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Cyprus’ housing market continues to recover
On a quarterly basis, residential property prices rose by 0.27% (0.12% inflation-adjusted) in Q1 2017.
- Nicosia, Cyprus’ capital, residential property prices were unchanged during the year to Q1 2017 (-1.9% when adjusted for inflation)
- In Limassol, prices increased 0.9% y-o-y to Q1 2017 (-1% inflation-adjusted)
- In Larnaca, prices declined by 0.9% y-o-y to Q1 2017 (-2.7% inflation-adjusted)
- In Paphos, prices dropped 1.3% y-o-y to Q1 2017 (-3.2% inflation-adjusted)
- In Farmagusta-Paralimni, residential property prices dropped 3.6% y-o-y to Q1 2017 (-5.4% inflation-adjusted)
By property type, apartment prices increased 1.6% during the year to end-Q1 2017 (-0.3% inflation-adjusted). On the other hand, nationwide houseprices dropped 0.3% (-2.1% inflation-adjusted) over the same period.
Demand is now rising sharply. During the first seven months of 2017, property sales in Cyprus rose by 19.6% to 4,349 units from a year earlier. Sales to the domestic market rose 12.6% and sales to the overseas market were up by 41.3%, based on figures from the Department of Lands & Surveys.
Likewise, the number of dwelling permits soared 41% y-o-y to 1,889 units during the first five months of 2017, according to the Statistical Service of Cyprus.
This across-the-board housing market improvement is partly driven by Cyprus’ recovering economy. In 2016, the economy grew by 2.8%, an improvement from an annual growth of 1.7% in 2015 and y-o-y declines of 1.5% in 2014, 6% in 2013, and 3.2% in 2012, according to the International Monetary Fund (IMF). The economy is projected to expand by 2.5% this year, and by another 2.3% in 2017.
The Cyprus real estate market has historically been divided into the major urban centres 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 decline of recent years affected both areas.
The housing market is expected to continue to improve in the coming months, amidst continued economic growth and improvements in the banking system.
“We expect property prices to broadly stabilise over the coming quarters, and the demand for property to increase gradually from low levels,” said Moody’s Investor Service.
Foreigners can buy one home in Cyprus, and are entitled to hold land freehold, but there is a maximum limit on land ownership of 3 donums (4,014 sq m).
Rental returns in Cyprus are moderate, but property is inexpensive
Property prices. Property is not expensive in Cyprus, with prices around €1,300-1,800 per square metre (sq. m.). Smaller properties cost rather more per sq. m. than larger properties.
Property rents. Apartments of 120 sq. m. cost around €700-€800 per month to rent in Larnaca and Nicosia, and probably more in Limassol, though this year we were not able to find enough properties to bring you reliable figures.
If you are buying specifically with a view to renting out your property, very small apartments in Nicosia appear to give you higher yields. It is not obvious why the difference in yields between 50 sq. m. apartments in Nicosia and 120 sq. m. apartments should be so large, whether this is some kind of research error or what. For the moment, we report what we have found.
Property returns. Cyprus has not traditionally been a great location to be a landlord, because of moderate rental returns. But while gross rental yields in Cyprus have remained steady over the years, they have fallen almost everywhere else as a result of the asset-inflationary effects of low interest rates. Result: Cyprus now looks comparatively attractive as a place where buying prices are low, so that capital gains on property are conceivable. However, it is always extremely hard to forecast which locations international buyers will seize upon as attractive.
Property buying costs. Round trip transaction costs on the purchase of old residential property in Cyprus are moderate, but VAT on new properties is high. See our Cyprus residential property Buying-Guide and Cyprus property transaction costs compared to the rest of Europe.
Rental income tax is low to moderate in Cyprus
Rental Income: Rental income exceeding €19,500 is taxed at progressive rates. Standard deductions for income-generating expenses are deductible from the gross income.
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%.
Total transaction costs can be high
Total roundtrip transaction costs range from 7.60% to 16% of the purchase price. The buyer pays around of 4.60% to 11%, whereas the seller pays 3% to 5% for the agent’s commission.
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.
Cypriot laws are pro-tenant
Rent Control: The rental market can be divided into two broad categories: Houses controlled by the Rent Control Law (1983), and the free market.
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.
Economic growth strengthens, but deflation persistsThe economy grew by 2.8% in 2016, driven mainly by strong domestic demand. Then in the second quarter of 2017, the economy expanded by 0.9% from the previous quarter and by 3.5% from a year earlier.
Economic growth is expected to be 2.5% this year and 2.3% next year, according to the European Commission.
Cyprus’ economy contracted about 2% in 2009, mainly due to the adverse impact of the global crisis. After registering anaemic growth rates of 1.4% in 2010 and 0.4% in 2011, the economy shrank again by 2.4% in 2012. The economy remained depressed in the following years, with a huge 5.9% contraction in 2013, and a 2.5% contraction in 2014, based on IMF figures. The economy recovered in 2015 with GDP growth of 1.7%.
Cyprus recorded a public budget surplus of 0.4% of GDP in 2016, a sharp improvement from deficits of 1.2% of GDP in 2015 and 8.9% of GDP in 2014, according to the European Commission.
Despite this, public debt remains high at 107.8% of GDP in 2016, slightly up from 107.5% in the previous year. Public debt is expected to decline to 103.4% of GDP this year and to 99.8% of GDP in 2018.
Consumer prices dropped 0.7% in July 2017 from a year earlier, according to the Statistical Service of Cyprus.
Unemployment fell to 10.8% in June 2017, from 11% in May 2017 and 12.9% in the same period last year, according to Eurostat. From an average of just 4.8% from 2000 to 2011, unemployment surged to an average of 14.4% from 2012 to 2016, according to the IMF.