Real estate financing is less critical for Cypriot banks compared to last year. It is in contrast to the majority of respondents, according to the results of the latest edition of the KPMG Property Lending Barometer.
The Cypriot banks' answers to the question of whether other sectors of the economy are more attractive for financing compared to the real estate sector highlighted the Health sector first, followed by the Energy sector in second place.
When it comes to banks' decision to finance new real estate projects, they are less willing to finance new construction projects and more willing to fund projects that offer a steady income stream.
Industrial real estate and distribution centers seem to be the most attractive category of the sector for financing, followed by tourist accommodation. This category was previously the first in preference for Cypriot banks. The residential real estate category was the least attractive category mentioned (probably because the prospect of a stable income is not usually associated with such developments).
According to the survey participants, the most significant competitors in the loan market are private equity and debt securities, followed by non-local commercial banks. The vast majority said that the level of forecasts in the sector is sufficient, while the rest see it as relatively high. Their average loan size ranges from 3 to 7 million euros, while their preferred size is 3 to 9 million euros. Compared to the previous year, the average loan size has decreased, while the select loan size is unchanged.
Regarding the next period, no change in the size of real estate lending is expected in the next 12-18 months, while for the other sectors, a moderate decrease or an average increase is expected.
According to the survey data in Cyprus, the average of the LTV index ranges from 61% - 66% depending on the category (compared to the European average of 54% - 68%), the standard of the DSCR index (new projects offer income) ranges from 1.38 - 1.86, (compared to the European average of 1.26 - 1.60). Cypriot banks' average indicator for the repayment period is 9.26 years (compared to the European average of 25.15 years).
Regarding the developments in the real estate sector and lending in 2020, Christoforos Anagiotos, CEO and Head Deal Advisory of KPMG Cyprus, stated:
"The conditions before the pandemic were favorable for financing in the real estate sector, with low-interest rates and high liquidity from banks. "After the outbreak of the pandemic, the sector has retained its attractiveness. But with a more careful approach by the banks."