The Cypriot economy has experienced positive growth rates in 2016 and the expectations are that this trend will continue in 2017. Fiscal indicators are improving, the yields of the Cyprus Bonds have reduced, while the interest for investments is rebounding. Confidence in the real estate market seems to be improving. In particular, during the first quarter of 2016 the total property deeds of sale increased by 28% in comparison to the same period of 2015, whereas the interest of foreign investors in the real estate market keeps growing, since over one quarter of these transactions involve overseas residents. This is primarily due to the initiative the Cypriot Government took regarding the Cypriot Citizenship Programme.
The Republic benefited from the Economic Adjustment Programme, during which it emerged from recession, stabilised its financial sector, and consolidated its public finances. Cyprus’ economy emerged from recession in 2015, with real GDP growth reaching 1,6%. In 2015 nominal spending by households stabilised but declining consumer prices allowed households to consume more in real terms, providing a significant boost to real GDP growth. The latest data regarding the “Indicators of confidence and economic sentiment” published by the European Commission in July 2016 shows that the construction confidence indicator in Cyprus exhibited an improvement from -30,3 in December 2015 to -24,4 in July 2016.
The Cyprus real estate market can be regarded as being split into the major urban centers of Nicosia, Limassol and Larnaca which are mainly supported by local demand, whereas Paphos and Famagusta are mainly supported by foreign demand. The market is further segmented in three main sectors, residential, retail and office sectors, with the primary emphasis being upon the residential sector as the islands topography and geography appeal largely for residential utilization. The construction production index witnessed a 2,1% increase in 2015 compared to 2014. The increase is mainly attributed to an 8,1% increase in Q3 2015 and a 20,6% increase in Q4 2015 compared to Q3 2014 and Q4 2014 respectively. This has been in line with higher inflation figures experienced over the same periods. However, Q1 2015 and Q2 2015 exhibited a decrease of 17,6% and 1,5% respectively compared to the relative Q1 2014 and Q2 2014 quarters. Overall the index showed an increase of 2,1% in 2015 compared to 2014. Q1 2016 witnessed an increase of 7,6% in comparison to the respective 2015 quarter.
Total building permits from January-June 2016 amounted to 2.611. This shows an increase of 4,65% from the January-June 2015 equivalent figure. Residential building permit numbers increased by 6,25% whereas
nonresidential building permit numbers increased by 0,62% in the relevant period.
Even though building permits showed a 4,65% increase in numbers, in terms of value and area (m2) their contribution was disproportionately less. This is so as the total area (m2) fell by 0,59% and the total value also fell by 4,37%. This discrepancy is mainly attributed to nonresidential and civil engineering project permits which dropped by 12,09% and 57,30% in area but also 2,63% and 71,08% in value respectively.
According to data of the Department of Land and Surveys, Limassol has had the highest number of transactions in Cyprus in the first two quarters of 2016 representing 33,23% (1.001 transactions) of the total
transactions. Paphos, Larnaca and Nicosia follow second, third and fourth with 23,14%, 21,81% and 15,74% of the total number of transactions in the first two quarters of 2016 respectively. Famagusta, being strongly correlated to seasonal demand, especially for holiday homes, which are considered to be luxury purchases, specifically after the bail in period, has exhibited the lowest number of transactions at 6,08% (183 transactions) of the total number of transactions in the first two quarters of 2016.
Of the total volume of transactions in the first two quarters of 2016 it is noteworthy that 22,7% (685) relate to sales to foreign buyers. This is a 9,39% increase from last year’s comparative figure and this can be attributed to the fact that Cyprus has attracted foreign investors via the scheme for naturalisation of investors in Cyprus by exception.
In order to stimulate growth in the economy and, in particular, in the real estate sector, it is important to attract new investment that will finance new projects, as well as existing projects whose development has been postponed as a result of the recession. The incentives offered to investors in the property market, such as the 50% reduction in transfer fees for all sales and the 100% exemption from future capital gains tax for profits on properties, have stimulated the market.