- The largest decline during the year was in Larnaca, with prices falling 15.2% (-13.4% inflation-adjusted) to an average price of €281,400 (US$ 385,715)
- In Nicosia, house prices fell 14.4% (-12.6% inflation-adjusted) to an average price of €407,115 (US$ 558,033)
- Paphos saw house prices decline 10.9% (-9% inflation-adjusted) to an average price of €348,105 (US$ 477,148)
- In Limassol, house prices dropped 8.3% (-6.5% inflation-adjusted) to an average price of €333,030 (US$ 456,484)
- In Farmagusta-Paralimni, the average price of houses fell 3.11% (-1.1% inflation-adjusted) to an average price of €349,463 (US$ 479,009)
Apartments in Cyprus suffered even more. The capital, Nicosia, had the biggest drop in apartment prices of all Cyprus districts, with apartment prices falling by 22.3% (-20.7% inflation-adjusted), followed by Paphos -13.5% (-11.7% inflation-adjusted), Larnaca -12.4% (-10.6%), Limassol -10.13% (-8.3%) and Famagusta-Paralimni -4.6% (-2.7%).
This across-the-board decline is largely driven by two factors: the economic slowdown which has affected local consumer demand, and the tightening of lending criteria. The Cyprus real estate market has historically been divided into the major urban centers of Nicosia, Limassol and Larnaca, primarily driven by local demand; and the seaside resort areas of Paphos and Famagusta , which are mostly driven by foreign demand. The economic slowdown affected both.
The seaside market of Famagusta has arguably been the least affected, primarily due to increased demand recently from Chinese investors.
Cyprus faces enormous economic problems. Non-performing loans (NPL) are a key issue. NPLs amounted to €24.1 billion (US$33.03 billion) or 147% of GDP in 2013. Many NPLs are in the construction sector, amounting to €4.62 billion (US$6.33 billion).
The Bank of Cyprus has 53% of its loan portfolio non-performing, and Hellenic Bank has 47%. The COOPs' NPLS amount to 47% of their portfolio, according to Leaf Research.
Property frauds in Cyprus are a huge problem for expat home owners, but also for developers, banks, and the government. Many buyers have lost their homes after the developer went bankrupt, despite having paid in full.
Analysis of Cyprus Residential Property Market »
The average price per sq. m. of a 120 sq. m. apartment in the districts we cover is as follows:
- Limassol - EUR 1,891
- Nicosia - EUR 2,045
- Larnaca - EUR 1,356
- Paphos - EUR 1,297
If you are buying specifically with a view to renting out your property, Larnarca is the place. Gross rental yields are distinctly higher here, at around 4.02% to 5.81%. But generally, Cyprus is not a great location for gross rental yields, which are generally from just under 2% to just above 4%.
Capital Gains: Capital gains realized from the sale of immovable property are taxed at 20%, with a lifetime exemption of 85,430 if the property was owner-occupied for at least 5 years.
Inheritance: There are no inheritance taxes or estate duties in Cyprus.
Residents: Residents are taxed on their worldwide income at progressive rates, from 0% to 35%.
The transfer tax rate ranges from 3% to 8%, depending on the purchase price of the property. If the property is in joint names, the property value is halved, leading to lower transfer fees.
Foreigners are not covered by the provisions of the Rent Control Law, except the non-Citizen wife of a citizen of the Republic, and legal entities controlled by non-residents.
Tenant Eviction: Eviction of tenants is relatively difficult, especially in the case of ‘statutory tenants’ protected by the Rent Control Law. It takes an average of 360 days to evict a tenant.
The terms required Cyprus to cut public sector spending, hike taxes, and cut its bloated banking sector. Also included in the agreement was a haircut for bank deposits of more than €100,000 (US$137,070) at the country’s two largest banks—Bank of Cyprus, and Cyprus Popular Bank (Laiki Bank).
The Cypriot economy has turned out to be more resilient than many people had expected. It did not shrink by 20% after the banks collapsed last March, as some feared. Nor did it even shrink by 8.7%, as the Troika had expected.
The decrease in GDP for 2013 was limited to 5.3%.
“We’re aligned with the Troika,” said finance minister Harris Georgiades. “The memorandum could have been our own manifesto. It’s a chance to correct our own shortcomings, and do what should have been done in Cyprus long ago.”
Unemployment reached 16.04% in 2013 and is expected to increase further during 2014 to 19.2%, according to IMF.
Demand in the real estate remains low. Transaction volume seem likely to have reached their lowest levels, while prices are most likely to continue decreasing in the medium term.