Cypriots squeezed out of property market

Cypriots are being squeezed out of the property market as they can’t afford climbing rents. Hiking construction costs and interest rates are making homes unaffordable, with the need for the government to step in, more than ever.

While the island’s real estate sector is showing a significant recovery despite the uncertainty triggered by the energy crisis, the market is tough for the locals.

The market is grappling to come to terms with a 30%-plus increase in construction costs and the hike in mortgage rates, pushing up prices.

The Cypriot economy did not remain completely unscathed from the war in Ukraine and the conflict in the Middle East, with inflation skyrocketing, particularly affecting the more vulnerable groups.

Unfortunately, this has prompted Cypriot households to think twice about borrowing to buy their dream home, as demand for mortgages dipped.

Cypriots are being further marginalised, as renting a flat or a house has become a nightmare, especially in Limassol and the capital Nicosia, where they have been outpriced.

The ever-increasing number of high-tech and fintech firms moving to Cyprus, while boosting the economy, has made things difficult for locals looking for a flat to rent.

These companies bring along their employees, who have higher salaries and can afford higher rents.

Employees of these companies usually prefer newer properties, taking them off the market for Cypriots with lower income.

In all towns in Cyprus, it seems that demand supersedes supply. Especially in Nicosia and Limassol, any new residential project is sold on plan and during the construction period, while apartments to rent at a price that could accommodate Cypriots are scarce.

Limassol out of reach

According to Danos International Property Consultants and Valuers’ data, renting a one-bedroom flat in Limassol costs a minimum of EUR 850 a month, while a two-bedroom flat would set back the family budget by at least EUR 1,300.

Renting a three-bedroom flat in the district is next to impossible on a Cypriot wage, as rents are around EUR 1,700 monthly.

According to recent CyStat data, Cypriots’ average gross monthly earnings rose to EUR 2,693 for the fourth quarter of 2023, from EUR 2,535 in the preceding year, reflecting a noteworthy 6.2% increase.

Seasonally adjusted figures for the same period reveal that the average gross monthly earnings stood at EUR 2,402, a 1.6% increase compared to the third quarter of 2023.

However, CyStat data also points out that more than half of the island’s employees take home an average of EUR 1,500. The minimum monthly wage in Cyprus is set at EUR 1,000.

In Nicosia, the rent for a one-bedroom flat is between EUR 550 and EUR 650, while a two-bedroom flat would set a family back a minimum of EUR 750.

However, renting an 85 square metre flat in an uptown area in the capital, like Engomi, costs EUR 900 monthly.

The rent for a three-bedroom flat in the capital is between EUR 950 and EUR 1500.

Nicosia residents looking for cheaper alternatives must move to the suburbs, such as Lakatamia, where rents are lower. Rents in Larnaca and Paphos are lower, for the moment, as the interest of foreign investors and high-tech companies on the lookout for a Cyprus base in the coastal towns, is on the rise.

The rent for a one-bedroom is between EUR 450 and EUR 550. Two-bedroom flats are EUR 550 to EUR 650, while the rent for a three-bedroom is EUR 750 to EUR 850.

Prices mentioned are indicative, and subject to the property’s location, age and other characteristics.

At this point we cannot avoid highlighting the imbalance between demand and supply.

As an agency, we have been looking for new flats to add to our inventory, but the earliest new developments will come online, is in ten months from now. This has largely to do with the fact that, projects get tangled up in red tape procedures.

What needs to be done

The government will have to speed up its housing strategy, aimed at stimulating affordable housing development.

Earlier in the year, the council of ministers gave the green light to new construction incentives proposed by the Interior Ministry.

The objective is to make approximately 800 residential units available in the market at an affordable price for both purchase and rental within the next three years.

As part of a strategic initiative, the government has introduced a ground-breaking housing policy.

Landowners with a building block exceeding 1,000 sq.m. and a building coefficient above 100% now have access to a lucrative 45% additional building coefficient. In contrast, plots below 1,000 sq.m. will see a 25% increase in property development.

These incentives are specifically tailored for developers, with the scheme aiming to promote affordable housing through additional building coefficient.

Out of the 45% boost, 25% is earmarked for affordable home construction, while the remaining 20% is left to the discretion of the developer.

However, the government will have to take into consideration the concerns of developers and real estate agents, as the current plan poses liquidity challenges.

Developers will need to find investors with cash and willing to play the long game before seeing any return on their investment from the additional housing units.

It does not help that banks, in their own right, remain hesitant in providing loans to developers, who in turn must rely on self-financing or find affluent investors.

Most projects are self-financed, as developers turn to investors for funding, making the implementation of the plan a challenge on its own.