By Yiannis Misirlis*
During a recent discussion between a young property developer and a real estate agent, the new real estate market conditions came into focus. It was early in the morning, in the popular area of Germasogeia in Limassol. The area was bustled with life, some enjoyed their walk, some were jogging, others were cycling. The two professionals were discussing the possibility of buying a plot of land. Although reaching an agreement would be mutually beneficial, at one point the real estate agent asked: “Aren’t you afraid with what’s going on? The cost of energy and raw materials, inflationary pressures?” The young property developer replied: “Look at all these people around us. They love this place. Real estate always moves in cycles. It is certain that better days will come.”
The property sector is undoubtedly one of the three main sectors on which the Cyprus’ economy has been based over the years. It is a sector that has acted as a pillar for the country’s economy in difficult times, contributing greatly to the effort of bringing Cyprus back on the track of recovery. Even during the difficult two years of the pandemic, when faced with unprecedented challenges, the real estate sector managed to withstand the shocks, reduce its dependence on the Russian market and emerge from the strong pandemic crisis.
Unfortunately, the end of the pandemic found the global economy faced with an even greater challenge, and the Cyprus’ real estate is no exception. Rising inflation, rising energy and construction prices as well as higher interest rates on housing loans raise serious concerns about the next day in the real estate sector. We are already counting the first losses: due to the high construction costs, 25% of the apartments that were to be constructed in our country in 2022 were suspended or cancelled, amidst an environment of limited supply of real estate for sale.
While the rising trend in house prices reduces banks’ risk in financing mortgages, factors such as inflation, rising interest rates and declining confidence of potential buyers may reduce interest on the part of banks on mortgages, while also reducing domestic demand.
Looking at the future
It is a fact that the current real estate situation raises reasonable concerns among property developers as to what should be done and whether there are still opportunities and prospects in the sector. Despite the seemingly adverse conditions, I am convinced that the picture is anything but bleak. Ensuring the continuity of a business in the sector depends on how its leadership perceives the prevailing market conditions and how it responds to new challenges. After all, it is a long-standing fact that pessimists do not survive in the world of investment.
Faced with serious challenges, it is important that businesses in our industry are able to see beyond the “mountain” and anticipate future trends so that they can respond to new realities by reducing the risk. Of course, this is not always possible as uncertain factors and unforeseen events can suddenly change the landscape again, ringing the bell for new risks. But we must not forget that the economy consists of cycles characterised by ups and downs. In the end, healthy economies grow and prosper, and markets recover and move upwards for long periods. If unaccountability is seen as an enemy of investments in times of booming markets, fear is their worst enemy when faced with challenges.
In any case, the winner is the entrepreneur / investor who carefully considers the long-term benefits and confidently invests in areas that can bring attractive returns, adapted to the risk. After all, even in times of crisis, real estate has always been a safe investment with stable future returns.
To sum up, the real estate sector in Cyprus is currently facing new challenges. It is up to each entrepreneur how to manage the new situation. We should bear in mind, however, that healthy economies have the mechanisms to return to normal conditions and, most importantly, that challenges also create opportunities. Such situations should be dealt calmly, and above all, with optimism and wit.
*Founding Director of Imperio, Deputy Chairman of the Cyprus Land and Building Developers Association (LBDA), Chairman of the Real Estate Committee of the Cyprus Chamber of Commerce and Industry and member of the Board of Directors of the Limassol Chamber of Commerce and Industry.