The last few years have been the start of a boom time for the Cyprus construction and real estate sector with multiple high-end residential and commercial developments under construction and growing property sales to foreign buyers. The 2020 pandemic has undoubtedly had a big impact, but the industry is ready to adapt with hopes this will be a temporary setback for the sector.
With new high-rise and luxury developments springing up in city centres and along the coast, and large-scale projects worth around €8 billion seeking investors, the Cyprus construction and real estate market has been on an upward trajectory over the last couple of years. New residential and commercial properties, an increasing demand for top-tier office space and sales driven by foreign buyers have boosted the sector and Cyprus’ cosmopolitan appeal both as a second-home location and headquartering destination for multinational companies. The island has long been a firm favourite for property hunters worldwide thanks to its ideal Mediterranean climate, high quality of life and one of the lowest crime rates in Europe. Other key factors are its EU member status, its thriving international business centre and strategic position between three continents, which have been appealing aspects for companies looking for a location to set up a regional base to service their clients in the EMEA region.
Cyprus has steadily been laying the foundations to further develop its real estate sector and showed strong market performance until the end of 2019, but like in many other countries the global coronavirus outbreak and subsequent national lockdowns have struck a severe blow to the industry. Sales and construction ground to a standstill for several months and many projects are experiencing delays and set-backs despite the local lockdown measures having been lifted. The general insecurity and uncertainty in the global market due to the pandemic has decreased the appetite of investors to invest in foreign markets and industry experts forecast that the sector will not see signs of a rebound until 2021 – which may also result in price reductions across the market spectrum.
Upward Swing in 2019
Developments and figures from 2019 underline the fact that Cyprus remains a desirable investment. The real estate market has constantly been developing and introducing more innovative projects that are upgrading Cyprus’ offering to global investors and house hunters. 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, and in 2019 annual property sales were the highest on record since 2008 with sales rising in all districts.
Most notably, there was increased demand for grade A offices at prime locations in city centres, apartment units within close proximity to employment hubs, and housing units in specific suburbs, which has pushed the industry to diversify. The residential market has seen a big leap forward from years of stagnancy following the global financial crisis with a substantial number of large residential complexes currently under construction in all major cities by top developers such as Cybarco, Cyfield and Pafilia, adding to the supply of new luxury residential space.
In the first half of 2019, investment activity levels were high. Total transaction value in the real estate sector reached €2.5 billion representing an increase of 25% compared to H1 2018, while construction activity expanded with the total value of building permits doubling. This significant boost was fuelled by foreign capital flowing into the residential property sector. Although there was a sharp 35% decrease in Q3, the number of sales contracts dropped only by 3%. Interest from foreigners, and predominantly from non-EU buyers, continued to be the key driving force in the market, representing approximately 45% of total transaction value during H1 2019. The high-end residential property segment continued to be critical during the first half of the year, with total transaction value of properties with a price tag of over €1.5 million increasing by 46% compared to H1 2018.
Slowdown in 2020
In the first four months of 2020, 45% 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 – proving there continues to be global interest in Cyprus. However, as expected, there has been a reduction in the foreign buyer interest due to the flight and travel restrictions to Cyprus. Following the coronavirus outbreak, the trends in the local real estate market are similar to global ones. Commercial property and in particular hotels and retail have been hit hard, as have offices due to the increase in working from home. Residential units and plots of land, on the other hand, appear to be more resilient to the effects of the pandemic.
In the first seven months of 2020, property sales were down by 37% compared to the same period in 2019, with sales falling in all districts, according to official figures from the Department of Lands and Surveys. However, considering there was an 80% fall in April, 71% in May, 10% in June, and only 8% in July compared to July 2019, the trajectory of the figures is encouraging given the on-going Covid-19 situation.
Demand for Office and Commercial Space
Following the success of the Oval project, there has been much action in the office space segment, with an important change happening as many companies are now increasingly interested in downtown locations for business. With the completion of the office development schemes currently under construction, Cyprus should reach a staggering 260,000 square metres of office space in its market by the end of 2020. Among the major office projects that are planned to be delivered on the market in Nicosia are the signature lifestyle commercial development Nicosia City Centre (NCC), the Capital Gate and the Asteroid Tower, as well as upcoming projects such as the Cymiva Office Tower.
The industrial and land sector is also set to experience expansion in the future. In 2019, more than 10,000 square metres of modern industrial and logistics facilities have been completed, with the current total supply in Cyprus of over 340,000 square metres.
The retail sector is also seeing a revival with significant investments and 2020 will bring new shopping destinations such as the Neo Plaza in Nicosia and the Metropolis Centre in Larnaca. Once these facilities are completed, Cyprus will have 450,000 square metres of modern retail space, which will facilitate the entry of many new brands to the market.
Tourism Real Estate
With tourism one of the key economic drivers of Cyprus, there is no doubt that hotels and tourism infrastructure continue to be a very promising market and play a vital role in the sector – albeit the current challenges tourism is facing due to Covid-19. In this segment, the additions of new Radisson hotels and a Sofitel, as well as the soon-to-be-completed Ayia Napa Marina will strengthen market. The €220 million Ayia Napa project features twin skyscrapers and a yacht marina for 600 vessels. Backed by Egyptian business magnate Naguib Sawiris, the project is set to transform the status and interest in the Ayia Napa region. Following the success of Limassol Marina, marina projects are redefining luxury and the scope of real estate in Cyprus and plans for new marinas in Larnaca, Paralimni and Paphos are also in the pipeline. The tender for Larnaca Marina received approval in August 2020 and is expected to attract €1.2 billion in construction and real estate development.
Investors are now keeping a keen eye on Larnaca, as it is a city expected to flourish on par with Limassol in the near future. The coastal city, home to one of Cyprus’ two international airports, is already seeing its share of new high-rises and hotels springing up. The city is revealing plenty of investment opportunities with its marina set to be completed in the next few years and the increasing demand for real estate is supporting the industry to diversify and develop more apartments, houses and office space.
A serious game changer in Cyprus’ tourism product will be the island’s first-ever and Europe’s largest 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 500 rooms, 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.
The number of foreign investors closing multimillion-euro deals on new projects and acquisitions of existing assets such as five-star hotels, malls and luxury marinas is evidence of the appeal of tourism-related real estate. In this area, the country’s investment promotion agency Invest Cyprus has also set up a dedicated and specialised unit, TourInvest, to promote investment opportunities in the tourism and hospitality sector. The unit focuses on attracting multimillion investment into large-scale infrastructure projects, that exist in diversified thematic areas, such as nautical tourism, cultural tourism, sports, conference, health and wellness, as well as rural tourism in cooperation with the Deputy Ministry of Tourism and other stakeholders. TourInvest acts as the first point of contact to international investors, and provides valid and useful information on projects of their interest.
No country has come out unscathed by the coronavirus outbreak, including Cyprus, and it is still difficult to assess the long-term impact it may have on the real estate and construction sector. For the last few years, the industry in Cyprus has gone full steam ahead but a new reality has emerged since the pandemic and insecurity in the global economy.
All sectors of the real estate market came to a temporary standstill with a multitude of projects that are unfinished and many transactions already agreed in principle or even midway through were frozen or postponed. Many developers had already been scaling down activity during 2019, but others who got into the development of residences late, and particularly in multi-unit towers, have a large stock of unsold units. Though the pandemic brought construction to a halt for several months, work quickly picked up where it left off. Construction sites were amongst some of the last to close when lockdown measures were announced but the first to reopen, highlighting the importance of the sector to the economy.
To adapt to this new reality some developers are now planning to change use from residential to office or hotel accommodation, which they hope will be in greater demand when the market starts to move again. Industry experts say the prominent marina, casino and Larnaca port projects will all suffer delays in the short to medium term. These unexpected events will result in a reduction in pricing through the market, but quite how low prices will fall remains to be seen and will also depend on when the demand will start again and what additional incentives the Cyprus government may introduce.
With foreign buyers constituting such a large proportion of all transactions, the residential market is certain to take a hit, as investors will be revising their investment plans and reluctant to invest in foreign markets due to the general insecurity and problems in their home countries. This could also have an effect on FDI interest in large-scale infrastructure projects.
Demand for office space could see some changes too, as companies and organisations reconsider their plans for new offices after the lockdown forced a universal remote-working trend with many employees working from home. On the other hand, logistics, warehouses and industrial operations have benefited from this crisis due to the massive increase in e-commerce.
A key challenge, which remains a legacy problem for Cyprus and could have longstanding effects on the real estate market is the local banks’ growing property portfolios acquired through repossessions and debt-for-asset swaps to restructure the burden of non-performing loans – an unfortunate by-product 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.
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. As in all markets, 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 – 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 – though on hold temporarily due to the pandemic.
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.
Home in the Sun
Since 2001, there has been an overall expansion of the real estate market and the arrival of large global companies and private investor-residents, which have changed the image of Cyprus and its property sector. More recently the industry has seen fast expansion and made bold moves to upgrade and diversify its offering, and also to bring more 21st century innovation to its projects to build a more sustainable sector. 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, and 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. The coronavirus pandemic might delay some of these developments, but the significant investments into real estate of the past few years have certainly once again raised this sector to be a key driver of growth in Cyprus. Adaptability, diversification and sustainability will be absolutely key moving forward and to secure the future.
For more information, contact Cyprus' investment promotion agency, Invest Cyprus.
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