Sir,
I feel I must write regarding the recent remarks of Mr Averoff Neophytou concerning the cost of living in Cyprus (Sunday Mail, February 26).
While I am not a DYSY supporter, I do find that his statements hold much weight. I cannot comment on the price of real estate in Long Island, but I have just returned from a month’s business in Houston, Texas. There you can buy a three-bedroom house on its own acre lot for $60,000 (£30,000), which is about the price of a small studio apartment here in Limassol. Higher priced homes in the more affluent areas of Houston are priced at around $120,000 (£60,000), which buys you a four-bedroomed two-bathroom house on several acres (or an old two-bedroom flat in a high rise in Cyprus).
If anybody doubts this they only have to run a quick Google search to see for themselves. Texas enjoys high emplyoment, is the centre of the world’s energy business and has considerable banking and financial services.
We are a small, dirty and overdeveloped island in the Meditteranean which relies on the fast-fading good will of our tourists to survive.
The average wage in Houston is around $60,000 per annum. Average wage in Cyprus is around $17,000 per annum. You do the maths.
This example proves how far property prices have departed from logic and reality here on our little rock in the Med. It is clear that Cyprus property prices are displaying all the classic symptoms of an asset bubble.
Why do I make such a bold statement? Simple. Real incomes have not increased significantly on the island, in fact we have less disposable income than before as the cost of living has risen and will continue to rise as a result of higher energy costs in the oil and gas markets. Therefore the rise in house prices is merely fuelled by speculation and sentiment, as was the rise in stock prices during the CSE bubble of the late 90s. And as any economist worth his salt will tell you, sentiment in markets can change very quickly.
Locals simply cannot keep up with the massive rise in house prices on their incomes, so it follows naturally that they will come to a point where they simply refuse to buy, or will buy at a very high level of exposure which leaves them vulnerable to panic selling when things get tough.
It could be argued that UK buyers will continue to prop up the market, but the British real estate bubble has already burst and the recent small price falls we have recently seen will gather steam over the next few years. Few will be willing to risk purchasing a home abroad when equity on their main residence in the UK is slowly slipping downwards. Once the crash in the UK market gathers steam, Cyprus will shortly follow suit.
It is also common nowadays to hear many expatriates from the UK selling up and leaving Cyprus, a trend which is certain to continue due to competition from Romania, Bulgaria and Turkey for the retiree’s dollar.
Finally, the argument that lower interest rates will drive prices higher is also questionable. Long-term euro interest rates are clearly on the way up and it is unlikely that we will see lending rates of less than 5.5 per cent here.
Also, there is no gaurantee that low interest rates can prop up an overhyped property market indefinetly. If we study the case of Japan we will see massive house price falls over the past 15 years since the Japanese housing bubble burst in the early 90s. Interestingly, Japanese interest rates were at 0.10 per cent for several years with no upward effects on prices at all.
I would urge anyone thinking of investing in property here to do their research very very carefully. Like the stock market bubble four years ago, the property bubble in Cyprus can only go one way, and it will all end in tears.
John Ioannou, Limassol
