How the Coronavirus Affected Cyprus Property

Как коронавирус повлиял на недвижимость Кипра
26 January 2022 Vlad Yazykov
1851

The pandemic has shown in two years that it is able to present surprises.

Each wave poses new challenges to humanity. And in economic terms, too. But if you were thinking of investing in Cyprus real estate, now is the time for it.

What's happening?

Right now, the Cyprus real estate market is experiencing an increase in demand, record selling prices, low interest rates and a shortage of properties available for sale in the real estate market.

According to data published last week by the Central Bank of Cyprus, the growth was 0.5% compared to 0.3% in the second quarter of 2021. On an annualized basis, the index increased by 1.2% compared to 0.3% in the same quarter of the previous year.

The recovery of the Cyprus real estate market, and according to some indicators above the pre-pandemic level, is also confirmed by a survey conducted by real estate analysts Delfi Analytics.

2021 was the year of correcting anomalies caused by the pandemic in the market during 2020, when uncertainty prevailed in the market and a significant number of transactions were postponed.

According to Delfi Analytics, real estate transactions in the first 11 months of 2021 increased by 3.4% compared to the same period in 2019. At the same time, sales figures decreased by 4.2%, and the number of mortgage loans issued decreased by 4.4%. The data indicate an increase in demand in the secondary market: in November, 14,228 transactions were registered in the secondary market, which is 3.4% more than in 2019, and 26.5% more than in 2020.

On the contrary, the supply fell until November and decreased by 4.2% compared to 2019.

In 2022, the pandemic and the emergence of new strains like Omicron will be crucial for both the real estate sector and the economy as a whole. According to our estimates, the trend towards purchasing real estate on the secondary market will continue to grow as more and more real estate will be offered on the market by banking institutions and asset management companies.

What will happen?

The supply on the market is lower than ever, but this phenomenon is temporary.

This means that buyers have little choice, which creates a lot of competition between them and leads to an increase in the price of real estate. Currently, the lack of supply is the main trigger for the stable price growth that has been observed this year in the European and Cypriot real estate markets. However, this trend will not last long for three reasons:

  1. Firstly, when COVID-19 broke out, the Government of Cyprus issued and extended a moratorium on foreclosures until 31.10.2021. For this reason, very few foreclosures have been made, even fewer than usual. Now all this real estate will be put up for sale by banks, which will lead to an increase in the number of available properties for sale and a decrease in the asking prices - a decrease in value or, at best, a slowdown in growth.
  2. Secondly, it is expected that the average monthly earnings in Cyprus will increase slightly, with a significant increase in the cost of living and an increase in inflation. Therefore, a decrease in real purchasing power is expected in the coming years. Following this trend, property owners will be more interested in liquidating their assets than before.
  3. Thirdly, new construction declined and was frozen in 2020. However, despite the unprecedented increase in the cost of building materials, it is expected that permits for the construction of new houses will increase by about 10-15% compared to last year.

This means that by mid-2022 we will see an increase in the supply of new real estate, at least compared to last year.

Finally, most of the existing homeowners are boomers (aged 58-75 years). Within decades, some will pass away, or they will have to look for a more modest living space.

Gradually, as a result, more real estate will enter the market. At the same time, excessive demand for small-area real estate is expected, since millennials prefer this category of housing.

Rising mortgage rates and declining housing affordability

Ultra-low interest rates make the cost of mortgage repayments low, and housing prices seem more affordable. However, as soon as mortgage rates increase, and it is not a question of "if", but a question of "when", the number of potential buyers will decrease significantly, as the cost of the mortgage will gradually increase. At the same time, given that real estate prices are slowly responding to new market conditions, prices will continue to rise. Thus, this will lead to a further deterioration in housing affordability.

However, rising house prices require large down payments, which means that even those who can afford mortgage payments will not be able to qualify for a mortgage. This, combined with the expected increase in the cost of loans (due to higher interest rates), will lead to a significant reduction in mortgage applications.

Slowing real estate sales

The total number of real estate sales in 2019 was the highest on record since 2008, with sales rising in all areas. By the end of 2021, their number approached 10,000, which is almost equivalent to 2019 sales, which totaled 10,366.

It should be noted that 2019 was the last active year of the Citizenship by Investment program, which explains the high activity in the market. Thus, the number of sales is already quite large, despite the pressure and limitations of the global pandemic.

Investing in real estate has always been a difficult topic, the coronavirus has only added another level of complexity. To simplify your choice as much as possible, go to DOM. The portal presents the largest real estate database in the country – from residential to commercial. Choose and contact professionals who will help you make the right choice!

See also:

  1. Buy and Sell Real Estate With Cryptocurrency In Cyprus
  2. Living Room Storage: 7 Inspirational Ideas For Cyprus Property Owners
  3. First acquaintance with Larnaca
  4. Permanent residence permit in Cyprus
  5. Land Registry Department in Cyprus
Source: dom.com.cy
Photos: pixabay.com
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