Cypriots being squeezed out of the property market

A look into what needs to be done

By Kyriacos Kiliaris

Cypriots are being squeezed out of the property market as they can’t afford climbing rents, as rising construction costs and interest rates make homes unaffordable, with the need for the government to step in, more than ever.

While the island’s real estate market is showing a significant recovery despite the uncertainty triggered by the energy crisis, it is tough for the locals.

The market is grappling to come to terms with a 30 per cent plus increase in construction costs and the hike in mortgage rates, pushing up prices.

The Cypriot economy has not remained completely unscathed from the war in Ukraine and the conflict in the Middle East, with inflation skyrocketing, particularly affecting more vulnerable groups.

Unfortunately, this has prompted Cypriot households to think twice about borrowing money to buy their dream home and demand for mortgages has dipped.

Cypriots are being further marginalised, as renting a flat or a house has become a nightmare, especially in Limassol and the capital Nicosia, where they have been outpriced.

The ever-increasing number of tech and fintech firms moving to Cyprus, while boosting the economy, has made things difficult for locals looking for a flat to rent.

These companies bring along their employees, who have higher salaries and can afford higher rents.

Employees of these companies usually prefer newer properties, taking them off the market for Cypriots with lower income.

In all towns in Cyprus, it seems that demand exceeds supply.

Especially in Nicosia and Limassol, any new residential project is sold on paper during the construction period, while apartments to rent at a price that could accommodate Cypriots are scarce.

According to Danos International Property Consultants and Valuers’ data, renting a one-bedroom flat in Limassol costs a minimum of €850 a month, while a two-bedroom flat would set back the family budget by at least €1,300.

Renting a three-bedroom flat in the district is next to impossible on a Cypriot wage, as rents are around €1,700 monthly.

According to recent CyStat data Cypriots’ average gross monthly earnings rose to €2,693 for the fourth quarter of 2023, from €2,535 in the preceding year, reflecting a noteworthy 6.2 per cent increase.

Seasonally adjusted figures for the same period reveal that the average gross monthly earnings stood at €2,402, a 1.6 per cent increase compared to the third quarter of 2023.

However, CyStat data also points out that more than half of the island’s employees take home an average of €1,500.

The minimum monthly wage in Cyprus is set at €1000.

In Nicosia, the rent price for a one-bedroom flat is between €550 and €650, while a two-bedroom flat would set a family back a minimum of €750.

However, renting in an 85 square metre flat in an uptown area of the capital, like Engomi, costs €900 monthly.

The rent for a three-bedroom flat in the capital is between €950 and €1500.

Nicosia residents looking for cheaper alternatives must move to the suburbs, such as Lakatamia, where rents are lower.

Rents in Larnaca and Paphos are lower, but likely only for the moment, as the interest of foreign investors and high-tech companies on the lookout for a Cyprus base in the coastal towns is on the rise.

The rent for a one-bedroom is between €450 and €550. Two-bedroom flats are €550 to €650, while the rent of a three-bedroom is €750 to €850.

Prices mentioned are indicative, and subject to the property’s location, age and other characteristics.

At this point we cannot avoid highlighting the imbalance between demand and supply.

As an agency, we have been looking for new flats to add to our inventory, but the earliest new developments will come online is in ten months from now. This largely has to do with the fact that projects get tangled up in red tape procedures.

What needs to be done

The government will have to speed up its housing strategy, aimed at stimulating affordable housing development.

Earlier in the year, the council of ministers gave the green light to new construction incentives proposed by the interior ministry.

The objective is to make approximately 800 residential units available on the market at an affordable price for both purchase and rental within the next three years.

As part of a strategic initiative, the government has introduced a ground-breaking housing policy.

Landowners with a building block exceeding 1,000sqm and a building coefficient above 100 per cent now have access to a lucrative 45 per cent additional building factor. In contrast, plots below 1,000sqm will see a 25 per cent increase in property development.

These incentives are specifically tailored for developers, with the scheme aiming to promote affordable housing through additional building coefficient.

Out of the 45 per cent boost, 25 per cent is earmarked for affordable home construction, while the remaining 20 per cent is left to the discretion of the developer.

However, the government will have to take into consideration the concerns of developers and real estate agents, as the current plan poses liquidity challenges.

Developers will need to find investors with cash, willing to play the long game before seeing any return on their investment from the additional housing units.

It does not help that banks, in their own right, remain hesitant in providing loans to developers, who in turn must rely on self-financing or find affluent investors.

Most projects are self-financed, as developers turn to investors for funding, making the implementation of the plan a challenge on its own.

 

Kyriacos Kiliaris is Danos International Property Consultants and Valuers’ Chief Marketing Officer