The Cyprus real estate market continues to show a decline in sales. This is confirmed by statistics cited by Vestnik Kipra, referencing the Department of Land Resources and Land Surveys. Thus, in May, 214 real estate transactions were registered on Cyprus – 75% less than in May last year (854 transactions). Two-thirds (143) of the transactions were made by Cypriots, the rest by foreign buyers.
In total, for the first five months of 2013, 1,512 real estate properties were sold – half as many as in the same period last year. The decline in demand is noted primarily among non-resident buyers. A slight increase in activity has been recorded among local residents – possibly due to the banking crisis, some Cypriots prefer to invest money in real estate, or perhaps some locals are attracted by the lower prices.
According to WSJ.com, in 2007 the share of foreigners among real estate buyers in Cyprus was 50%, but now it is only 20%. 'It is important to emphasize that the Cyprus real estate market heavily depends on demand from non-residents – recently primarily Russian and Chinese buyers. Against the backdrop of the banking crisis, the number of foreign investors is rapidly declining.'
According to a number of expert estimates, as of March, real estate sales to non-residents fell almost 1.5 times year-on-year. 'I believe that in the future the downward trend will not be as pronounced; from low price levels, the market may even rise slightly, but overall for the year the results will likely be pessimistic. Recovery will only be possible as the economic situation qualitatively improves and a new system of clear guarantees for investors is formed,' explains Maxim Klyagin, an analyst at Finam Management.
According to observations from Moscow Sotheby's International Realty, in spring 2013 buyers adopted a wait-and-see position. Inexpensive properties on the first line from the sea were in greatest demand. As a result, buyers can now demand discounts from sellers when concluding purchase and sale transactions – despite the overall decline in prices.
'After the banking crisis, clarity is gradually emerging on what exactly the Cypriot government intends to do to get out of the situation, and how this could affect the real estate market. For now, the market is in stagnation, which is expected to continue for the next year, unless the government refrains from raising property taxes, which could severely shake the market.'
'Positive changes have arrived for buyers, as sellers are willing to reduce prices by 15-20%, and sometimes more. However, getting a loan for a purchase is currently almost impossible, and installment plans from developers can be obtained for a maximum of a few months,' says Anna Batizi, head of the international real estate department at Moscow Sotheby's International Realty.
Experts assess the impact of the crisis in Cyprus on the real estate segment differently. Igor Indriksons, real estate investment manager and founder of the Indriksons.ru portal, is rather optimistic: 'The crisis has had virtually no impact on the residential real estate market in Cyprus. As six months ago, the market is rather sluggish. In Paphos, prices have risen as expected by about 10%. This happened largely due to sustained interest in this region from both Western buyers and tourists. In Limassol and Larnaca, thanks to the steadfast love of Russians for these places, the cost of residential real estate increased by slightly less than 5%. These factors influenced price increases. From an investment attractiveness perspective, only Paphos is interesting, where due to sustained interest from Western tourists, properties can be rented out on short-term contracts.'
However, despite the growth, according to Igor Indriksons, real estate in Cyprus cannot be considered from an investment perspective. 'Residential real estate in Cyprus does not interest investors due to low yields, around 5%. That is what is holding back new housing construction projects. Developers are not interested in active construction today, demand is too low. Their task is to sell what has already been built. You need to buy real estate in Cyprus only if you plan to live there for at least six months; otherwise, it is pointless, it is better to simply rent,' says Igor Indriksons.
According to estimates by Maxim Klyagin from Finam Management, Cyprus is facing a price drop in the near future. 'Fiscal pressure on the Cypriot banking system will undoubtedly continue to have a serious negative impact on the country's real estate industry in the near future. And most likely, the consequences will be at least medium-term. At this stage, we are seeing an acceleration of price correction, which is quite large in scale. According to some estimates, as of the first 4-5 months of 2013, real estate prices in Cyprus, depending on the quality and location of properties, have dropped in the range of 20-30%, and many experts expect the development of negative scenarios and continued active price declines,' explains Maxim Klyagin.
According to estimates by Elena Yurgeneva, director of the elite residential real estate department at Knight Frank Russia & CIS, in 2012 housing prices in Cyprus decreased by 4-7%. In the luxury housing segment, prices showed stability – individual projects with unique characteristics even increased in price by 10%.
Another problem of the Cypriot real estate market, which also negatively affects housing prices, is related to the construction industry. “With the onset of the crisis, the volume of new supply has significantly decreased. In the primary real estate market of Cyprus, there is a shortage of quality offerings, while in the secondary market, you can find properties for any request. The total debt of developers is estimated by the Central Bank of Cyprus at 7 billion euros. Given the decline in real estate prices, it can be expected that developers will have difficulty repaying debts in the near future, so conditions for active introduction of new projects are not yet observed,” explains Elena Yurgeneva.