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Sunshine and strain – a market divided

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The Cyprus real estate sector is in a seemingly golden age. But all that glitters is not gold.

A booming economy (projected 2.7% growth in 2024), resurgent tourism, and impressive fiscal discipline (budgeted surpluses averaging 2.3% of GDP from 2023 to 2028) create a narrative of prosperity. Construction flourishes, with coastal hotspots like Limassol leading the charge.

However, beneath this sun-drenched exterior lies a tale of two markets, each with its own set of challenges.

Locals Feeling the Squeeze: While foreign investors flock to Cyprus, lured by the “golden visa” programme, low corporate and income taxes, and the promise of sunshine and stability, locals face a different reality. In February 2024 loan restructuring comprised 45% of new lending for home purchases, highlighting the financial strain on some Cypriots. Rising interest rates and inflated property prices – exacerbated by raw materials, energy, and overall inflation – further tighten their grip. This financial squeeze is particularly concerning for local residents, who generally earn less and are taxed more compared to their foreign counterparts.

Foreign Investment – A Double-Edged Sword: Foreign investment, particularly from non-EU countries, has fuelled the coastal boom in places like Limassol and, to a lesser extent, Paphos and Larnaca. However, this reliance on external capital creates a vulnerability. Sanctions on traditional investor pools like Russia, coupled with a potential market correction (indicated by a downturn in property transactions, especially for higher-end residential properties), could see some foreign buyers shift their focus. The occupied north has already become more attractive to certain demographics, such as Russian (circa 70,000 already live there), Israeli and Lebanese investors.

A History of Overlooking Problems:  Cyprus has a track record of overlooking problems, as evidenced by past economic crises, as well as taking a short-term view when trying to address them. A proactive approach from the government is crucial to ensure long-term stability. This includes addressing the affordability concerns of local residents, mitigating the risks associated with overdependence on foreign investment, and building the mechanism to ensure that all locals benefit from the increase in overseas companies and residents. We are not hopeful, as politicians are currently focused on the upcoming municipal and European elections, with the parties in parliament remaining divided and lacking vision.

Foreigners everywhere: One-in-four persons living in Cyprus was born overseas, they own established businesses, and form part of society’s fabric. They are here to stay. For good. They are Cypriots. Ignoring one quarter of the population isn’t the way to build a sustainable future. The fact that some (many) don’t like that the cost of living has increased, that working hours are longer, and that there are more technically savvy people around, doesn’t mean that by ignoring “the foreigners” all of these problems will go away. The competition is here, now. Whether you decide to enter the race is your choice, but the race is still going to take place and you will still feel the consequences of its outcome.

Immigrants, their descendants and newcomer foreigners are playing an increasingly central role. They own a significant part of Cyprus’ infrastructure (both airports and ports, three out of four telecommunication companies, all banks, an increasing number of hotels, etc), they start businesses, contribute to the local culture, and participate in community life. This not only enriches the cultural landscape but also boosts the economy by creating jobs, increasing demand for goods and services, and bringing in new skills and perspectives.

Challenges

However, this influx also presents challenges for the housing market. Increased competition for jobs often puts pressure on local wages, which can make affording property more difficult.

Furthermore, the growing population creates a higher demand for housing, potentially leading to rising prices and pressure on public services. This rapid change can cause friction among some locals, who may feel left behind or displaced.
These concerns sometimes manifest in the rise of right-wing political parties. It’s crucial to recognise, however, that these anxieties are not unique to Cyprus.

Globalisation and technological advancements are reshaping economies and labour markets globally, leading to similar concerns about living costs and competition.
Moving forward, a sustainable future requires acknowledging the contributions and needs of all residents. Integration policies and inclusive economic planning are essential. These policies should aim to ensure that the benefits of immigration – economic growth and cultural diversity – are distributed fairly across the population. This may involve supporting affordable housing initiatives and developing programmes that equip locals with the skills they need to thrive in a changing market.
Only one future is sustainable for Cyprus real estate: one that bridges the divide and fosters a shared prosperity for all residents.

 

Pavlos Loizou is CEO of AskWire, real estate investment advisors

[email protected]