Acceleration in house price increases was recorded in 2022, mainly due to increased construction costs.
4 MINUTE READ
The Cyprus Central Bank revealed in their latest Quarterly House Price Index (HPI) report that the increase in house prices accelerated significantly in 2022, primarily due to increased construction costs. Compared to 1.1% growth in the previous quarter, their HPI registered a 1.7% increase for both apartments and houses on a quarterly basis, with a 4.7% increase noted on an annual basis as opposed to 3.2% previously. Most interestingly, all districts are now showing year-on-year increases in both apartment and house prices, signifying a broad market upswing - notable in particular as this is the first time since the pandemic’s start that such an occurrence has been reported. See below the most important influencing factors of today’s Cyprus real estate market.
The acceleration in house price increases have as the main cause of increased construction costs, which reflected in the increase in the prices of both prices of both apartments and houses. Although in annual terms increases in apartment prices are higher than the annual increases in house prices than those of houses in all provinces, it is worth noting it is worth noting that house prices are now also showing an upward trend increases. For the first time since the outbreak of the pandemic in all provinces have seen year-on-year increases in the prices of both apartments and houses, indicative of the upward trend in prices across the entire spectrum of the housing market.
Demand in the real estate market in the second quarter of 2022 recorded an upward trend (both domestically and from the abroad), while there were indications of a downward supply. The war in Ukraine intensified the inflationary pressures, with a significant impact on the cost of construction, but this does not currently appear to be has had a negative impact on demand. In the medium term, the increase in the cost of borrowing due to rising interest rates, as well as the erosion of incomes due to inflationary pressures are expected to reduce demand, but without necessarily reducing prices, which in the at this stage are characterised by an upward trend due to construction costs.
The AirBnB market has been a bright light in the real estate industry during the last year, with holiday properties that have been listed helping to markedly increase their rental income. In fact, for the first time since the outbreak of the pandemic, all district rental markets are showing a year-on-year increase. It is likely due to travelers shifting from international options to domestic and local destinations, no doubt aided by more competitive pricing on short-term rentals. Furthermore, occupancy rates are now surpassing pre-pandemic levels, especially in areas that offer attractively located properties near tourist spots or city centers. All of this suggests an upward trend for those that own holiday properties and utilize AirBnB listings for increasing their rental income potential.
Cyprus has seen a surge in economic development over recent years largely due to the number of well-known forex and tech companies that have relocated their headquarters to the island. Companies based in Cyprus benefit from exceptionally low taxation and this, combined with the many other advantages of setting up in one of Europe's most picturesque regions, has naturally attracted some very big names. The increased presence of these corporate giants has undoubtedly had a knock-on effect on the local property market with an increase in demand for housing and office space! Property developers have responded to this rise in need by building more modern complexes as well as renovating existing properties to meet the demands of prospective tenants. Cyprus truly is a tax heaven which stands to benefit foreign businesses and residents alike.
In conclusion, the real estate sector is recording accelerating growth in house prices as as a result of the increase in construction costs, but also the decline in construction activity. The expected further tightening in the credit market, and the erosion of incomes due to inflation is expected to act as a brake on demand for real estate. Supportive factors are expected to the fact that real estate is considered to be as a safe haven in times of high inflationary expectations.
The real estate sector is experiencing continued growth in house prices, driven largely by escalating construction costs and a decrease in overall construction activity. Despite these positive trends, there are several external factors that could cause this rate of growth to slow. With tighter restrictions around borrowing, coupled with the effects of inflation on individual earnings, there may be a notable reduction in demand for property. However, the fact that real estate is seen as a secure investment amid times of high inflationary pressure may help to offset declines from other areas.
Move to a property hotspot in Cyprus
Popular locations in Limassol, Larnaka, Paphos, Nicosia and Famagusta
Stay up to date on the latest properties in Cyprus that match your by using our email alerts |