2 March 2023
The real estate sector in Cyprus is poised for growth in 2023, with high demand for foreign buyers and a healthy financial environment. According to recent Cyprus news, property sales are expected to continue their upward trend, with thousands of properties available for buying a house or apartment. However, rising building material costs may lead to an increase in sales prices and rent prices. While there is a lot of construction activity, new residential developments may see a decrease in demand due to factors such as increased interest rates and redacted VAT sponsorship. This article explores trends in new and used residential property prices and rent prices, as well as the impact of the international economy on the Cyprus real estate market.
The housing market in Cyprus is currently experiencing a surge in demand for real estate, driven by an increase in foreign buyers from both EU and non-EU countries. This trend is expected to continue throughout 2023. However, the rise in demand has led to a corresponding increase in house prices and rents, further compounded by the rising prices of building materials. Additionally, the financial environment in 2023 is expected to be impacted by certain fiscal parameters, including a potential increase in interest rates. Despite these challenges, the construction sector in Cyprus is operating at full capacity, with several state and private projects underway, as well as significant European Recovery Funds on the horizon.
We need to stress that the financial environment in 2023 appears, at this time, to be affected by some important fiscal parameters. The growth rate, (GDP), in 2023 is expected to be around 3%, a healthy increase, after a higher growth in 2022 at 5.7% coming as a reaction to the decline of 2020. Inflation is expected to improve in 2023 compared to 2022 and should be around 4% compared to 8.1% in 2022. Overall, the outlook for the real estate market in Cyprus remains positive, but potential buyers should be aware of the potential impact of rising house prices and interest rates.
New construction developments, especially residential ones could see some decrease in demand due to sale price increases as well as increased interest rates and an expected reduced VAT sponsorship, factors which should be clearer quite soon. Something worth pointing out and bound to act positively is the higher sales volume coming from foreign buyers. For example, this January 2023 they accounted for 54% of total sales.
It should be noted that in 2022 there was a 30% increase in real estate sales transactions (contracts deposited at the Land Registry) with Limassol at the top of the table, followed by Paphos. Of the 13,409 real estate sales transactions in 2022 (the highest number since 2008) 5,928, 44%, concern foreign buyers. This significant increase sends the message that perhaps foreign buyers will have a strong and healthy presence in 2023 as well. We should emphasise that while in 2022 50% of foreign buyers were from within the EU, last January three out of four were from outside the EU.
This upward sales trend to foreigners is according to indications expected to continue, with foreign buyers playing a leading role in the current year. It goes without saying that this upward trend in the property sector shall also depend on whether sales prices and interest rates will increase and to what extent they will do so. Something else almost certain to affect the course of the real estate market in 2023, is possible further sale price increases, especially those for new flats, mainly due to increases in construction costs.
An even higher increase in sale prices is to be expected in the coming months once the full increase in raw material prices is incorporated into selling prices. The various Real Estate Price Indices place this increase during the last twelve months in the region of 6% to 12% depending on the methodology used. Even though at a slower rate, it is expected that the prices of used flats will follow the same route as new ones. Despite sale price increases, real estate prices in Cyprus are favourable when compared to prices for similar properties in neighbouring and European countries. Comparing prices with past years we need to stress that they are still near what they used to be in 2010 when the Price Indices were launched. Another area of the real estate sector is that of rents. The increase in rents in 2022 was more noticeable than the increase in sales prices, as supply and strong demand mean landlords can charge higher prices. This is mainly justified by increased demand from Cypriots as well as foreigners. The facts are quite clear for everyone to consider. Students are flocking back to universities following the pandemic and there is an increasing number of highly paid foreign workers since due to the incentives given by Cyprus (Headquartering), many foreign companies have set up a corporate base in our country.
The housing market in Cyprus has been experiencing a surge in demand for real estate, particularly for houses or apartments available for rental purposes. However, the volume of properties available, especially new ones, remains limited, leading to significant upward pressure on rents. While rents are expected to stabilize at current levels in 2023, the flow of high-wage foreign workers could continue to affect both sales and rental prices. The Rent Control Law further exacerbates the situation, creating problems such as the formation of ghettoes, safety risks, and poor living conditions for tenants in old rental apartments. As such, the state of property in Cyprus remains a crucial concern in the country’s housing market.
All the above facts are yet an additional reason to tackle the problems caused by the Rent Control law as well as legislation for commonly owned buildings.
This brief analysis leads us to consider that 2023 will present the following trends:
These estimated trends may be reversed at any moment with international economic and political conditions being unstable. Therefore, the estimates must be interpreted taking into account the possibility of a change in today’s international and domestic market conditions.
In conclusion, the real estate market in Cyprus appears to be on an upward trend, with rising demand for both residential and commercial properties. Despite the increase in sale prices and rents, real estate prices in Cyprus remain favourable when compared to prices for similar properties in neighbouring and European countries. The increase in raw material prices is expected to contribute to an even higher increase in sale prices in the coming months. Investors will need to carefully consider rising interest rates when making investment decisions in the real estate sector, keeping in mind that interest rates and returns are closely linked. Nonetheless, the increasing demand for properties in Cyprus offers great potential for profitable investment opportunities, particularly in the commercial real estate sector.
Blue Sky Properties offers estate agency services, property and common expense management, advice on property investments and fund management services.
By Stathis Efstathiou
FOX Smart Estate Agency