Building on the success of the last few years, the Cyprus construction and real estate sector is continuing its upward trend right through 2019 and showing promise of a return to a healthy market. Property sales are booming and largely driven by foreign buyers, demand for luxury office space is increasing, and large-scale projects worth €8 billion are seeking investors worldwide.
The Cyprus construction and real estate market is currently laying solid foundations for future growth, evidence of this is the literal building boom and number of cranes across the skyline of its major cities. Glittering high-rises are being built along the coast and in city centres competing for the best views, luxury hotels are springing up, and new residential complexes with top-quality facilities are promising a care-free and cosmopolitan lifestyle on the third largest island in the Mediterranean.
Confidence in the sector has been growing steadily as the market has shown strong performance over the last years. The number of new building permits have maintained their momentum, house prices are up, high-end residential property and grade A office space is in high demand, and 2018 sales have more than doubled since the 2013 financial crisis. These developments have also been supported by the country’s rapid return to a healthy economic growth of around 4% – almost twice the EU average – and the upgrade of its sovereign rating back to investment grade.
Cyprus’ curb appeal remains strong amongst international investors and expats. Its EU member status, high quality of life and low crime coupled with its ideal Mediterranean climate and strategic location between three continents, have long attracted foreign house hunters. Its thriving international business centre and growing economy, with new prospects of world-class oil and gas business, has also spurred interest amongst the global business community seeking new headquartering locations. With the number of new developments being rolled out, buyers and investors are spoiled for choice to find their place in the sun.
Foreigners Driving Sales
The upward trend in Cyprus real estate sales has been steadily rising since 2014, when property sales first picked up following the 2010 peak of the European sovereign debt crisis. Transaction volumes have been rising in double digits in almost all regions of the island, and the strongest driver for building permits has been investment in commercial projects. 2018 saw a vigorous 6% growth in the overall property market, with industry experts predicting that the value of property will follow the same healthy pattern – albeit prices being held down somewhat by the surge of new projects being developed simultaneously and repossessed properties returning to the market. Cyprus real estate prices rose by 3.5% in the fourth quarter of 2018, and by 1.6% year-on-year, compared to 4.2% in both the euro area and the EU.
The driving force of the growth in this sector has been without a doubt foreign investors, and in particular those interested in the country’s citizenship schemes. In 2018, half of all properties sold were purchased by foreigners, with Limassol and Paphos being by far the most popular locations and the districts with the largest share of luxury residential property transactions. High-end properties sold in 2018 are estimated to have generated more than €500 million. Most of the transactions in the high-end residential segment during 2018 were in the €2 million – €3 million price band, representing 60% of total high-end residential property transactions.
In April 2019, Cyprus property sales reached its highest monthly figure recorded since September 2008, following a 61% surge according to official figures from the Department of Lands and Surveys.Sales in the first four months of 2019 rose 23% compared to the previous year. Domestic demand increased by 37%, while the overseas market rose by 9% compared to the corresponding period in 2018, with sales to EU nationals rising by 17% and sales to non-EU nationals increasing by 6%. Overall sales in Nicosia rose 35% and Famagusta by 26%, Paphos rose 33%, while Larnaca and Limassol increased by 21% and 17% respectively.
New Era for Construction
The last few years have been good to the local construction industry, signalling a new era of growth after a period of stagnation. The number of new building permits has maintained its momentum and saw a 9.1% increase in February 2019, with the total value of these permits rising by 64.7% compared to the previous year. This improved climate has been mainly driven by the country’s rapid post-crisis economic growth and increased FDI flows, the introduction of new and attractive property tax incentives, as well as increased demand from the domestic sector.
In addition, the government’s plans to give incentives to developers in the framework of its new ‘affordable housing’ scheme are an encouraging sign for the future of the sector. Increasing the building coefficient in return for developers selling or renting out flats to vulnerable citizens will strengthen the construction industry and also help maintain healthy levels in prices and rents – which have skyrocketed in some areas of Cyprus due to the new real estate boom.
However, concerns have been raised in some quarters over the surge of activity in the market, with fears of repeating past mistakes of oversupply forcing construction companies and developers to file for bankruptcy. However, industry experts maintain that today’s situation is not another bubble waiting to burst, but a new era in the sector. Another challenge, which has perhaps fuelled these concerns, are the local banks’ growing real estate portfolios acquired through repossessions and debt-for-asset swaps to restructure the burden of non-performing loans – another unfortunate legacy of the financial crisis. The question remains what effect the gradual unloading of these properties into the market will have on today’s fiercely competitive environment.
Incentives and Safeguards
Changes to the law relating to title deeds have ramped up protection and peace of mind for prospective buyers, with additional legal safeguards streamlining processes and efficiency. These types of measures have also paved the way for increasing confidence to invest in Cyprus real estate. However, prospective buyers are advised to seek independent legal advice before purchasing real estate. The island has mainly been on the radar of British buyers, due to the countries’ historical ties, strong tourist market and attractive tax treatment – particularly for expats and retirees who pay just 5% tax on pensions, an incentive that may disappear with Brexit. The Immovable Property Tax (IPT), which was significantly reduced in 2016, has been abolished, while temporary reductions in property transfer fees introduced in 2015 have been made permanent. Purchases that include VAT incur no property transfer fees, while VAT-exempt purchases incur only 50% of the previous fees. In addition to the UK and Europe, interest from investors in China, Russia, the Middle East, and beyond has also grown.
Focus on Luxury and Tourism
The seaside city of Limassol, a thriving business centre and international shipping hub, has seen the most dramatic change in the wake of the building boom. Skyscrapers of all shapes and sizes are starting to emerge along the seafront, promising to redefine the city’s skyline and rival the likes of Dubai. Branded as luxury developments, most of the buildings combine residential, commercial and much-needed high-end office space to meet the needs of new international business and expat professionals relocating to Cyprus – proving the country’s growing appeal as a headquartering location.
Marina projects are also redefining luxury and the scope of real estate in Cyprus. Following the success of Limassol Marina, another project has broken ground up the coast in Ayia Napa. The €220 million project features twin skyscrapers and a yacht marina for 600 vessels. Backed by Egyptian business magnate Naguib Sawiris, and already marketed to investors in the United Arab Emirates, the project is set to transform the status and interest in the Ayia Napa region. Plans for marinas in Larnaca, Paralimni and Paphos are also in the pipeline.
One of the most attractive investment opportunities in Cyprus continues to be tourism-related real estate and infrastructure, evidence of this is the number of foreign investors closing multimillion-euro deals in the last five years – these include both new projects and acquisitions of existing assets such as five-star hotels, malls and luxury marinas. A serious game changer in Cyprus’ tourism product will be the island’s first-ever integrated luxury casino resort. The almost €600 million casino – which is being run by the consortium of Integrated Casino Resorts Cyprus (ICRC) which includes global gaming giant Melco Resorts & Entertainment Ltd – will have extensive facilities and exceed five-star status. The resort project is Hong Kong-based Melco’s first expansion outside of Asia and will be the biggest casino of its kind in Europe. The gaming area at the casino is set to span across 7,500 square metres, over 9,600 square metres will be for convention, meeting and event spaces, and a 1,200 square metre retail area will replicate the feel of the old Nicosia city centre. The resort is expected to contribute around €700 million annually to the economy. The project will also support the local construction industry as it is expected to create around 4,000 jobs each year during the construction period. In addition, it will contribute an estimated 6,500 direct and indirect full-time positions in Cyprus when fully operational in 2021.
Investing in Cyprus
Cyprus has confidently forged ahead into the luxury market direction – a fact evident in the number of extravagant residential developments rapidly rising up along the coast and most exceeding the half million price tag. These range from apartments in architecturally unique high-rises to exclusive villas in five-star complexes, golf course and seafront developments as well as boutique townhouses. This segment of real estate and construction has significantly benefitted from the Cyprus Investment Programme, which was introduced by the government to attract more high-net-worth individuals, investors and entrepreneurs to the island.
The programme offers individuals EU citizenship with the opportunity to reside indefinitely in Cyprus if they own a permanent residence worth €500,000 and invest a minimum of €2 million in a business venture. Investment options include real estate, financial assets of Cypriot companies and/or organisations, investment in Alternative Investment Funds, and investment in the shipping sector, or a combination of these investments. If an applicant chooses to invest only in residential real estate, the purchase of another permanent residence in Cyprus is not required, provided at least one of the housing units is worth €500,000, plus VAT. New measures also require two donations of €75,000 each. One to the Cyprus Land Development Corporation to be used for affordable housing, and another to the Foundation for Research and Innovation to promote entrepreneurship in Cyprus. The scheme, which was originally launched to help kickstart the economy in 2013, has to date generated around €6.6 billion of foreign investment to Cyprus. Despite the criticism and new measures, interest is far from waning. There has been some decline in Russian applications, but Cyprus is witnessing increasing interest from investors in China and the Middle East.
Location, Location, Location
Cyprus has one of the highest home ownership rates in Europe and also has a longstanding market for second homes and holiday villas, making the economy heavily reliant on the sector. The growing appetite of foreign buyers and investors is raising confidence in the Cypriot market, which is expected to see the building frenzy continue for at least another five years. Renewed interest in large-scale projects in Cyprus has seen a rush of foreign investors looking into the acquisition of entire complexes and projects that are both in the planning stages and already under construction. Over 20 big projects valued at €8 billion are currently promoted as FDI targets that would enhance the business environment on the island. The formidable investments into real estate have certainly raised this sector to its former glory, with the success also filtering into and benefiting other economic sectors. The fact remains that Cyprus continues to be a top European destination for visitors and business, as well as a location of choice for second-home purchases.
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