Where is the Cypriot real estate market headed?

I’ve been asked this question countless times over the past three months, mostly by foreign investors trying to appreciate how rising inflation, rising interest rates and the war in Ukraine are affecting local market dynamics.

In a nutshell: things are going to be better than most people expect in terms of demand and prices, but worse in terms of amplifying income inequality and creating future imbalances (which no one seems to care).

The real estate market is split into three main groups who live parallel lives on “the rock”, still going about their daily lives without interacting with each other (as the song says, we’re like trains passing each other in the middle of night ).

The first group are locals who live in Nicosia, the majority of whom are employed by government, banks or associated companies, i.e. government and bank service providers. These employees have indexed salaries (to inflation), strong union protection, work for “inward facing companies”, i.e. their customers are locals and are risk averse .

Nicosia’s property market is the least likely to be affected by the above-mentioned external factors, although there is some reduction in investment due to rising interest rates and construction of major primary residences due rising construction costs.

The second group are foreigners (not sure if that term is more applicable), who moved to Cyprus to work in the financial services, shipping and, more recently, ICT (information and communications technology) sectors. These people are, in their majority, highly qualified/paid and mainly concentrated in Limassol. Over the past three months, thousands of people have been transferred to Cyprus by their employers, both due to tax incentives (head office and income tax), but also due to relocation from Ukraine , Russia and Belarus.

The Interior Ministry stopped providing relevant statistics after April, but until then 14,000 Ukrainians had settled on the island (no corresponding figures were announced for Russians and Belarusians). It would be logical to assume that the total number of individuals who have moved to Cyprus from these three countries since February is around 20,000 (equivalent to a 1.75% increase in the country’s population or half the city ​​of Paphos). To these must be added the Lebanese who have settled in Cyprus in the last 3-5 years (at an accelerated pace since the explosion in Beirut in August 2020) and the Israelis who have accelerated their investment activity in Larnaca (and more recently in Paphos).

Residential rental prices in Limassol are at an all-time high, with those in Larnaca and Paphos also increasing. Although this is mainly driven by the recent influx of people, some important infrastructure projects are also “on line”, for example the new university in the center of Paphos (American University of Beirut), the new road linking Paphos to Polis (ongoing), redevelopment of Larnaca Port and Marina (by Kition Ocean Holdings Ltd, an Israeli-Cypriot consortium), relocation of Larnaca petrochemical processing plants (nearly complete, with master plan announced), etc. .

There is also significant demand for Class A office space to accommodate these new businesses/demands, as well as demand for higher quality shopping and leisure experiences, private schools, etc. Next 2-3 years, mainly because the supply is “sticky” and will take some time to react to the new landscape.

The third group includes locals who live with (or without) the aforementioned strangers. They get higher salaries, either because of their skills (technical or linguistic) or because they have managed to earn their trust. These people “ride the wave”, have become experts in drinking quality gin and vacationing in Mykonos. Remember that a surfer only spends 8% of his time surfing the waves, of which 54% rowing and 28% waiting for the waves. Caution is advised, especially since life is a long-term commitment.

There are two smaller groups that are also worth mentioning.

British expats who live in Paphos and Larnacawho are now returning to the UK (to benefit from the NHS) or have given up residence to their children.

There are also thousands of Eastern Europeans (Bulgarians and Romanians) and immigrants from sub-Saharan Africa, who live in dilapidated buildings in city centers and exploited by traffickers and others. They are the “invisible people” of Cyprus.

Medium-term expectations

Let me bore you with medium-term expectations. There are dozens of major projects under construction or planned across the island, particularly in Limassol, Larnaca and Paphos (in that order). Almost all of them target high-end foreigners, especially people looking to move to Cyprus for work, as well as vacation.

These projects are getting bigger and bigger, less and less developed by locals or financed by local banks. Moreover, companies setting up shop in Cyprus do not employ as many locals, mainly due to a mismatch between the availability of “local talent” (teachers, accountants and lawyers) and what they demand (programmers, engineers, etc).

We are witnessing the development (and splitting) of two worlds, where inequalities will become even more pronounced and income mobility will decrease. Unfortunately, the Cypriot government is (still) sleepwalking and focusing on building roads and changing the tax system, rather than reforming the education and justice systems.

With the “Cypriot problem” resolved (i.e. nothing is happening), Russian companies are moving (this impact will be “felt” from the fourth quarter, as some are still trying to reorganize their operations ), and the country is not part of the EastMed gas pipeline (the latest configuration being Israel, Egypt and Greece), the extent of the dichotomy remains to be seen. We’re hopeless, but then again, gin has never been our favorite drink.

About the Author

Pavlos Loizou, CEO, FS wire

Penny D. Jackson