Calls for government intervention to support affected buyers and the real estate sector
With property prices and rents continuing to spiral during the first quarter of the year, calls have been made for the government to intervene and make sure affordable housing is available for those in danger of being left behind.
According to a report by real estate technology firm Ask Wire this week into the first three months of 2023, property prices across Cyprus have increased by 12.3 per cent year-on-year for apartments and 3.1 per cent for houses. In addition, there was a 2.4 per cent price increase for offices, 8 per cent for holiday apartments, and 3.1 per cent for holiday houses.
Only shop and warehouse prices experienced a drop, having fallen by 0.1 per cent and 1.8 per cent respectively.
Increases in rents have been even higher. Compared to the first quarter of 2022, rents for apartments rose by 19 per cent, for houses by 12.2 per cent, shops by 3.3 per cent, warehouses by 1 per cent, and offices by 7.5 per cent. Moreover, on a shorter timeframe, rents increased by 2.6 per cent quarter-on-quarter for apartments and 1.5 per cent for houses.
These rising prices have been put down to an increase in demand driven by the significant influx of foreign professionals, a trend which began during the previous decade but has skyrocketed following the collapse of Lebanon’s economy in 2020 and the war in Ukraine. In the last couple of years, Cyprus has seen the arrival of thousands of Lebanese, Ukrainians, Russians and Belarusians, among others. Many Israelis have also moved to the island, primarily for professional reasons.
As a result, rental and property prices have become unaffordable to many Cypriots, a situation made worse by the high inflation rate which has eroded disposable incomes. Rents in Limassol have increased so much in the last few years, many Cypriots are now looking for housing in surrounding villages.
Alarmed by what is happening, Cypriot real estate professionals have called on the government to intervene, despite the fact that the sector itself has benefitted from the situation.
The lower purchasing power of Cypriots has already started to be reflected in the property market, president of the council for registration of real estate agents Marinos Kineyirou said.
“These factors, as we have warned in the past, have weakened the purchasing power of households, rendering the acquisition of a residence, whether that is in the form of an apartment or house, severely weakened,” he said.
“At the same time, whatever form of regulation the government eventually decides with regard to the burning issue of the reduced VAT rate of 5 per cent will have an impact on the demand for real estate in the near future and therefore on buying a primary residence,” he added.
He believes that “targeted government intervention is necessary both to support citizens and to support the real estate sector”.
The reality is that long-term government housing policy does not exist. Apart from the refugee estates, built after the Turkish invasion, social housing has never entered government policy.
Managing director of Paphos-based real estate company Property Canvas Christos Nikolaou said that the migration patterns of recent years, and their well-established knock-on effects on the market, are far from transitory and require the government to seriously address the matter.
Individuals who have recently relocated to Cyprus working online or in fintech companies “have not only invested their time and effort in establishing themselves in the country but have also made substantial investments in the local real estate market,” he told the Cyprus Mail, “this means that they are likely to stay in Cyprus for the long term.”
As a result, Nikolaou said, if there is no intervention from the government, it is unlikely that property prices will decrease significantly in the near future.
He also noted that rising prices are further exacerbated by property investors whose primary aim is to secure a good return on their outlay. Nikolaou said that the surge in rental prices has had a direct impact on the sales market, as foreign investors seek to purchase properties that yield a return of approximately 6 per cent.
“The rental income generated by a property is a key factor in determining its value, as investors are willing to pay more for apartments that can be rented out for higher amounts. For instance, if an apartment can be rented for €1,000 per month, investors are willing to pay up to €200,000 to purchase it,” Nikolaou said.
“However, if the same apartment can only be rented for €500 per month, the investor is only willing to pay up to €100,000,” he added. This highlights the close correlation between rental prices and sale prices in the real estate market, he said.
CEO of Ask Wire Pavlos Loizou explained that historically, Cyprus has dealt with the issue of housing by increasing the availability of residential land, through rezoning. But, he said this approach had not been effective in incentivising landowners to develop unused land and raised the possibility of the government imposing a penalty on owners of empty plots.
“Before exploring other options, it’s clear that adding residential land through rezoning doesn’t help if owners of such land are not pushed to develop it,” said Loizou. “There are thousands of empty or undeveloped plots in Cyprus’ towns, the owners of which have no reason to develop them as there is no penalty, through some form of taxation, for keeping them empty,” he said.
Loizou explained that the government has many options in terms of addressing the issue of housing. These include building residences on its own or through joint ventures with private companies, having rent-controlled housing and letting it out to eligible tenants, introducing buy-to-let schemes as well as selling government-owned social housing.
“Ultimately, the government’s role in housing provision should be to ensure that everyone has access to safe, affordable and decent housing,” he said. By working in partnership with private developers, housing associations and tenants, the government could provide a range of housing options that meet the diverse needs of citizens, Loizou said.
“This requires a long-term commitment to housing policy and investment in the development, management and maintenance of housing stock,” he said.
Even in the absence of a housing policy, Nikolaou believes the government may need to implement certain measures to regulate the real estate market and prevent it from overheating.
“Such measures could include imposing more limits on foreign investment or introducing incentives to encourage investment in other sectors of the economy,” Nikolaou said.
“However, unless such measures are put in place, it is expected that the real estate market in Cyprus will remain stable, with prices continuing to reflect the demand from both domestic and international buyers,” he concluded.
