We are experiencing a unique and unprecedented economic situation, which until now has affected most of the countries and at this moment we have no signs of whether the situation will improve or worsen. Living in a global economy, no country will be exempt, although it will depend on the magnitude of its negative effect from one country to another.
Typically, Cyprus has so far been lucky to get through the economic and other crises, building on the misfortunes of others. So the 1974 invasion was followed by an influx of Lebanese as a result of their civil war, with millions invested in Cyprus, the ensuing oil boom in the 1980s had helped Cyprus again due to the influx of millions of dollars of oil, including creating Arab demand for real estate, Yugoslavia’s civil war has had a similar effect, while the Yeltsin-era Russian revolution has added to the island’s bright future.
Now, I’m afraid, the situation is quite different and more difficult. Cyprus has not yet felt the full effects of the situation, no one has lost their job and the only noticeable effects at the moment are falling stock values. However, this situation of uncertainty worldwide has caused demand, especially from abroad, to drop drastically. The demand for real estate in Cyprus is made up of approximately 80% locals and 20% foreigners. As such and taking into account the large percentage of the foreign market, the local market is positively or negatively affected depending on the economies of the countries whose nationals buy in Cyprus. Of the total foreign demand, approximately 70% comes from Great Britain, 10% from Russia and the rest from other European countries. With the reliance on the UK market and with the prevailing state of the UK economy, it is clear that the demand for this market source has been greatly reduced. So we notice that in those localities in which the British are interested (mainly the Paphos and Famagusta area and, to a lesser extent, Larnaca and Limassol) there is a considerable drop in interest. For Paphos, the reduction in demand and sales prices is around 25% for apartments and 20% for villas, while for the Famagusta area the reduction is 25% for apartments and 10% for the villas. For Larnaca region the reduction is 10% across the board except for apartments in Oroklini -25%. Limassol has not experienced any notable reduction at the moment, mainly because the Russian market is quite active there (about 80% of Russian demand goes to this city and the remaining 20% everywhere) and because Limassol is experiencing a great infrastructure. investment and development. The new sports field by the sea, the works on the promenade, land reclamation, the conversion of the old fishing port, the new marina and the location of the new technical university, are all factors that have helped the Limassol market. . It is, of course, a matter of time. If the situation that exists at the moment continues for another 6-9 months, I would expect a direct price reduction for Paphos/Paralimni of around 30% and for the Larnaca region of 18%, while Limassol will also feel the pitch around 10% in certain areas. The Nicosia market, which is based on Cypriot demand, is not expected to be affected by more than 12-15% (price reduction).
The Cyprus real estate market is more sensitive to routine projects, which do not have a competitive advantage over other alternatives on the market and for which there is a wide offer. So routine flats in individual blocks or in projects with a common pool not in attractive locations will be more affected than others. On the other hand, beach properties will maintain their market as the available supply is dwindling rapidly and we are running out of beach! Beach prices have skyrocketed from 8,500 EUR/m2. at EUR15,000/m2. within a year (we mean good quality beach villas in the Limassol area). Beach properties in Larnaca and Protaras are expected to maintain their current prices of around EUR6,000-EUR8,000/m2. (beach villas).
What is more concerning is the number of resales (properties purchased and buyers due to the situation at home selling them at discount prices) which is increasing rapidly. Most resales are from the UK market and it is not uncommon to offer your property at 20-30% off pre-crisis values. The large reduction is favored by the increase in the value of the euro against the pound sterling, so the effective reduction cannot exceed 10%-15%. Referring again to the British claim, illegal estate agents-cowboys based mainly in Britain, charging 15% commission and organizing inspection tours etc., have passed on this high level of commission to their buyers ( via developer). As such, numerous people have bought properties at inflated prices of more than 10% and without having the right to choose. Maybe we will have time to exchange information about how this scam was planned and organized and how some of these international corrupt real estate agency firms suddenly left the island with the market crash, while others went into voluntary liquidation (obviously they do). that no (one can chase them). So your customers are now stranded in the desert during a period with no demand, nowhere to turn, and very little advice. Most of your staff have left and the bosses are nowhere to be found. whereas, as the British legal system stands at the moment, they have no responsibility towards their clients.
A basic criterion for whether or not this situation worsens is the strength and support of local banks that are financing developers and buyers. Local banks appear to be on solid footing and their loans are covered by a 20-25% buyer contribution (in contrast to 100-110% loans in the US and some European countries). At the same time, the locals, who are very attached to their land/property, will most likely not offer their property at substantially reduced prices. A Cypriot very rarely sells under pressure (or they take their property off the market or you may even notice some of them jacking up the prices), while local banks will not/cannot take quick action on a foreclosure. So while in the US a foreclosed property can be sold within 3-5 months, in the UK 5-6 months, in Greece 9 months, in Cyprus the system is such that most likely it is that it takes 6 to 9 years, while if it is the main residence, it will take 12-15 years (see the example of Pieris that it took 40 years). So this inefficient system causes, on such occasions, fortunately for Cyprus, a technical reduction in supply, which will help to minimize the reduction in property prices.
The Cypriot economy is basically dependent on the tourist industry with a foreign currency of EUR2 bil. currencies, the construction industry with EUR1.3 billion. sales abroad and offshore Cos with income abroad of around EUR600 mill. So if this situation continues and in addition to real estate there is a sharp reduction in the number and purchasing power of tourists, it will substantially affect the economy. If the reduction in foreign demand reaches 50%, it will produce a loss of 10% of the total market and based on a forecast of a drop in local demand of 20%, it can cause a reduction in real estate prices of around 20 %. -30% It basically refers to residential (routine projects) and residential land. It is worth noting that the commercial and office market is quite active and, especially in Nicosia and Limassol, demand is improving. Again, it is a matter of timing and how fiscal year 2009 will perform. Predictions are predictions and should be looked at as such, as the situation is very fluid and changes from day to day. Special attention needs to be paid to the Russian market, which is quite active in Cyprus and has shown no signs of slowing down so far. On the contrary, with the state of the European Banks there is hope that Russian deposits in Cyprus will increase. On the other hand, oil prices are falling and the Russian stock market is falling and these signals must be monitored.
To conclude, I would like to say that we don’t expect local property values to match the UK price cut of 25% (commercial properties) and 15-20% for residential, but we will certainly be affected by some ill effects. Again, on a positive note, local banks are not known for their aggressiveness, so the pressure put on customers won’t necessarily make them rush to sell.
A logical question then is, should I buy now or wait for next year when prices drop further? A difficult question to answer, because if on the one hand you find something you like now, but you let it go because you expect prices to drop further next year, the property may not be there when you decide. On the other hand, if you are not particular, maybe waiting another 6 months is a good decision. In my estimation, based on the economic expectations of international analysts, prices will bottom out in mid-2009 prior to the tourist season and from then on they will be on a path of improvement.
On a positive note, we are all aware of the anxiety people have about their bank deposits. If you are really worried that your money deposits are going to run out and instead of buying a safe and keeping your money at home, buy a property as at least it won’t go anywhere and at some point in the future the prices they will recover. Real estate can go down in price, but as you know, the real estate market is in cycles, so at least you have hope of cutting your losses in the future.