Registry states that the war in Ukraine had no substantial effect on property values in 2022, while sales deposits contracts increased by about 30% [10,347 in 2021 and 13,409 in 2022].

According to the RICS index for Q4 2022, apartments are the leader in sales in all sectors, as they have the highest performance.

This is evident, especially in Limassol, which has the highest yield

 RICS Index, Q4 2022

Type of estate Nicosia Limassol Larnaca Paphos Famagusta
Apartments 5.00% 7.00% 4.50% 5.50% 4.20%
Houses 3.40% 3.20% 3.30% 2.20% 2.00%
Shops 5.80% 5.90% 6.30% 5.30% 4.30%
Warehouses 5.90% 3.20% 3.50% 4.50% 5.30%
Offices 6.40% 5.70% 5.00% 3.90% 3.40%
Holiday Apartments 6.70% 4.70% 4.80% 5.00%
Holiday Houses 3.40% 3.00% 2.60% 1.90%

RICS Index, Q4 2021

Type of estate Nicosia Limassol Larnaca Paphos Famagusta
Apartments 4.90% 6.40% 3.80% 4.90% 4.50%
Houses 2.90% 3.00% 2.90% 2.10% 2.00%
Shops 5.80% 6.10% 6.30% 5.50% 4.20%
Warehouses 5.90% 3.30% 3.80% 4.60% 5.70%
Offices 6.10% 5.60% 5.30% 3.80% 3.60%
Holiday Apartments 5.80% 4.00% 4.70% 4.60%
Holiday Houses 3.20% 2.90% 2.40% 1.90%

Comparing 2021 with 2022, it is obvious that the yield of apartments and houses increased.

Therefore, investing in real estate in 2023 is a sound investment, and demand remains high, especially in Limassol, with returns of 7% for apartments, and 4-6% for the rest of Cyprus, depending on the location and type of property.

It is not expected that property values will be  “corrected” downwards, as Cyprus has a strong economy and high demand for real estate; with supply being stable for the time being and building permits decreasing in quantity for 2023/2024, property values will not only be stable but also possibly move upwards.

So, real estate is currently the best investment in residential properties, with the lead in Limassol and Paphos.

However, all cities have good returns depending on personal preference and available budget.

What is noteworthy is the apparent increase in demand from foreigners in the Cypriot market between 2020 and 2022; sales to foreigners in 2020 = 2432, in 2021 = 3057, and 2022 = 4123.

In conclusion, and referring to foreign buyers, it should be mentioned that Cyprus offers more than simply good investments in the real estate market.

With a minimum investment of €300,000, foreign buyers can stay in Cyprus by securing a residence permit and can work, study and enjoy more than 350 days of sunshine, in addition to tax and other incentives. At the same time, the widespread use of the English language is a great attraction.

By Antonis Loizos F.R.I.C.S. – Antonis Loizou & Associates Ltd. – Real Estate Appraisers, Real Estate Agents and Real Estate Consultants