Housing Shortage Worsens in Cyprus

The Cyprus property market continues to face serious pressure. According to a new European Commission report, the island has a shortage of around 39,000 residential properties, while rents are rising faster than property purchase prices.

In the first half of 2026, experts once again noted strong demand for housing, particularly in Limassol, Paphos and Larnaca. The main factors remain the influx of foreign professionals, the expansion of international companies, the growth of the tourism sector and the limited supply of new affordable apartments.

The European Commission emphasises that for decades the country's housing policy has focused primarily on home ownership, while the social rental market has remained largely undeveloped. Today, the share of social housing in Cyprus remains close to zero, compared with an average of around 8% across the European Union.

According to the report, property prices on the island increased by approximately 28% between 2020 and 2025, broadly in line with the EU average. At the same time, prices in Limassol, Paphos and Larnaca are around 39% higher than the national average.

Why rents continue to rise

It is the rental market that currently causes the greatest concern among European experts. Although the average household spends around 22% of its income on rent — roughly the same as the European Union average — this burden reaches 28.3% for low-income households. Additional pressure comes from:

1. the limited number of affordable apartments;
2. the growth of short-term rentals;
3. insufficient protection for tenants;
4. the lack of comprehensive quality control for rental housing.

Another distinctive feature of the Cyprus market is that around 70% of residents live in houses and apartments that are larger than their households actually need. This is the highest rate among all European Union countries, compared with an EU average of 33%. A significant proportion of properties are used as investment assets or remain vacant. At the same time, the short-term rental market continues to expand rapidly. While the number of such properties was significantly lower in 2023, by 2026 it had almost doubled to more than 9,000 properties offering around 40,000 bed spaces.

Meanwhile, illegal rentals remain a significant problem. In mid-2024, more than 7,000 of the 14,446 properties were operating without registration. An audit by the Audit Office of the Republic of Cyprus, published on 2 July 2026, showed that as of 6 May 2026, the official register contained 8,464 licences, yet only 6 of 20 randomly checked listings fully matched the registration data. The authorities are already preparing additional control measures, including mandatory property certification, regular inspections and information sharing with major online platforms in accordance with European requirements.

What will change for property buyers from 1 September 2026

From 1 September 2026, new rules governing the application of the reduced VAT rate on the purchase of a first home will come into force. The main change is that the 5% VAT rate will remain in place, but the procedure for determining eligibility for the reduced rate will change. The following new concepts will now be used when assessing transactions:

1. first occupancy of the property;
2. first use of the property, determined by its actual use for 18 consecutive months.

These changes primarily affect:

1. unsold new-build properties;
2. apartments that have been temporarily rented out;
3. show apartments;
4. certain types of renovation work.

The authorities are therefore moving away from assessing only the date of construction completion towards examining the actual use of the property.

Government increases construction of affordable housing

To address the housing problem, the government is expanding affordable housing programmes through the Cyprus Land Development Corporation (CLDC). In February 2026, Interior Minister Constantinos Ioannou announced that, with €28 million in funding, the organisation is implementing several projects:

1. 244 apartments will be built for sale at affordable prices;
2. 192 apartments will be designated for long-term affordable rental;
3. 135 plots of land are planned to be prepared in Nicosia, Larnaca, Limassol and Paphos.

In addition, on 9 June 2026, the foundation stone was laid for the Adonis III residential development in Pano Polemidia, which includes 29 homes. Meanwhile, the “Renovate–Rent” programme has so far produced more modest results. Of the 76 applications submitted, only 40 have been approved, with total funding amounting to €1.2 million.

The European Commission also paid particular attention to housing quality. At the end of 2023, 32.1% of Cyprus residents lived in homes affected by leaks, damp or serious structural defects. Despite improvements in recent years, this figure remains more than twice the European Union average of 15.5%.

Experts conclude that without further government investment in affordable housing construction, expansion of the long-term rental market and stronger protection for tenants, resolving Cyprus's housing problem in the coming years will be extremely difficult.