Prolonged decline
The situation on the Cyprus real estate market began to deteriorate long before the authorities announced the restructuring of the banking system. The period from 2000 to 2007 can be considered relatively cloudless, when the number of foreign buyers of real estate (housing, land and commercial properties) steadily grew: over seven years, their share in total transactions increased from 3.6% to 53.1%. In quantitative terms, the number of transactions rose from 450 to more than 11,000.
Such frenzied popularity was largely facilitated by the country's accession to the European Union in 2004. In 2007, a record was also set for the total (foreign and local investors) number of transactions – 21,245. However, the peak of Cypriot activity had already passed in 2003 (15,294 transactions), after which land prices in Cyprus exceeded a level acceptable even for the middle class of the island state.
In 2008, due to the global financial crisis, the number of foreign investors in the real estate market halved (6,636), and since 2009 their annual number has not exceeded 2,000. If previously foreigners accounted for half the market, in the last four years they have accounted for only about 20% of transactions. At the end of 2012, Cyprus recorded its lowest figures for both local and total sales.
Against this unfavorable background, the March banking collapse occurred, which obviously only worsened the situation. According to the Cyprus Department of Land Resources, from January to July of this year, only 2,133 real estate purchase transactions were recorded in the country, which is almost 50% lower than the same period in 2012 (4,118). Until July, in no market segment did the monthly number of transactions ever exceed the corresponding figure for the previous year.
Foreigners managed to reverse the trend, buying 103 properties in July (+49% compared to July 2012 and +66% compared to June 2013). The greatest demand was for real estate in Nicosia, Limassol and Paphos, while Famagusta and Larnaca saw a decline in sales. However, over the seven months, the figures are discouraging: the number of transactions fell by 31% – from 869 to 604.
According to experts, it is still premature to talk about a trend of mass return of foreign buyers. According to Maxim Klyagin, analyst at Finam Management, it can emerge only after a general strengthening of the economic situation and the formation of a new system of guarantees. At the same time, the rate of decline will slow down in the medium term.
Deceptive impression
As for prices, at first glance buying a home in Cyprus now looks profitable. For example, from the end of 2009 to the second quarter of 2013, the average price of a two-bedroom apartment of 85 sq. m across the country fell by a third to 112,300 euros. Standard three-bedroom houses of 250 square meters became cheaper by a quarter – to 349,100 euros. In addition, as stated by Moscow Sotheby's International Realty, in conditions of limited demand, many sellers are willing to offer discounts.
After the European Union and the International Monetary Fund insisted on a 'haircut' of deposits in the country's two largest banks, the decline in prices accelerated. According to Finam Management forecasts, this process will continue in the near future and housing prices have not yet reached their minimum levels.
Specialists also note that at present, one cannot count on either obtaining a loan from local banks or on installment plans from developers, who themselves face a lack of financing and high debt burden. This has already led to a shortage of projects in the primary market. In particular, according to the portal 'Vestnik Kipra', from January to May of this year, the total area of construction approved by the authorities decreased by 20.6% compared to the five months of 2012. Low prices and lack of stable demand prevent developers from paying off debts, as a result, no increase in construction activity is expected. To avoid additional risks, experts recommend refraining from buying new buildings and focusing on the secondary market.
Overall, buying a villa in Cyprus now does not seem like an adventurous idea. To do this, you only need to have the necessary amount to avoid dealing with local banks, and purchase ready-made homes. Another factor to pay attention to is the government's planned increase in property tax. Currently, it is calculated based on the value of the property as of 1980. If the house cost up to 40,000 euros at that time, the annual property tax is 0.6%. With increasing value, the rate rises: for properties worth more than 3 million euros, it is 1.9%. By June 2014, the authorities plan to complete the revaluation of more than half a million properties and include all unregistered buildings in the database.
The above is true for those who intend to acquire a holiday home or obtain a residence permit (issued for purchases over 300,000 euros). For investment purposes, the Cyprus real estate market, which never promised special profits before, is now simply unsuitable. The predicted further decline in prices, low demand and economic instability all indicate that the opportunity to profitably resell a house may not arise soon.
Dmitry DANILOV,
«Lenta.Ru».