Brexit: a scary thought becomes a reality
I have been asked to express an opinion of the expectations of the real estate market (2016), especially now with the Brexit vote and how this would impact the sector
Looking at the statistical data of 2015-2016 (up to May) we have the following picture:
The overall picture for 2015-2016 is +25%. This is a substantial increase, but one must bear in mind the low numbers of 2015. Nevertheless, it is an encouraging situation. Out of the total number of 2355, foreigners contributed approximately 800 sales, i.e. 34%, a very large percentage which indicates the importance of the foreign demand for the Cyprus real estate market. Having said that, in terms of value of sales, we are certain that the percentage of the foreign buyers is much more (in addition to the acquisitions by Cypriot registered companies owned by foreigners) perhaps reaching 70% of the total (see for example hotels, mall sales, large offices, etc. as one example calculated as one sale each). It would have been most useful if the Land Surveys Office categorised not only the value per sale per contract, but also the nationality of buyers, which will be a most useful tool for all, especially for the marketing people, developers and others.
Based on our own experience, I “suspect” that approximately 20% of the foreign sales are British in terms of number and the rest by other nationalities, but in terms of value less than 10% are British and 90% are others.
The permanent residency and passports incentive is a major attraction, hence the increase in foreign sales. This is expected to continue especially if the Government proposal to reduce the minimum requirement of EUR 5.0 mln (for passport) to 2.50 mln on an individual basis as opposed to group sales, is adopted.
Much of the 2016 prospects will depend on the financiers’ foreclosures, since this will affect the market in terms of oversupply and with a competitive edge since financiers may offer lending facilities to go. Financiers must be very careful regarding the nature and volume of the foreclosed properties, since an oversupply will reduce prices, affecting their remaining properties’ security value. It would have been ideal for all the lenders to coordinate on this – but we doubt if it can be achieved (which is to their and the market’s benefit).
The tourist market, which is the foundation of foreign demand, is increasing and so there is hope for further development. So, on this count the real estate market will not benefit by the British demand comprising of approximately 40% of the total tourist number, whereas the reduction of sterling value vs. the euro and any other consequential affects in the U.K., it will have a reflection on British potential buyers’ income.
In terms of the Brexit much of this will depend (on the real estate market) at what terms and timeframe the exit happens, how much (if) the sterling pound will be decreased vis-à-vis the euro, whereas property acquisitions in Cyprus will become more expensive. So, certainly we will expect a reduction of the British demand, but, as I have said before the British market does not form part of a large percentage – it will affect, however, the local British permanent residents and home owners, who might find living in the Eurozone is more expensive, thus forcing some of them to sell and return home to the UK. This situation will also affect other holiday home countries popular to the British retirees and investors, such as Spain, Portugal, Malta, etc. and compared with the Cyprus-resident British of about 30,000 people and that of Spain with 600,000 people, one may get the picture how the market will behave.
It is early to predict the consequences, but overall, 2016 will not be substantially different than 2015. We will have to wait and see whereas the possible improvement of the UK real estate market is also a possibility (lower sterling, lower cost real estate, thus more demand) which might help UK owners to raise more finance for investment abroad.