Real Estate Resilience: Analyzing Cyprus Property Trends in 2023

In 2023, the real estate market in Cyprus continued to demonstrate resilience and dynamic growth, despite the challenges of global economic uncertainty. In this article, we will explore the key trends and events that shaped the market dynamics over the past year, as well as analyze the prospects for its development in the near future.

The Cypriot economy showed strong growth in 2022 despite global challenges, but it’s expected to slow down to 2.2% in 2023, however, ongoing investment in infrastructure projects across energy, education, health, and tourism sectors, as well as support from the Recovery and Resilience Plan, are anticipated to sustain future growth opportunities.

Inflation in Cyprus sharply slowed to 3.9% in 2023 from its peak of 8.1% in 2022, largely due to stabilizing energy prices and the influence of ECB monetary policies. The trend is expected to persist, with inflation projected to decrease further to 3% in 2024, supported by falling energy costs and governmental measures.

Throughout the year, Cyprus witnessed upgrades in its sovereign ratings by Fitch Ratings (to BBB with a positive outlook) and Moody’s (by two notches to Baa2, with a stable outlook), indicating consistent enhancements in the country’s credit profile stemming from economic, fiscal, and banking reforms, alongside its demonstrated resilience in managing external shocks from the Ukraine conflict.

On April 4, 2023, Cyprus issued its first-ever €1 billion sustainable 10-year fixed-rate benchmark bond, which garnered significant demand exceeding €12 billion, a record amount for Cyprus. The bond offered a coupon of 4.125%. By December 31, 2023, the yield on the 10-year government bond of Cyprus issued in January 2022 was at 3%, while the sustainable bond yielded 3.2%.

In 2023, there was a significant decrease of approximately 14% in the issuance of new mortgage loans due to cautious lending policies by banks and decreased demand from households resulting from interest rate hikes. However, loan restructurings surged during the same period, soaring to €925 million compared to just €108 million in 2022.

In 2023, the total value of real estate transactions in Cyprus remained at a record high of €5.5 billion, consistent with the levels seen in 2022.

Throughout the year, Cyprus recorded a total of 24,200 real estate transactions, slightly surpassing the record-high volume seen in 2022 (23,600).

During the year, Cyprus experienced significant growth in land transactions, particularly residential land plots, which helped offset the slight decrease in the total value of apartment transactions. Land transactions reached €1.2 billion, marking an 8% year-on-year increase. These transactions accounted for 23% of the total value of real estate transactions and 35% of the total number of transactions.

In 2023, the acquisition of properties by foreigners in Cyprus increased by 16%, with a total of 6,900 properties purchased compared to 5,928 in 2022. The rise in foreign activity is linked to the ongoing relocation of foreign companies and their staff to the island, albeit at a slower pace than the previous year. Limassol and Paphos accounted for the majority of foreign transactions at 34% each, followed by Larnaca at 21%.

In 2023, there was a notable decline of 26% in the high-end residential property segment, as evidenced by a decrease in transactions of single residential properties priced at €1.5 million or more. A total of 164 transactions were recorded in this segment, amounting to a total value of €440 million. This represents a significant decrease compared to the peak activity observed in 2017-2018, with the segment now halved in size and returning to levels seen during the Covid-19 period.

Following a 7% growth in residential property prices in 2022, fueled by the domestic housing sector and escalating construction costs, index prices continued their upward trajectory in 2023. In Q3 2023, the latest available data shows an 8% year-on-year increase and a 6% rise compared to Q4 2022.

Throughout the year, the rate of growth in construction material prices slowed to a 3% annual increase, compared to the substantial 17% rise in 2022. Despite a 7% decline in new building permits during the first 10 months of 2023 (totaling 5,906 permits), their value increased by 17% annually, primarily due to larger-scale infrastructure projects in the private sector. The latest European Commission report (Autumn 2023) anticipates a slowdown in residential construction activity in the upcoming years, following the sector’s robust expansion in recent times, alongside a sustained increase in interest rates.

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