Fu­ture shines bright but prop­erty mar­ket still re­liant on big for­eign buy­ers

Financial Mirror (Cyprus) - - PROPERTY - By Kyr­i­a­cos Kil­iaris

Cyprus’ real es­tate sec­tor is con­tin­u­ing to thrive, build­ing on the up­ward trend of pre­vi­ous years, with ex­perts con­fi­dent that sales trans­ac­tions for 2018 will peak at an eight-year high.

A PwC re­port on the Cyprus Real Es­tate Mar­ket “First Half in Re­view H1 2018” showed that sale trans­ac­tions reached 4,470 with the Land Registry in H1, cre­at­ing hopes that sales will sur­pass 2017’s eight-year high of 8,734.

The num­ber of 2018 H1 sales rep­re­sent an up­lift of 24% com­pared to the 3,610 sale con­tracts filed at the land registry dur­ing H1 2017.

Ac­cord­ing to PwC, the mes­sages in the re­port are clearly pos­i­tive de­spite the mar­ket still be­ing heav­ily de­pended on for­eign buy­ers and the in­vest­ment for cit­i­zen­ship scheme.

PwC’s real es­tate ad­vi­sor told the Fi­nan­cial Mir­ror that an in­crease in de­mand from lo­cal buy­ers has also been recorded “help­ing the di­ver­si­fi­ca­tion of the mar­ket”.

Con­stanti­nos Sav­vides, di­rec­tor of PwC’ Real Es­tate Ad­vi­sory De­part­ment said: “We are not talk­ing about only an in­crease in ab­so­lute num­bers, but also of an in­crease in the value of projects for which li­censes have been is­sued in the first six months of the year which amounts to EUR 750 mln. In the same pe­riod in 2017, projects ob­tain­ing li­censes were worth 650 mln.” In terms of the num­ber of sale con­tracts sub­mit­ted to the land registry in H1 2018, the ma­jor­ity of trans­ac­tions (37%) were in Li­mas­sol and Paphos (23%).

Ni­cosia district, which is a mar­ket pre­dom­i­nantly ap­peal­ing to the lo­cal seg­ment, com­prised 18% of to­tal trans­ac­tions. Lar­naca and Fa­m­a­gusta dis­tricts had 15% and 7% of the mar­ket share re­spec­tively.

“The in­vest­ment for cit­i­zen­ship scheme is still play­ing its role in mar­ket growth. Trans­ac­tions in­volv­ing for­eign in­vestors have more than dou­bled with Li­mas­sol and Paphos hav­ing the lion’s share with 70% of trans­ac­tions in­volv­ing for­eign­ers,” ex­plained Sav­vides.

The high­est share as re­gards sale con­tracts filed by for­eign buy­ers was in Paphos (39%), fol­lowed by Li­mas­sol (31%).

Ac­cord­ing to the PwC re­port, a to­tal of 2,187 out of 4,470 prop­er­ties sold in Cyprus in Jan­uary-June were ac­quired by for­eign­ers. Sav­vides said ap­prox­i­mately 70% of prop­er­ties ac­quired by for­eign­ers re­late to non-EU buy­ers. In Li­mas­sol, 82% of for­eign trans­ac­tions re­late to non-EU buy­ers. The re­spec­tive share of non-EU res­i­dent ac­qui­si­tions in Paphos and Lar­naca stood at 61% and 81% re­spec­tively.

De­mand for high-end res­i­den­tial prop­er­ties over 1.5 mln

Since 2014, fol­low­ing re­vi­sions to the scheme for nat­u­ral­i­sa­tion of in­vestors in Cyprus, de­mand for high-end prop­er­ties has been in­creas­ing con­tin­u­ously. Dur­ing the first half of 2018, the to­tal num­ber of high-end res­i­den­tial trans­ac­tions was es­ti­mated at 131, rep­re­sent­ing an 8% in­crease com­pared to the same pe­riod of 2017.

Ac­cord­ing to the re­port, high-end prop­er­ties sold in 2018 are es­ti­mated to have gen­er­ated more than EUR 500 mln, with the av­er­age cost of a lux­ury apart­ment or villa fetch­ing be­tween EUR 2-3 mln.

Li­mas­sol con­tin­ues to be the district with the big­gest share of high-end res­i­den­tial prop­erty trans­ac­tions (63% of to­tal trans­ac­tions in H1 2018), fol­lowed by Paphos (29%). The two dis­tricts com­bined make up 92% of this seg­ment of the mar­ket. High-end res­i­den­tial trans­ac­tions in Fa­m­a­gusta and Lar­naca rep­re­sented 8% of the to­tal (11 trans­ac­tions), whereas in Ni­cosia no sin­gle res­i­den­tial trans­ac­tion ex­ceed­ing EUR 1.5 mln was iden­ti­fied dur­ing the pe­riod.

As per land registry data, dur­ing H1 2018, 80% of high­end res­i­den­tial prop­erty trans­ac­tions in Li­mas­sol re­lated to apart­ments, with the re­main­der 20% re­lat­ing to vil­las.

As re­gards Paphos, al­most en­tirely high-end res­i­den­tial trans­ac­tions recorded in H1 2018 were vil­las.

Most of the trans­ac­tions, 80 out 131, in the high-end res­i­den­tial seg­ment across Cyprus dur­ing the first half of 2018 were in the EUR 2-3mln price band.

While real es­tate ex­perts feel that de­vel­op­ers of high-end projects, and es­pe­cially the mush­room­ing tow­ers in Li­mas­sol and other coastal ar­eas, may at some point find them­selves hav­ing dif­fi­cul­ties sell­ing their apart­ments, they do not see this af­fect­ing the real econ­omy or de­stroy­ing the real es­tate sec­tor.

Ge­orge Moun­tis of Delfi Part­ners said that although pres­sure is be­ing ex­er­cised by the EU and other in­sti­tu­tions for Cyprus to limit the in­vest­ment for cit­i­zen­ship scheme, he does not see the scheme be­ing stopped any time soon. He added that what he sees is the in­ter­est from for­eign in­vestors is in­creas­ing rather than drop­ping.

“It is true that we are wit­ness­ing a grad­ual de­cline in Rus­sian in­ter­est for pass­ports and in­vest­ments as a re­sult of the nat­u­ral course of a cy­cle, and Rus­sia’s pres­i­dent Putin’s ef­forts to repa­tri­ate Rus­sian cap­i­tal. How­ever, there is an ever-in­creas­ing in­ter­est from in­vestors from China, Mid­dle Eastern coun­tries such as Le­banon and Syria, and the UAE coun­tries,” said Moun­tis. He does not see an im­mi­nent threat as even in the case that the scheme is frozen, the dam­age to the sec­tor and the real econ­omy will be min­i­mal.

“Al­most all of the high-end projects are be­ing built with in­vestors’ money who have pre-bought the prop­er­ties, and with close to zero lend­ing. That means that in the case that part of these projects re­mains un­sold, the im­pact to the real econ­omy, banks and the con­struc­tion sec­tor will be man­age­able,” ex­plained Moun­tis.

Lo­cal de­mand

Chair­man of the Cyprus Prop­erty Own­ers As­so­ci­a­tion Ge­orge Mouskides said lux­ury prop­er­ties have ex­hib­ited a dra­matic in­crease in their price, with apart­ments be­ing sold at prices higher than their real value.

“How­ever, they should be ex­am­ined sep­a­rately from the rest of the real es­tate mar­ket, as they do not im­pact the price of the hous­ing sec­tor,” said Mouskides.

He did note that tow­ers have pushed prices of neigh­bour­ing prop­er­ties up­wards, but they have had no im­pact on prices of the over­all hous­ing mar­ket.

Mouskides said that the in­crease in house prices has more to do with the in­crease in de­mand from lo­cals.

“In 2016, price in­dex move­ments record­ing Res­i­den­tial Prop­erty Prices demon­strated signs of mar­ginal improve­ment and sta­bil­i­sa­tion. In 2017, for the first time dur­ing the 8-year pe­riod 2010-2017, both price in­dices be­haved pos­i­tively. Dur­ing H1 2018, the Cen­tral Bank in­dex demon­strated a 2% growth com­pared to H1 2017.

Mouskides found the in­crease in de­mand by Cypri­ots to buy a house is en­cour­ag­ing and com­mented that he found that prices are record­ing “a healthy rise”.

“The fact that Ni­cosia is tak­ing the lead in build­ing per­mits (39%) leav­ing Li­mas­sol be­hind with 29% is a clear in­di­ca­tion that lo­cals have re­turned to the mar­ket and the sec­tor is be­com­ing more diver­si­fied.”

As the PwC re­port shows, with re­spect to the types of prop­er­ties li­censed for de­vel­op­ment dur­ing H1 2018, res­i­den­tial prop­er­ties com­prise the ma­jor­ity of per­mits (81% of to­tal li­censed sur­face area). The share of per­mits re­lat­ing to com­mer­cial prop­er­ties seems to have de­clined from 2017 (H1 2018: 18% Vs 2017: 24%).

Dur­ing H1 2018, the num­ber of build­ing per­mits in­creased by 8% YoY, while the value of new build­ing per­mits ex­hib­ited an an­nual growth of 20% com­pared to H1 2017.

In line with the trends ob­served in prior years, new real es­tate de­vel­op­ments be­ing planned con­tinue to be, on av­er­age, of higher value.

Mouskides said that es­tate agents have recorded sig­nif­i­cantly high pur­chases of plots by de­vel­op­ers dur­ing the year, es­pe­cially in Ni­cosia adding that they “ex­pect to see a build­ing frenzy over the next five years on the is­land”.

PwC part­ner Con­stanti­nos Sav­vides said that “build­ing per­mits con­tinue to grow both in vol­ume but also in size”.

Panos Danos, man­ag­ing di­rec­tor of Danos Real Es­tate, told the Fi­nan­cial Mir­ror that the fu­ture of the sec­tor in Cyprus is con­nected to de­vel­op­ments in the en­ergy sec­tor.

“In the near fu­ture there will be de­mand for in­fra­struc­ture, of­fices and hous­ing projects which will be nec­es­sary to cover the needs of the de­vel­op­ing en­ergy sec­tor with com­pa­nies and per­son­nel com­ing to the is­land,” Danos said.

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