Housing Market showing signs of recovery
Lalaine C. Delmendo | October 15, 2021
During the year to Q1 2021, the nationwide residential property price index rose slightly by 0.91% (1.64% inflation-adjusted), a slowdown from the 1.82% y-o-y rise seen in Q1 2020, according to the Central Bank of Cyprus (CBC).
By district, during the year to Q1 2021:
- Nicosia, Cyprus' capital, apartment prices rose by 2.2% but house prices fell slightly by 0.9%.
- In Limassol, apartment prices rose by 3.4%, and house prices increased by 2.7%.
- In Larnaca, apartment prices rose strongly by 6%, but house prices fell by 0.8%.
- In Paphos, both apartment and house prices fell by 3% and 1.6%, respectively.
- In Famagusta, apartment prices rose by 3.2% while house prices dropped slightly by 0.1%.
Residential construction activity has quickly bounced back. In the first four months of 2021, the number of value of residential building permits rose by 44.6% and 47% y-o-y, respectively. Dwellings authorized also increased almost 50% y-o-y to 3,353 units in Jan-Apr 2021.
After a double-digit decline last year, demand is now rising again. In the first five months of 2021, total property sales in Cyprus rose strongly by 36.2% y-o-y to 3,577 units, according to the Department of Lands & Surveys. Domestic sales, which accounted for more than two-thirds of total sales, soared by 73% y-o-y to 2,482 units while property sales to foreigners fell by 8% to 1,095 units over the same period.
Overall, Cyprus' real estate market is expected to remain steady during the remainder of the year. “Activity and prices in the main commercial centres of Nicosia and Limassol are currently stable, as locals are acquiring residential properties taking advantage of various government subsidies and in order to generate income,” said consultancy firm Wire FS. However, “other districts are continuing to experience low levels of demand, as they are more reliant on overseas markets and have a higher dependency on tourism.”
In the first half of 2021, tourist arrivals totalled 340,984 people, up by 33.4% from last year but still down by a huge 79.1% from the 1.63 million arrivals recorded in H1 2019.
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.
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.).
The International Monetary Fund (IMF) expects the Cypriot economy to grow by a modest 3% this year, following a contraction of 5.1% last year. But the Finance Ministry is more optimistic, projecting growth of 4.5% to 5% this year.
Rental returns in Cyprus are reasonable, while property is inexpensive
Property prices. Property is not expensive in Cyprus, with prices around €1,600-3,4000 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.
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.
Rental returns (yields) on property in Cyprus are around 4.7% to 5.6%.
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.
Buyers should beware serious problems with property titles in Cyprus, an issue still ongoing.
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.
Cypriot economy recoveringIn Q1 2020, the Cyprus economy recorded a quarterly growth of 2%, an improvement from the previous quarter’s 1.1% growth and the highest in the eurozone. The euro area contracted by 0.6%, on average, during the quarter.
“The above increase is the highest recorded in the eurozone while most European countries continue to have negative growth rates compared to the previous quarter,” said Finance Minister ConstantinosPetrides.
On an annual basis, the economy contracted by 1.6% in Q1 2021, an improvement from y-o-y declines of 4.4% in Q4 2020, 4.6% in Q3, and 12.5% in Q2. Cyprus had recovered strongly since the banking crisis, registering annual average growth of 4.6% from 2015 to 2019.
The International Monetary Fund (IMF) expects the Cypriot economy to grow by a modest 3% this year, following a contraction of 5.1% last year. The Finance Ministry is more optimistic, projecting growth of 4.5% to 5% this year.
Cyprus recorded a budget deficit equivalent to 5.7% of GDP in 2020, in sharp contrast to a surplus of 1.5% of GDP in 2019, after the government allocated over €1.2 billion (US$1.4 billion) for COVID-19 assistance to the health sector, households and businesses.
Gross public debt surged to 118.2% of GDP last year, up from 94% of GDP in 2019 and surpassing the previous high of 109.1% of GDP in 2014.
In May 2021, Cyprus president NicosAnastasiades unveiled another economic stimulus plan worth €4.4 billion (US$5.2 billion), which he described as the “most ambitious ever” in the country’s 61-year as an independent republic. The five-pronged plan is projected to increase GDP by 7% over the next five years and create an additional 11,000 jobs.
“The plan, ‘Cyprus — The Next Day’ is a courageous step forward and a new and necessary development model for the future,” said Anastasiades. “It’s the road map for the post-COVID-19 era.”
Seasonally-adjusted unemployment rate in Cyprus stood at 7.9% in June 2021, sharply down from 9.8% in the previous month but still slightly up from 7.6% in June 2020, according to Eurostat. From an average of just 4.8% from 2000 to 2011, unemployment had surged to an average of 11.7% from 2012 to 2020, based on figures from the IMF.
Consumer prices rose by 3.1% in June 2021 from a year earlier, the biggest increase since March 2012, mainly driven by increases in housing and utilities prices and transport costs. Inflation averaged -0.2% in the past eight years.