The positive trend in the sales of properties appears set to continue during 2023, facilitated by foreign buyers, originating from both EU and non-EU countries. At the same time there is a rising trend of sale prices and rents, driven by high demand and the increasing prices of building materials.
We need to stress that the financial environment in 2023 appears, at this time, to be affected by some important fiscal parameters.
The growth rate, (GDP), in 2023 is expected to be around 3%, a healthy increase, after a higher growth in 2022 at 5.7% coming as a reaction to the decline of 2020. Inflation is expected to improve in 2023 compared to 2022 and should be around 4% compared to 8.1% in 2022.
It is within these parameters that the construction sector has been working full steam, as beyond the private field there are a lot of state and private projects under way, with major European Recovery Funds on their way as well.
New construction developments, especially residential ones could see some decrease in demand due to sale price increases as well as increased interest rates and an expected reduced VAT sponsorship, factors which should be clearer quite soon.
Something worth pointing out and bound to act positively is the higher sales volume coming from foreign buyers. For example, this January 2023 they accounted for 54% of total sales.
It should be noted that in 2022 there was a 30% increase in real estate sales transactions (contracts deposited at the Land Registry) with Limassol at the top of the table, followed by Paphos. Of the 13,409 real estate sales transactions in 2022 (the highest number since 2008) 5,928, 44%, concern foreign buyers. This significant increase sends the message that perhaps foreign buyers will have a strong and healthy presence in 2023 as well. We should emphasise that while in 2022 50% of foreign buyers were from within the EU, last January three out of four were from outside the EU.
This upward sales trend to foreigners is according to indications expected to continue, with foreign buyers playing a leading role in the current year.
It goes without saying that this upward trend in the property sector shall also depend on whether sales prices and interest rates will increase and to what extend they will do so.
Something else almost certain to affect the course of the real estate market in 2023, are possible further sale price increases, especially those for new flats, mainly due to increases in construction costs.
Cost of materials
An even higher increase in sale prices is to be expected once the full increase in materials is incorporated into selling prices.
The various Real Estate Price Indices place this increase during the last twelve months in the region of 6% to 12% depending on the methodology used.
Even though at a slower rate, it is expected that the prices of used flats will follow the same route as new ones.
Despite sale price increases, real estate prices in Cyprus are favourable when compared to prices for similar properties in neighbouring and European countries.
Comparing prices with past years we need to stress that they are still near what they used to be in 2010, when the Price Indices were launched.
Another area of the real estate sector is that of rents. The increase in rents in 2022 was more noticeable than the increase in sales prices. This is mainly justified by increased demand from Cypriots as well as foreigners.
The facts are quite clear for everyone to consider. Students are flocking back to universities following the pandemic and there is an increasing number of highly paid foreign workers, since due to the incentives given by Cyprus (Headquartering), many foreign companies have set up a corporate base in our country.
It should be pointed out that the available volume of properties for rental purposes, especially new ones, is small. Consequently, even a small increase in demand, puts a significant upward pressure on rents.
What is expected for 2023 is that rents will stabilise at the current levels unless the flow of high-wage foreign workers continues.
Something to stress, which certainly affects both sales and rental prices, is that the volume of available old rental apartments, due to the Rent Control Law, continues to create problems such as the creation of ghettoes, their safety risks and of course their poor conditions for tenants living in them.
All the above facts are yet an additional reason to tackle the problems caused by the Rent Control law as well as legislation for commonly owned buildings.
This brief analysis leads us to consider that 2023 will present the following trends:
These estimated trends may be reversed at any moment with international economic and political conditions being unstable. Therefore, the estimates must be interpreted taking into account the possibility of a change in today’s international and domestic market conditions.
By Stathis Efstathiou
FOX Smart Estate Agency
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