Fathoming the mysteries of the Cypriot property market
SOME 70 per cent of Cypriots own the roof they live under, 25 per cent own a home in the countryside and 15 per cent own their own office.
The above numbers are taken from a real estate price index for the period January 1, 2005 to December 31, 2006, compiled by Loizos Antoniou Chartered Surveyors.
Pretty impressive figures, which suggest the desire for property is strong among islanders. Proposition: Cypriots have a soft spot for property. Myth or reality?
“100 per cent true,” says Loizos Antoniou. “As a nation, we’ve always had a keen interest in land investment. Now, though, we’ve gone overboard.”
There are number of reasons for this, he added. One is the infamous stock exchange crash, causing people to invest their money elsewhere, real estate being the most obvious and attractive alternative, offering high returns.
Incidentally, though, the bubble also had a negative effect on one aspect of the immobile market. During the heyday of the stock exchange, demand for office space by stockbrokers soared. To illustrate this, there was a waiting list of 150 at any one time. When the dream collapsed, so did the demand for offices.
A second reason for the increased appeal of real estate is the low interest rates on house loans, with a host of investment funds and schemes coming out of the woodwork.
Amid concerns that the economy could be overexposed to defaulted house loans, the Central Bank has tried to rein in commercial banks, announcing that financing towards clients would be restricted.
Until recently, borrowers for real estate could borrow up to 80 per cent of the sales price (or the bank’s valuation, whichever is the lower) with a repayment period depending on the age of the borrower, between 10-30 years.
The lending rate is 1.5-2.0 per cent above the basic rate of 4.5 per cent (as from January 1 it will be the euro rate – currently four per cent).
The Central Bank is worried that bank competition and too many deposits coming both locally and from abroad have encouraged the banks to over lend, lowering their lending criteria and reducing their profit margins.
This mainly benefited parties who could not have otherwise borrowed, but at the same time it increased the risk for non-repayment ability by the borrowers.
Now, commercial banks have been instructed to require a 40 per cent own contribution for home buyers if it is their second/holiday house and 20 per cent if it is the only/main residence.
In case of land acquisitions, be it for own occupation or developing, the own contribution should be 40 per cent. It is hoped the measure will reduce demand for housing.
But for the time being, and despite rising real estate prices, Cypriots seem undaunted.
According to the aforementioned survey, a plot of land in the centre of Nicosia goes for anywhere between £650 to £1,000 per square metre; £430 to £480 in the Acropolis suburb of the capital; £215 to £220 in Lakatamia; £135 to £160 in Latsia; and £85 to £90 in Dali.
In Limassol, again for land plots, we have £250 to £300 per square metre in the centre; £160 to £180 in Mesa Yeitonia; £200 to £250 in Yermasoyeia; and up to £1,000 on the seafront.
Antoniou again: “It’s almost a life’s goal to own your own dwelling or piece of land. It’s ingrained in the Cypriot psyche, if you will.
“It may indeed have something to do with the fact that up until a few decades ago this was an agricultural society, with farmers working their land, and it’s natural they should feel attached to it.
“And even though we are voracious buyers of property, which we see as an investment, we’re reluctant to sell. This is one of the reasons why prices are so high.
“There’s an emotional attachment to one’s house, no doubt about it. Abroad, people might sell for a 10 per cent profit after say a couple of years. Here, that’s very rare.
“Most hold on to their properties and don’t let go. Even if a Cypriot needs the money, he or she would rather borrow or cut down on expenses than abandon their home. Only in extreme circumstances, for instance if you need cash to send the kids to college, or in the event of sickness, would one sell.”
Buying property as dowries for children, for posterity as it were, is a major factor. The study by Antoniou Surveyors suggested up to 15 per cent of real estate purchases are planned with dowries in mind.
“It’s almost as if it’s a ‘shame’ to sell off your house in Cyprus. Besides, if you do, the wife will probably divorce you,” joked Antoniou.
Staying with the dowry system, which some might find antiquated, sociologist Nicos Peristianis of the University of Nicosia said it played a big part in Cypriot life, whether we cared to admit it or not.
Peristianis cited a survey on social attitudes, where people were asked on their views about the dowry.
Some 80 per cent said they were ‘against’ it. But when the same respondents were asked whether it was a good idea to invest in land for one’s offspring, around 85 per cent said yes.
“It’s funny. It goes to show that, on the one hand, the dowry system is frowned upon as a non-modern concept, yet in practice it is quite widespread,” Peristianis told the Mail.
“There seems to be a strong cultural value to owning a place you can call your own. Other than affording a sense of security, there’s also the perception that it imparts respectability… that you are ‘somebody’, so to speak.”
That property is important to Cypriots is attested to by the fact that parents spend a lifetime saving up to buy a house for their children, he added.
“It’s an investment for the future, for hard times. You feel that you’re setting up your children so they won’t have anything to worry about,” Peristianis said.
Economic analyst Dr Stelios Platis believes more rational motives are behind Cypriots’ apparent obsession with real estate.
“The returns are healthy so its makes good business sense. Traditionally, land and homes have been the only real investment, and this really took off when the stock exchange bombed.”
Demand for real estate has remained consistently high despite the prices, which between October 2006 and October 2007 went up by a ballpark figure of 17 per cent.
The anticipation of VAT on land purchases as of next year is another force driving demand upwards.
“A lot of people heard about this and rushed out to buy, which in turn caused a further upsurge in prices.
According to Platis, real estate and the construction sector currently account for a staggering one-fifth of the economy.
“It has surpassed tourism (17 per cent), for so long the mainstay.”
Could it be said that real estate was powering the Cypriot economy?
“Absolutely,” said Platis.
“If you posit that the economy is growing at a rate of four per cent per annum, and that the booming real estate accounts for 20 per cent of the economy, then the conclusion is inescapable.
“Cement sales have been rising 10 per cent year on year, the demand for building permits also by 10 per cent.
But significantly, the real estate market has attracted foreign money. In fact, holiday home-buying by foreigners has become the only real source of attracting foreign investments.
“As high as 20 per cent of immobile property on the island is owned by foreigners. And while it may not be sound policy to put all your eggs in one basket, it does show how important real estate has become.”
