0
0
We are witnessing a unique and unprecedented economic situation that has affected most countries so far, and at this time we have no indications whether the situation will improve or worsen. Living in a global economy, no country will be left out, though it will depend on how negative it is from country to country.
Usually, Cyprus has so far been fortunate enough to survive economic and other crises, based on other people’s misfortunes. So the invasion of 1974 was followed by an influx of Lebanese as a result of their civil war, with millions of investments in Cyprus, and the oil boom that followed the eighties helped Cyprus again due to the influx of millions of petrodollars, including the creation of an Arab demand for real estate, the civil war in Yugoslavia had a similar effect, in While the Russian Revolution during the Yeltsin era, added to the good future of the island.
Now, I’m afraid the situation is completely 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 this point in time are in the drop in stock exchange values. However, this uncertain situation globally has caused demand to drop significantly especially from abroad. The demand for real estate in Cyprus consists of approximately 80% of locals and 20% of foreigners. As such and taking into account the large percentage of the foreign market, the local market is affected positively or negatively depending on the economies of the countries whose citizens buy in Cyprus. Of the total external demand, nearly 70% comes from Britain, 10% from Russia and the remainder from other European countries. With the dependence of the market on the UK and the prevailing state of the UK economy, the demand from this market source has obviously decreased significantly. So we note that in those areas where the British are interested (primarily Paphos and Famagusta area and to a lesser extent Larnaca and Limassol) there is a significant drop in interest. For Paphos, the reduction in demand and selling prices is about 25% for apartments and 20% for villas, while in the Famagusta area the reduction is 25% for apartments and 10% for villas. For the Larnaca area, the discount is 10% in all areas other than apartments in Oroklini -25%. Limassol has not seen any significant decline at this point in time, mainly because the Russian market is very active there (nearly 80% of Russian demand directs itself to this city and the remaining 20% is everywhere) and because Limassol is experiencing heavy infrastructure investment and development. . The new seaside sports arena, promenade works, land reclamation, conversion of the old fishing port, new marina and site of the new technical university all helped the Limassol market. It is of course a matter of time. If the current status quo continues for another 6-9 months, I would expect direct price drops in Paphos/Parlimni by around 30% and in the Larnaca area by 18%, while Limassol will also feel the ballpark at around 10% in select places. The Nicosia market, which is dependent on Cypriot demand, is not expected to be affected more than 12%-15% (price cut).
The Cypriot real estate market is more sensitive to routine projects, which do not have a competitive advantage against other market alternatives and which have ample supply. So routine apartments in individual blocks or in projects with shared pools that are not in attractive locations will be affected the most. On the other hand, beach real estate will maintain its market because the available supply is dropping fast and the beach is running out!! Beach prices have increased from 8.500 € / m². to 15.000 euros / square meter. Within one year (we refer to the good quality beach villas in the Limassol area). Beach properties in Larnaca and Protaras are expected to maintain their current prices of €6,000 to €8,000/sqm. (beach villas).
Even more worrying is the number of resales (property bought and buyers due to the situation back home selling it at reduced prices) which is rapidly increasing. Most re-sales are from the UK market and it is not uncommon for properties to be offered at 20%-30% off pre-crisis values. A significant depreciation is encouraged by the appreciation of the euro against the sterling, so an effective depreciation may be no more than 10%-15%. Referring again to the British demand, the illegal cowboy estate agents based in Britain, who charge 15% commission and organize inspection trips etc. have passed the high level of commission on to the buyers (through the developer). As such, many people have bought property at inflated prices of more than 10% and without having the right to choose. Perhaps we will have time to share some information about how this scam was planned and organized and how some crooked international real estate agency companies suddenly left the island with the market downturn, while others have gone into voluntary liquidation (so obviously no one can chase them) So their clients are stranded in the desert during a period of no order with nowhere to turn and with little advice.Most of their staff have left and their bosses are nowhere to be found, while in the British legal system at the moment, they have no responsibility. towards their customers.
The main criterion for whether or not this situation will worsen is the strength and support of local banks that finance developers and buyers. It seems that the local banks have a solid foundation and their loans are covered by 20%-25% of the buyer’s contribution (in contrast to the 100%-110% loans in the USA and some European countries). At the same time, it is unlikely that local residents, who are so attached to their land/property, will offer their property at greatly reduced prices. Cypriots rarely sell under pressure (they either take their property off the market or you may notice some of them raising prices), while local banks won’t/can’t take quick action on a mortgage. So, while in the US the mortgaged property can be sold within 3-5 months, in the UK 5-6 months, in Greece 9 months, in Cyprus the system will probably take 6-9 years, whereas if it pertains to the principal residence , it will extend to 12-15 years (see Pieris example that it took 40 years). Therefore, this ineffective system leads, in such cases, fortunately for Cyprus, to a technical reduction in supply, which will help reduce real estate price reduction to a minimum.
The Cypriot economy is mainly dependent on the tourism industry with a foreign exchange earning of €2 billion. Foreign exchange, the construction industry in the amount of 1.3 billion euros. Overseas sales and cos abroad with a foreign income of about 600 million euros. So if this situation continues, in addition to real estate, there is a sharp decline in the number of tourists and their purchasing power, this will greatly affect the economy. If the decline in foreign demand reaches 50%, it will result in a loss of 10% of the total market and based on the expectation that domestic demand will fall by 20%, this may cause real estate prices to drop by about 20%-30%. This mainly refers to residential land (routine projects) and residential land. It should be noted that the office market and commercial market are very active especially in Nicosia and Limassol, where demand is improving. Again, it’s a question of timing and how fiscal 2009 will behave. Forecasts are predictions and should be studied as such, because the situation is very fluent and changes from day to day. Close watch should be directed towards the Russian market, which is very active in Cyprus and which has not yet shown signs of decline. Contrary to the case of European banks there hoping to increase Russia’s deposits in Cyprus. On the one hand, oil prices are falling and the Russian stock market is in a downtrend and these indicators should be monitored.
In conclusion, I’d say we don’t expect local property values to come down to UK prices 25% (commercial) and 15%-20% for residential, but some bad effects will definitely get to us. Again on a positive note, local banks are not known for being aggressive so putting pressure on customers won’t necessarily cause them to rush out and sell.
The logical question then is should I buy now or wait for next year when prices drop further? A question that is difficult to answer, because if you find something you like now on the one hand, but make a mistake, because you expect prices to drop even more next year, the property may not be there at the time you decide. On the other hand, if you’re not specific, waiting another 6 months might be a good move. In my estimation, based on the forecasts of international economic analysts, prices will bottom out by mid-2009 before the tourist season, and from there they will be on the road to improvement.
On the plus side, we are all familiar with the anxiety people feel about their bank deposits. If you are really worried about your money deposits disappearing and as an alternative to buying a safe and keeping your money at home, buy a property because at least it won’t go anywhere and prices will recover in the future. The price of real estate may go down, but then, you know, the real estate market is a cycle, so at least you have hope of minimizing your loss in the future.
