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Alarm bells as property construction stretched

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Market insiders warn the economy could be overheating, as the island looks like an extensive construction site, driven by the multitude of projects powered by Israeli investment despite the Hamas war.

They emphasise that Cyprus stands as a secure environment for Israelis, anticipating a further surge in their activities once the conflict is ended.

However, they draw attention to the potential overheating of the real estate market, stemming from the numerous private projects and an unprecedented influx of public works affecting supply as demand rises.

Resilient Market

Recent data from the Land Registry concerning sales documents for the first ten months of 2023 not only mirror the resilience of Cyprus’ real estate but also underscore concerns about market overheating.

According to recent data, the ten-month period marked the industry’s best performance since 2008, recording 12,825 housing units sold.

These figures represent a substantial increase of 36.2% compared to the previous year, with all districts, except Nicosia (8% increase), witnessing double-digit growth.

Larnaca, in particular, stands out with a remarkable 32% increase compared to last year.

Plan B

In comments to the news site Stockwatch, Michalis Zavos, a Cyprus Land and Building Development Association board member and managing director of the D. Zavos group, said the real estate market continues its upward trajectory, witnessing an estimated 20% annual increase.

He highlighted Cyprus’ favourable conditions as a secure investment hub, especially for foreigners in the Mediterranean region.

“That’s why, for our neighbours seeking a second home, we are Plan B for them.”

Zavos indicates that Israelis are constantly looking for investment opportunities in Cyprus, purchasing land and constructing apartments for significant income, given that rental yields range from 5% to 8%, surpassing the average of 3% in Israel.

Major Public Works

Stelios Gavriel, president of the Building Contractors’ Federation (OSEOK), confirms the upward trajectory of the construction sector, attributing this growth to the absorption of increased construction costs by developers and the robust pace of the market.

Gavriel credited public projects under the – €1.2 bln – Recovery and Resilience fund for contributing significantly to the sector’s expansion and anticipates the government releasing many projects into the market in the new year.

“The construction industry is under strain due to the heightened demand and full capacity utilisation of developers’ machinery; contractors are being assigned multiple projects”.

He said major public projects involve joint ventures of two or three companies, refuting claims that the government favours specific contracting firms.

Recommendations

George Chrysochos, CEO of the Cyfield Group, noted that despite a temporary dip in activity during the initial days of the war in neighbouring Israel, things have returned to pre-war levels of buying and selling.

Chrysochos argues that high property prices in Israel prompt investors to prefer Cyprus, where prices are more attractive.

He underscored concerns about potential market overheating due to the extensive volume of public works across districts.

He highlights the significant demand for housing and office spaces, leading to a surge in private sector projects and exposing challenges such as a shortage of labour and machinery in the construction sector.

Chrysochos suggests the government limits the number of projects injected into the market to address a possible overheating of the industry.