Is Cyprus Real Estate Still a Safe Bet for Investors?
As of September 2024, Cyprus’s real estate market faces rising interest rates, inflationary pressures, and shifting demand dynamics. These factors are prompting investors, developers, and financial institutions to reassess their strategies in this evolving landscape. In this newsletter, we explore the current state of the market, highlight opportunities, and offer insights for navigating the challenges ahead.
Market Activity and Key Segments
Mid-sized apartments continue to dominate the Cypriot real estate market. Between January 2023 and August 2024, properties in the 50-100 sqm range accounted for the majority of transactions:
- 50-75 sqm: 2,748 transactions, totalling €372 million.
- 75-100 sqm: 2,729 transactions, generating €544 million.
These figures underscore the enduring appeal of mid-range properties to both local and international buyers. However, the luxury segment is also holding strong, with 500 transactions above €5,000/sqm contributing €596 million in total value. This highlights the continued demand for high-end real estate, especially from high-net-worth individuals.
Construction trends show that most transactions involve apartments built between 2007-2011. Newer properties (post-2012) are seeing lower volumes due to limited supply, but high-end apartments with modern amenities and prime locations remain attractive to wealthy buyers, who are focused on long-term value appreciation.
Inflation, Rising Interest Rates, and Loan Activity
The Cypriot economy remains relatively stable, with GDP growth of 3.4% in Q1 2024, driven by key sectors such as tourism and construction. However, inflation and rising interest rates are influencing market behaviour:
- Inflation: 3.0% as of June 2024, with wage growth of 5.0% in Q1 offsetting some of the impact on household budgets.
- Interest Rates on Housing Loans:
- Up to 1-year loans: Increased from 2.61% in January 2023 to 3.41% by July 2024.
- Over 5-year loans: Increased from 3.18% to 4.65% during the same period.
These rising rates are cooling mortgage demand, as reflected by a surge in loan renegotiations. In July 2024, €128 million in housing loans were renegotiated, compared to €94 million in January 2023. This highlights growing financial stress among borrowers, as they seek to adjust their financing terms to cope with the rising cost of debt.
Domestic vs. Foreign Borrowers
Foreign investment, particularly from non-EU buyers, has historically driven property prices in areas like Limassol and Paphos. However, stricter regulations are now curbing this influx. Foreign housing loans have sharply declined, signalling a slowdown in demand from non-local buyers.
While local buyers still play a key role in the market, they too face challenges from rising borrowing costs and tighter lending conditions. The pace of new mortgage issuance has slowed, with many opting to renegotiate existing loans rather than take on new debt.
Outlook: Affordability Challenges and Market Resilience
The Cypriot real estate market remains attractive, particularly for mid-range buyers and high-end investors. However, inflation and rising interest rates are putting pressure on affordability, creating both risks and opportunities. The cooling of foreign investment may open doors for local buyers, but the increased cost of borrowing is a key obstacle.
For investors, a data-driven approach is essential to navigating these market changes. Opportunities exist, particularly in mid-sized apartments and high-end properties in prime locations. However, careful planning around financing, as well as an understanding of evolving regulations and market conditions, will be crucial for success in the coming years.
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