Cyprian Real Estate in 2020: Trends, Ups and Downs
April 26, 2021
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For Cyprus, the past year was doubly difficult: the cancellation of the "Citizenship by Investment" program, together with the pandemic, left a serious imprint on the real estate market. Demand, especially for luxury properties, has declined markedly, putting the island's economy at risk. The figures will help you understand what exactly happened in Cyprus last year and what potential property buyers can expect now.
The international company PWC has prepared an annual analytical report on the Cyprus real estate market. Despite the obvious negative effect of 2020, experts' forecasts remain as positive as possible: they expect both a return of GDP growth and a rise in demand.
The economy suffered losses
For five years in a row, Cyprus has maintained its status as one of the fastest-growing economies in Europe. Since 2015, annual GDP growth has exceeded 3% (in 2016, a record figure was recorded – plus 6.7%). However, the results of the economy in 2020 will obviously be negative.
According to preliminary estimates of the IMF, the GDP of Cyprus for 2020 decreased by 6.4%. This is the most significant collapse since the last economic crisis, from which the country recovered only in 2013. And yet this is less than the average for the European Union (-7.6%). For comparison: GDP of Spain decreased by 12.8% jn 2020, Italy – by 10.6%, Portugal - by 10.0%.
Analysts believe that the current crisis will not be prolonged. Already in 2021, according to the forecasts of the Ministry of Finance of Cyprus, GDP will grow from 3.5 to 4.5%. The pace of economic recovery will largely depend on the success of vaccination. According to the latest data, 16.6% of the population in Cyprus has been vaccinated against coronavirus, and the borders are already partially open for tourists.
The number of real estate transactions decreased
In 2020, 14,000 properties with a total value of €3 billion changed owners. The decline in the number of transactions for the year was 19%, the market volume in monetary terms decreased by 32%.
The main blow came at the beginning of the first lockdown. If in February 2020, the increase in the volume of transactions was 4% compared to the same period in 2019, then in early March there was a significant decrease caused by the introduction of restrictive measures. The worst result of the year was recorded in April: 309 objects were sold throughout the country, which is 82% lower than in the same month of 2019.
After the restrictions were lifted, demand began to grow again. The weakening of the lockdown led to the fact that from June to November, the demand for real estate held approximately at the level of 2019, even despite the consequences of the pandemic.
The winter restrictions did not lead to a serious weakening: buyers began to get used to the current situation, and sellers adapted their tools to the changed conditions, switching to remote impressions and deals. As a result, the difference between December 2019 and 2020 was only 204 objects, or €62 million.
Nicosia became the leader in the increase in the number of transactions, despite the general trend of a decline in demand in 2020
There are fewer foreigners now
For a long time, one of the main drivers of the luxury real estate sector was the passport program. Its advantages are the ability to obtain citizenship with a returnable and potentially profitable investment in real estate, the absence of requirements for permanent residence in the country and the non-mandatory tax residency. But nothing lasts forever – in November 2020, the citizenship by investment program of Cyprus was frozen.
Rumors about the cancellation of the citizenship program have circulated before, and the conditions for obtaining a passport were tightened in February 2019. As a result, until June 2019, the Cyprus real estate market experienced a large influx of foreigners: buyers were in a hurry to complete transactions before the changes came into force. This led to a twofold jump in the number of transactions – from 357 in January to 623 in May 2019.
Number of transactions with foreign buyers of real estate in Cyprus, 2019-2020
Source: Department of Lands and Surveys (DLS), PwC Analysis
The same reason explains the growth of foreign demand in October 2020. By this point, the program's freeze had been officially announced since November, which spurred foreigners to close deals as quickly as possible.
In total, in 2020, foreigners purchased 2,985 properties in Cyprus. A year earlier, foreign buyers made 4,481 transactions, which gives us an overall drop of 33%. At the same time, 61% of sales came from buyers from countries outside the European Union. The decline is due to two key reasons: closed borders and the cancellation of the citizenship program.
By the way! Cyprus resident programs continue to operate. On March 24, 2021, the government published new rules for obtaining permanent residence for investment. Now access to a permanent residence permit in Cyprus is opened by the purchase of not only residential, but also commercial real estate worth from €300,000, as well as a contribution to a local business or investment fund.
Nicosia comes forward
Most of the registered real estate transactions in 2020 were in Limassol (31% of all sales), Nicosia (26%) and Paphos (20%). However, it was Nicosia that was the only region that recorded an increase in the number of transactions compared to 2019 (+3%).
In other areas, the activity of buyers decreased: in Limassol - by 29%, in Paphos - by 41%. The decline is largely due to the fact that foreigners who are traditionally interested in the resort areas of Cyprus, could not get into the country. And in the capital, most deals are made with locals.
In the luxury real estate sector, Limassol and Paphos are still the leaders: 85% of transactions with objects from €1.5 million are concluded here.
Budget apartments are sold better than anything
The luxury residential real estate segment has suffered significantly. According to an analysis by PwC, in 2020, buyers entered into 176 transactions with objects worth from €1.5 million, which is 45% less than a year earlier (318 sales were recorded in 2019). Given that the premium segment has historically been directly linked to participants in the Citizenship by Investment program, this result is not surprising.
But the segment of budget housing from €100,000 to €300,000 has been the most resistant to the current crisis. The owners were replaced by 4.6 thousand objects in this price range, which is only 14% less than in 2019. And if not for the spring lockdown, during which the residents of Cyprus were restricted in movement around the country, and many structures did not work, the result would have been much better.
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The dynamics of residential property prices is recorded by the Central Bank of Cyprus (CBC) index. Despite the decrease in the number of transactions, sellers were in no hurry to reduce prices: quarterly fluctuations in the index did not exceed 1%.
According to the results of the third quarter of 2020, housing in Limassol and Larnaca rose by 2% year-on-year, in Nicosia – by 1%, property prices did not change in Famagusta, and in Paphos - slightly decreased by 2% compared to the third quarter of 2019.
Conclusions
The economy of Cyprus in 2020 went into negative territory, but according to forecasts, the GDP growth will resume in 2021. Recovery will largely depend on the pace of vaccination and the situation at the border.
The spring lockdown caused the most serious damage to the real estate market in Cyprus. If we exclude the data from March to May from the sample, then the results of real estate sales in 2020 would be comparable to the indicators of the pre-COVID 2019.
Foreign demand decreased by 33% over the year. Nevertheless, despite the pandemic, difficulties with crossing borders and the cancellation of the "Citizenship by Investment" program, foreign buyers made almost 3 thousand transactions.
Paphos and Limassol remained the most popular regions among buyers, but were hit hard by a decline in demand for luxury real estate. The best – selling apartments in the middle price segment-from €100,000 to €300,000.
Residential property prices have remained stable, largely due to the government's supportive measures.
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