The Central Bank outlines the situation in the real estate market, seeing positive prospects and recovery in the construction sector.
As a general report (June 2020), it is noted that the growth of the real estate market is reversed due to the pandemic, which showed signs of slowing down already before the pandemic. This development is reflected in the demand for real estate and the granting of new loans for the purchase of housing, as well as in construction activity.
According to the Central Bank, it remains questionable to what extent factors that have significantly helped the sector to recover in the past, such as demand for real estate from abroad, new domestic borrowing and the course of unemployment, will continue to fuel the market of real estate after the recovery of economic activity.
The central bank said the pandemic also had a significant impact on investment, with various real estate indicators showing that construction activity as well as real estate demand declined significantly after the pandemic. It is noted that, with the first phase of lifting restrictions on various economic activities, the construction sites reopened. Although the number of approved building permits increased by 5.6% year on year in the first two months of 2020, the effects of the pandemic are expected to affect construction activity in the medium term, as some projects are likely to be postponed. It is also possible that several potential buyers will postpone the decision to buy a property for the future due to the uncertainty in the market.
The Central Bank estimates that, overall, construction activity may recover relatively quickly due to long and long-term projects that have already begun and some of which are of foreign interest. These projects include renewable energy infrastructure, various residential, commercial and mixed development, marinas, hotel units and the casino-resort.
In the Economic report, the Central Bank states that the real estate sector in Cyprus is slowing down the upward trend recorded in previous years. The slowdown in demand for real estate began in the second half of 2019 and specifically after the application of the stricter criteria for the Cyprus Investment Program, it continued during the first months of 2020 and worsened in March and April due to the pandemic. The restrictive measures also affected the construction activity as well as the expectations of the participants in the real estate market.
The prices of residential properties until the end of 2019 show modest increases, with the exception of areas affected by specific factors, such as the coastal front of Limassol and Larnaca. However, according to preliminary unpublished data, increases in housing prices slowed further in the first quarter of 2020.
It remains questionable to what extent factors that have significantly helped the sector recover in the past, such as demand for real estate from abroad, new domestic borrowing and the course of unemployment, will continue to fuel the real estate market after the recovery. of economic activity. The contribution of the construction sector to the growth of Cyprus' GDP is slowing down. Specifically, it amounted to 1.3 and 0.8 percentage points in 2018 and 2019, respectively, while the activities related to real estate management amounted to 0.8 and 0.1 percentage points of GDP in 2018 and 2019, respectively.