Global headwinds have failed to fully chip away investor confidence in Cyprus’ construction and real estate market. As in other countries, the sector could not escape the Covid-19 pandemic, and both the number of transactions and the volume of investment dropped in 2020 compared to previous years. Travel restrictions kept international buyers away, which significantly impacted the country’s traditionally strong second home market.

But there is some evidence that some segments are more resilient than others, which could direct the sector onto a more sustainable footing and reduce the industry’s traditionally strong reliance on foreign property investors. The need to diversify and paying greater attention to the domestic market are seen as ways to sustain activity levels in the sector. While upmarket properties will remain an important element of the island’s real estate strategy, the sector is transitioning to a more holistic vision that also encompasses modern but more affordable units for Cyprus’ increasingly international workforce, eco-friendly and energy-efficient housing as well as building reuse as an alternative to greenfield development.

From Stagnation to Record Growth

Real estate and construction have long been key economic contributors to Cyprus’ economy. In 2020, the sector contributed 17% to the country’s Gross Value Added, down just one per cent from 2019. Until Covid-19 struck, Cyprus’ real estate market was performing exceptionally well both in terms of demand and supply. Cyprus has one of the highest home ownership rates in Europe and also has a longstanding market for second homes and holiday villas. In particular, the residential market saw a big leap forward in recent years after a period of stagnation. Demand began to rise in 2014 when property sales first picked up following the 2010 peak of the European sovereign debt crisis. In 2019, annual property sales were the highest on record since 2008 with sales rising in all districts. The fast expansion encouraged the sector to significantly upgrade its offering and realise many innovative projects to cater for the needs of global companies setting up on the island and international high-net-worth buyers. Top developers such as Cybarco, Cyfield and Pafilia all left their mark on Cyprus, introducing high-rise apartment towers and top-notch office buildings.

Drop in Volume and Value 

2020 marked a turning point for the construction and real estate industry in Cyprus. Sales and construction grounded to a standstill for several months as the country cycled through different lockdown periods, and many projects are now experiencing delays and set-backs as a result. In 2020, there were 14,000 property transactions on the island, a 19% drop on the year before. The total transaction value decreased from €4.4 billion in 2019 to €3 billion in 2020, representing a 32% decrease, indicating that sold properties were on average of a lower value. The drop in both volume and value can be largely attributed to reduced activity levels from foreign buyers. The general insecurity and uncertainty in the global market due to the pandemic has decreased the appetite of investors to invest in foreign markets. Reduced market activity is also reflected in the number of sale contract recorded during 2020, which reached close to 8,000, representing a 23% drop compared to 2019. Cyprus’ capital, Nicosia, was the only district that recorded a slight increase, at 3%, during 2020. All other districts experienced double-digit drops in sales in 2020, according to the Department of Lands and Surveys. By 2021 however, Nicosia’s sales jumped to a 37% increase in the first nine months, compared to the same period last year.

Reduced Foreign Investor Appetite 

In the international buyer segment, Cyprus’s real estate and construction sector faced the twin crises of Covid-19 and the termination of the Cyprus Investment Programme (CIP), which allowed foreigners to acquire Cypriot citizenship and had property sales at its core. Amid widespread lockdowns and travel restrictions, foreign investor demand dropped significantly. Sales to international investors decreased by 33% in 2020 compared to 2019, with just 3,000 properties acquired by foreigners (4,480 in 2019).

While there was an increase in sales during the month of October 2020, after the Government announced the termination of the CIP as of 1^st November, which resulted in a number of ‘last-minute’ transactions, the upmarket segment was hit especially hard. According to a study by PwC Cyprus, transactions of residential properties valued more than €1.5 million plummeted by 45% compared to 2019. It is still too early to say when and how this segment will recover. The events of 2020 have certainly shaken some of the foundational aspects of Cyprus’ luxury property market and the effects of it could be felt well beyond the pandemic. Nonetheless, property sales to EU nationals were not dented. By October 2021, sales to the European market increased 68% compared to the same period in the previous year.

Offices and Warehouses

Before the pandemic, Cyprus’ office space segment was also thriving, and the island now has around 260,000 square metres of office space, including recently finished projects such as 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. Demand for offices held up relatively well in 2020, with new building permits for offices recording a 54% increase compared to 2019. Cyprus is increasingly positioning itself as a hub for technology and fintech, and companies looking to relocate are driving much of the current demand in Nicosia, the country’s capital. Logistics, warehouses and industrial operations have also benefited due to the massive increase in e-commerce during the pandemic, whereas fewer permits for hotels and leisure facilities were issued.

Local Buyer Demand 

Domestic demand held up better than that from abroad, with buyers particularly favouring properties with a lower price point. Some 4,600 properties in the price range between €100,000 and €300,000 were transacted in 2020. Sales to the domestic market were also encouraged by Government’s decision to temporarily subsidise interest rates on new loans for owner-occupied housing. By September 2021, domestic sales accounted for 63% of the market, marking  41% increase compared to 2019.

The re-emergence of the domestic market is a positive development for Cyprus’ property sector. The Covid-19 pandemic has certainly heightened the relevance of home ownership. It has also created demand for comfortable living spaces, with larger homes offering outdoor space appearing more favourable. There is also the expectation that a significant proportion of office workers will be allowed to continue working from home beyond the pandemic, which increases the attraction of moving away from the centres. To encourage in particular young couples to settle in rural areas and disadvantaged communities, Cyprus’ Government introduced a new set of cash incentives at the beginning of 2021.

Signature Projects

In recent years, Cyprus’ construction industry was in full swing, with many large-scale developments ensuring a steady stream of new work and upgrading the island’s built-environment, especially in Limassol, Cyprus’ second-largest city. The construction of the Limassol Marina, completed in 2013, was one of the first re-development projects that kickstarted the transformation of Cyprus’ real estate sector. It was followed by the construction of several luxury high-rise apartment and office buildings, including Cybarco’s Oval project, the tallest office building in Limassol at 16 floors or 75 metres. Several other luxury projects are currently under construction, including Trilogy and Blue Marina.

Investment in tourism and lifestyle infrastructure is also taking place in other parts of the island, with the €220 million Ayia Napa project featuring a skyscraper and a yacht marina for 600 vessels scheduled for completion in 2023. Meanwhile, the country’s capital, Nicosia, has experienced its own high-rise building-boom, with the Nicosia 360 currently being the tallest finished building in the city. While there is a long list of other projects, either planned or already under construction, most of them are faced with Covid-19-related delays. A prominent example is the €550 million City of Dreams Mediterranean Casino Resort, which was set to open in 2021 but had to push back its opening date to 2022 due to construction delays as a result of the pandemic.

A positive observation is that the number of new building permits issued in 2020 only dropped by 3% compared to 2019, although the new projects were on average of smaller scale, indicating that companies revisited their strategies and started to adjust their business model. The general expectation though is that the industry will master the current challenges. Meanwhile, investors are 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 a new 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.

Diversifying the Product Range

While the coronavirus pandemic has had an impact on every industry, for construction and real estate it could be looked back on as a watershed moment. The resilience of the domestic market is a positive indicator, and it also represents one of the sector’s biggest investment opportunities. The building of homes for first-time buyers and the repurposing of vacant units into more affordable solutions are just two suggestions that are currently being floated in industry circles. There is also demand for senior housing and care facilities. Like many European countries, Cyprus is facing an ageing population. Downsizing and retirement living options could provide the sector with many alternative opportunities, which may equally appeal to international retirees looking for age-appropriate homes in the sun.

Sector analysts also encourage the industry to focus on composite and mixed-use developments that combine the real estate component with other facilities such as retail space, health clinics and recreational areas. These developments are sought-after by employees of foreign firms who prefer comfortable and convenient living spaces but can’t afford the high price tags of luxury apartments or villas. 

Brownfield development and urban regeneration initiatives are also full of potential; repurposing old buildings in Cyprus’ larger cities would go a long way towards ensuring they remain vibrant centres of commercial activity while preserving the country’s heritage value. At the same time, there is growing interest in sustainable buildings. Both the construction of new zero-energy buildings, as well as the retrofitting of the existing housing stock with energy-efficient technology, could provide ample work and contract opportunities to the building and construction sector in the years to come.

Future outlook

2020 was certainly a challenging year for the real estate and construction industry. However, the bright side is that the industry is ready to evolve. Many of Cyprus’ developers are currently rethinking their visions for the future of the island’s built-environment and some are planning to adapt projects from residential to office or hotel accommodation, which they hope will be in greater demand in the next few years.

Cyprus 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. The expectation is that the high-end market will be quieter in 2021 but it will not collapse. Wealth managers’ worldwide report that there is significant pent-up capital, and Cyprus remains a popular investment destination. Top level amenities in combination with Cyprus’ blissful climate, have placed Cyprus rightfully on top of the list of international investors wanting to buy a second home.

Meanwhile, the country’s appeal as a corporate location will ensure that demand for office space and residential units does not dry up. The island has already seen an influx of both companies and talent in response to new global economic substance rules, while most recently, it has attracted significant investment in the wake of Brexit. Cyprus’ EU membership, its thriving international business centre and strategic position between three continents remain key reasons why companies choose the island for their headquarters or regional office to service clients in the EMEA region. Progressive Cyprus has certainly transformed itself into an increasingly cosmopolitan lifestyle and business location that is supported by efficient infrastructure, which has created a strong foundation that will pay off when the market starts to move again.

For more information, contact Cyprus' investment promotion agency, Invest Cyprus.

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December 2021