Cyprus property market feels impact of high interest rates and construction costs

The value of properties sold in Cyprus during the second quarter of 2023 reached €1.52 billion, with the market showing signs of being impacted by the increase in interest rates, soaring inflation, and the elevated cost of construction materials.

According to a report released this week by the Cyprus Real Estate Agents Registration Council, properties worth €1.7 billion had been sold in each of the previous two quarters.

In a statement released alongside the report, council president Marinos Kineyirou acknowledged that the property market had demonstrated its resilience but emphasised that “the challenges are mounting and should not be underestimated by anyone”.

“The real estate sector, in general, makes a significant contribution to the Cypriot economy, and the government should find ways to support it to maintain its momentum,” he added.

According to the council’s report, during the second quarter of the year, properties worth €1.52 billion were sold in a total of 5,974 transactions.

Based on the data used in the report, there was a decrease in both the value of properties sold and the volume of transactions when compared to the first quarter of the current year.

On an annual basis, the volume of transactions in the second quarter of 2023 is at similar levels to the corresponding quarter in 2022.

However, the value of properties sold is significantly higher when compared to last year, when the value amounted to €1.2 billion.

Notably, Nicosia and Famagusta are the only districts that recorded an increase in the values of properties sold during the second quarter of the year compared to the first quarter.

In Nicosia, despite the decrease in the volume of sales transactions (1,549), the value of properties sold (€299.8 million) increased.

On the other hand, in Famagusta, the increase in value (€59.7 million) was accompanied by an increase in the volume of sales transactions (303).

What is interesting to note is that there has been a significant decrease in the Limassol district, which is ultimately responsible for the slowdown in the overall market performance during the second quarter.

Specifically, according to the data, the value of properties sold in Limassol decreased by €200 million compared to the first quarter, reflecting a significant decrease in both the value and volume of sales transactions.

The property market in the districts of Paphos and Larnaca also experienced a decline during the second quarter.

The decline was more significant in the Paphos district, which lost ground compared to the previous quarter, both in terms of value and volume of sales.

Finally, in Larnaca, although the volume of transactions was higher in the second quarter when compared to the first, the value of properties sold was slightly lower.

Construction prices rise, but so does production

According to data released by the Statistical Service on Wednesday, prices in the construction sector recorded a 6.5 per cent year-on-year increase during the first quarter of 2023,

However, construction prices experienced a 1.3 per cent decrease on a quarter-on-quarter basis.

This comes after the Producer Price Index reached a historic high in the fourth quarter of 2022.

Specifically, the Producer Price Index for Construction reached 133.02 units, with 2015 being designated as the base year, during the first quarter of 2023, showing a decrease of 1.3 per cent compared to the fourth quarter of 2022.

This marks the second-highest level in the history of the index, following the record high of 134.71 units recorded in the fourth quarter of 2022.

Compared to the same quarter last year, the index increased by 6.5 per cent.

By type of project, there was a 3.4 per cent increase in building prices and a 17.9 per cent increase in civil engineering projects during the first quarter of 2023 compared to the corresponding quarter in 2022.

In the same report, the Cyprus Statistical Service revealed that construction production experienced a significant increase of 5.5 per cent in the first quarter of 2023, compared to the same period in 2022.

Specifically, the Production Index for Construction reached 184.13 units during the first quarter of 2023, marking a 5.5 per cent increase compared to the first quarter of 2022.

It is worth noting that during the first quarter of 2022, the index had dropped to its lowest level since the second quarter of 2018.

By type of project, there was a 6.2 per cent increase in building production and a 0.7 per cent increase in civil engineering projects during the first quarter of 2023, compared to the corresponding period last year.