Forced home auctions are set to resume in Cyprus next month after having been put on ice as part of government measures aimed at protecting households from fallout from the pandemic and the economic impact arising from Russia’s invasion of Ukraine.
The measure, which has been heavily criticized by bank officials for protecting strategic defaulters, affects primary residencies worth up to 350,000 euros and real estate assets owned by businesses with turnover of less than 750,000 euros. The freeze had been voted in by lawmakers in the lead up to the country’s presidential elections to be held February 5.
As time runs out for those who defaulted on mortgage finance, the Cypriot Interior Ministry has published a list of 327 properties that are due to go under the hammer in coming weeks in Nicosia. Larnaca, Paphos, Limassol and Famagusta.
In Limassol, the list includes an 85 sq/m second floor apartment in Aghios Ioannis (starting price of 117,000 euros), a third floor 109 sq/m apartment in Aghia Triada (starting price 135,000 euros) and a double storey home in Amiantos (starting price 152,500 euros).
With supply levels in the country’s real estate remaining low, an increasing number of Cypriots have been turning to online sales in search of their dream home.
The European Commission pointed out in a recent report that the number of forced home auctions being held online by banks in Cyprus is seen picking up as buyers in the island-state become more familiar with platforms like Bank of Cyprus’ REMU site,
The auction freeze may have put the block on main residencies from being confiscated and sold but foreclosures on other properties have been continuing, and in fact, increasing.
Data from the Cyprus Asset Management Company (KEDIPES) shows that in the first nine months of 2022 1,803 properties went auctioned, versus 1,239 in 2021 and 614 in 2020.
Price hikes highest in Europe
On the price front, real estate assets in Cyprus are showing the highest rate of increase in the euro area on the back of soaring construction costs.
Government policies, however, are also supporting the increase in home values.
In a recent report, the Cypriot central bank points out that government subsidies for the energy upgrading of homes, as well as other renovation works, are fuelling demand for houses.
These factors have combined to create a market that is still red hot at a time where markets across Europe are cooling.
Figures from Eurostat show that housing prices jumped in Cyprus for the third quarter of the year by 5.8% quarter-on-quarter, the highest increase in the euro area, as opposed to an increase of 1% for the 20-country region.
Furthermore, construction costs are playing a key role in distorting prices. In the third quarter of the year, new building prices jumped by more than 7%, versus gains of just 0.7% for older premises.
Meanwhile, rising interest rates and uncertainty from the Ukraine war are pushing European properties lower as prices in countries, such as Denmark and Sweden, dropped by 3.1-3.8%.
Cyprus home prices seen climbing in 2023
The positive momentum in Cyprus is seen carrying over in 2023.
Experts see residential prices as showing further, albeit marginal, increases this year as the number of transactions being done also holds up.
Marinos Kineyiroy, president of the Council for Registration of Real Estate
Agents, said that the market is showing resilience to economic headwinds.
“The real estate sector has proved resilient, continuing to grow and strengthen, something which is reflected in the comparative sales figures, which the council now receives on a quarterly basis from the Land Registry, before processing them for publication,” he said in comments published in Cyprus Mail.
Kineyirou said that in the third quarter of 2022, a total of 5,566 transactions worth 1.65 billion euros were recorded in the island-state, compared to 1.2 billion euros in the second quarter and 1.3 billion euros in the first quarter of 2022.
The war in Ukraine may have pushed input costs up, but on the other hand, the conflict is adding to demand for real estate in Cyprus.
According to the Cyprus central bank, state “incentives in the context of international headquartering are facilitating the attracting of foreign professionals and their families to Cyprus.”
“Also, the war in Ukraine may create demand in the real estate market from businessmen and investors from Russia and Ukraine, who are looking for
alternative headquarters abroad, choosing Cyprus due to the favorable investment environment, the aforementioned tax facilities and the existing trade relations with two countries,” the central bank added.
Locals squeezed out by foreign buyers?
The demand from foreign buyers is not being welcomed by everyone though.
Some market participants see it pushing prices out of the reach of locals who are struggling with rising borrowing costs and falling disposable incomes.
Michalis Zavos, CEO of the D. Zavos Group, told StockWatch, that he sees two trends emerging this year.
"Unfortunately, in the Cypriot market, the number of Cypriots who have the opportunity to buy a house or apartment is decreasing due to higher interest rates that make financing unprofitable. On the other hand, the foreign market is still possible because foreigners, in addition to coming to Cyprus to do business within the framework of the tax incentives provided by the government, are also investing in the real estate sector due to the high yield that real estate still has in Cyprus in relation to their country where prices no longer have much room for increases and therefore profits," he said.
"Consequently the market in 2023 will move at two speeds. There are the Cypriots who are unable to buy and the foreigners who come to Cyprus to invest in properties which have a high annual return of 6% to 8%. For example, a property in the range of €250,000 to €300,000 is rented at between 1,700 to 2,000 euros per month," Zavos added.
Limassol to shine
In a regional breakdown, property in the city of Limassol, the second largest in Cyprus, is seen as being the best performer in 2023.
Chartered surveyor Antonis Loizou said that he sees prices in Limassol as maintaining their upward trend with gains of around 5%, with price hikes in Nicosia being more moderate at some 3% and at 1-2% in Larnaca.
“Thus, 2023 will remain busy, particularly in urban areas,” he said.