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Cyprus Real Estate Market
May 2017
ECONOMIC OUTLOOK
1
Deloitte Limited Cyprus Real Estate Market 2
Economic Outlook
Gross Domestic Product
According to the most recent European Economic Forecast (Spring 2016) issued by the European Commission, Cyprus real GDP annual growth reached 1,6% in 2015 and 1,7% in 2016. Forecasted annual growth is expected to climb up to 2,0% in 2017 (Graph 1). Tourism and professional services remain the strongest sectors of the economy while at the same time the emerging energy sector appears to provide promising prospects for Cyprus.
Graph 1 – GDP Annual Projections
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
2012 2013 2014 2015 2016 2017
% change
Source: European Commission
Labour Market
The high level of unemployment remains an important obstacle to the economic recovery of Cyprus. While the unemployment rate decreased to 13,4% in 2016 from 15,1% in 2015, it still remains substantially higher than the pre-recession rate of 7,9% (2011). Nonetheless, the forecasted economic growth is expected to generate improvements in the local labour market with the EC’s economic forecast indicating that unemployment is expected to decrease to 12,4% in 2017.
Graph 2– Unemployment Rate Projections
7,9%
11,9%
15,9% 16,1%15,1%
13,4%12,4%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
2011 2012 2013 2014 2015 2016 2017
Source: European Commission
TRANSACTIONS
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Deloitte Limited Cyprus Real Estate Market 4
Transactions
Following the market collapse in 2013, property sales inCyprus continue to record growth for the third consecutiveyear, while foreign investment in real estate is also pickingup. According to the statistics issued by the Department ofLands & Surveys (DLS), the number of registeredcontracts of sale nationally has increased by 42,5%between 2015 and 2016.
In terms of regional distribution of transactions that occurred during the first eight months of 2016, Limassol is leading the way followed by Paphos and Larnaca as shown on Graph 5.
Source: Department of Lands and Surveys
Graph 5 – Contracts of Sale per Region (2016)
640 (15,7%)
251 (6,1%)
861 (21,1%)
1350 (33,0%)
986 (24,1%)
0 200 400 600 800 1000 1200 1400 1600
Nicosia
Famagusta
Larnaca
Limassol
Paphos16953
21245
14667
81708598
70186269
376745274952
7063
0
5.000
10.000
15.000
20.000
25.000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Contract of Sales (2008-2016)
0
500
1000
1500
2000
2500
3000
2010 2011 2012 2013 2014 2015 2016
Contract of Sales-Pancyprian Regional (2010-
2016)
Nicosia Limassol Larnaca
Famagusta Paphos
Deloitte Limited Cyprus Real Estate Market 5
Transactions
The total number of sale contracts deposited at the local Land Registry offices in favour of overseas buyers represents 26,4% (1193 sales) of the total sales completed in 2014. In 2015, the proportion of the total number of contract of sales completed by overseas buyers reached 27,2% (1349 sales), while the percentage of sales to overseas buyers in 2016 reached 25,7% (1813 sales).
The citizenship and permanent residency schemes as well as the reduction in transfer fees have played a major role in attracting foreign investors to the real estate of Cyprus.
Source: Department of Lands and Surveys
26,4%
73,6%
Sales to Domestic vs Overseas
Buyers (2014)
OverseasBuyersDomestic
Buyers
27,2%
72,8%
Sales to Domestic vs Overseas Buyers
(2015)
Overseas
BuyersDomestic
Buyers
25,7%
74,3%
Sales to Domestic vs Overseas Buyers
(2016)
Overseas
BuyersDomestic
Buyers
BUILDING PERMITS
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Deloitte Limited Cyprus Real Estate Market 7
Building Permits
The construction sector of Cyprus has contracted severelysince the peak of the market in 2008. More particularly,according to the statistics issued by the Cyprus StatisticalAuthority (CYSTAT) the contribution of the sector to theeconomy was limited to 2% in the first quarter of 2015 asopposed to nearly 11% during 2008. The weakening inconstruction activity is mainly attributed to the prolongedand severe recession, the drop in demand and the lack ofliquidity. All these factors, along with the oversupplyobserved in some regions, are acting as barriers to therecovery of the sector.
Nonetheless, the production in construction index whichmonitors short-term developments in construction activity,has recorded positive growth in building constructionespecially in the number, area and value of building permitsas shown on the charts below.
Source: Cyprus Statistical Authority
8896 8950 8777
7506 7172
53414933 5014 5354
Number of Building Permits Issued Pancyprian (2008-2016) 3.689,1
3.136,52.917,9
2.253,0
1.499,9
1.044,8784,9 881,1
1.047,0
thousand s
q.
m.
Area of Building Permits Issued Pancyprian (2008-2016
2.904,6 2.815,8
2.639,5
2.065,1
1.632,3
1.141,0
859,51.071,4
1.157,5
€m
illion
Value of Building Permits Issued Pancyprian (2008-2016)
Deloitte Limited Cyprus Real Estate Market 8
Building Permits
In terms of regional distribution, Nicosia represented the highest proportion of the total building permits 39% oftotal building permits issued during 2016, followed by Limassol (27%), Paphos (14%), Larnaca (15%) andFamagusta (5%). This is an indication of where development activity will focus in the short-term when thebuilding permits will be translated into construction projects.
As far as the type of permits issued are concerned, throughout the last three years, it is obvious that the biggestproportion of permits with approximately 68% relate to Residential Buildings, followed by approximately 20% forNon-Residential (commercial) buildings. A proportion of 4% relate to civil engineer projects, around 7% for plotdivisions and finally around 2% relate to road constructions.
Source: Cyprus Statistical Authority
1723
1889
2067
1322 1262
1444
678 698791
971899
772
230 266 280
0
500
1000
1500
2000
2500
2014 2015 2016
Building Permits per Region (2014-2016)
Nicosia Limassol Larnaca Paphos Famagusta
68% 68% 69%
20% 20% 19%
4% 4% 4%6% 7% 7%
1% 2% 2%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2014 2015 2016
Building Permits per Type (2014-2016)
Residential Buildings Non-Residential Buildings
Civil Engineer Projects Plot Divisions
Road Construction
MARKET PERFORMANCE BASED ON PROPERTY PRICE INDEX
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Deloitte Limited Cyprus Real Estate Market 10
Market Performance
Capital and rental values of local real estate have been on a negative track since 2009 in line with the negative economic indicators and the decline in demand. Nonetheless, the first signs of market stabilisation appeared in 2015 with continuing deceleration in the rate of decrease of property prices as demonstrated by the relevant property price indicators.
Residential Property Price Index (RPPI)
As demonstrated by the residential property price index which is issued quarterly by the CBC, residential property prices in Cyprus have been experiencing decline in prices since mid-2008.
Source: Central Bank of Cyprus
0,0
20,0
40,0
60,0
80,0
100,0
120,0
Pancyprian Residential Property Price Index (2008-2016 Q3)
Apartments Houses RPPI
0,0
20,0
40,0
60,0
80,0
100,0
120,0
2008 2009 2010 2011 2012 2013 2014 2015 2016
Q1-Q3
Regional Residential Property Price Index (2008-2016 Q3)
Nicosia Limassol Larnaca Paphos Ammochostos
Deloitte Limited Cyprus Real Estate Market 11
Market Performance
RICS Property Price Index (RPPI)
The Cyprus Property Price Index which is issued on aquarterly basis by the RICS, provides an insight on marketcapital and rental values and appraisal-based initial yieldsfor the main property sectors across the urban centres ofCyprus. The 2015Q4 publication recorded signs of stabilityin line with the overall improvement of the economy.Capital prices decreased, nonetheless at a slower rate thanprevious years while for some sectors rental valuesrecorded marginal increase. Yields remained relativelystable and at relatively low levels, indicating that there isroom for further capital re-adjustment.
Residential (Apartment & House)
Source: RICS Cyprus (Cyprus Property Price Index)
900
1.100
1.300
1.500
1.700
2012 Q
1
2012 Q
2
2012 Q
3
2012 Q
4
2013 Q
1
2013 Q
2
2013 Q
3
2013 Q
4
2014 Q
1
2014 Q
2
2014 Q
3
2014 Q
4
2015 Q
1
2015 Q
2
2015 Q
3
2015 Q
4
2016 Q
1
2016 Q
2
2016 Q
3
Average Apartment Price per SQM (2012-
2016 Q3)
Nicosia Limassol LarnacaPaphos Famagusta Cyprus
Average House Price per SQM (2012-2016 Q3
1,9%
2,5%
2,1%1,8% 1,7% 2,0%
4,3%4,2%
3,6%
3,4%
4,1%
3,9%
Appraisal Based Initial Yields (2016 Q3)
Deloitte Limited Cyprus Real Estate Market 12
0,00
1,00
2,00
3,00
4,00
5,00
6,00
7,00
Apartments Average Monthly Rental Price per
SQM (2012-2016 Q3)
2012 Q4 2013 Q4 2014 Q4 2015 Q4 2016 Q3
0,00
0,50
1,00
1,50
2,00
2,50
3,00
3,50
4,00
Houses Average Monthly Rental Price per SQM
(2012-2016 Q3)
2012 Q4 2013 Q4 2014 Q4 2015 Q4 2016 Q3
Source: RICS Cyprus (Cyprus Property Price Index)
Deloitte Limited Cyprus Real Estate Market 13
Market Performance
Offices
Office prices in Cyprus decreased by 21,3% between 2012Q1 and 2016 Q3 as a result of the impact of the economicrecession on business activity. The recent years sawnumerous companies downsizing or even going out ofbusiness, causing the demand for office space andsubsequently prices and rents to drop significantly before thesigns of marginal increases in the market values wererecorded in 2015 Q4.
Regionally, Nicosia experienced the highest drop in officeprices between 2012 Q1 and 2016 Q3, while the smallestdecrease was recorded in Larnaca.
Source: RICS Cyprus (Cyprus Property Price Index)
Average Office Price per SQM (2012-2016 Q3)
0,00
2,00
4,00
6,00
8,00
10,00
12,00
14,00
16,00
Average Monthly Office Rental Price per SQM
(2012-2016 Q3)
2012 Q4 2013 Q4 2014 Q4 2015 Q4 2016 Q3
5,0% 4,9%4,3%
3,7% 3,8%
4,5%
0,0%
1,0%
2,0%
3,0%
4,0%
5,0%
6,0%
Appraisal Based Initial Yield (2016 Q3)
Deloitte Limited Cyprus Real Estate Market 14
Market Performance
Retail
The performance of the retail property sector is directly related to household spending which is in turn affected by the state of the economy. It is therefore not surprising that the impact of the economic recession has been greater on retail properties compared to other properties. The large number of vacant shops and showrooms is representative, particularly in secondary locations.
In particular, retail property values decreased by 37,5% nationally between 2012 Q1 and 2016 Q3, with Nicosia recording the largest fall (nearly 50%).
Source: RICS Cyprus (Cyprus Property Price Index)
Average Retail Price per SQM (2012-2016 Q3)
0,005,00
10,0015,0020,0025,0030,0035,0040,0045,00
Average Monthly Retail Rental Price per SQM
(2012-2016 Q3)
2012 Q4 2013 Q4 2014 Q4 2015 Q4 2016 Q3
5,1%5,7% 5,8%
4,9%3,8%
5,4%
0,0%
1,0%
2,0%
3,0%
4,0%
5,0%
6,0%
7,0%
Appraisal Based Initial Yield (2016 Q3)
OTHER MARKET INFLUENCES
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Deloitte Limited Cyprus Real Estate Market 16
Other Market Influences
The Cyprus government has introduced a number of tax incentives in order to boost the real estate market as follows:
• Cyprus Citizenship and Permanent Residency
• Abolishment of immovable property tax
• Properties exempt from Capital Gain Taxes (for properties acquired up to 31 December 2016)
• Properties subject to exemption or reduced Transfer Fees
• Properties subject to exemption or reduced VAT
• Improved process of issuance of Title Deeds
NEW INVESTMENT TRENDS
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Deloitte Limited Cyprus Real Estate Market 18
New Investment Trends
Despite the challenges currently faced by the real estate sector of Cyprus, in the recent years the country haveexperienced new opportunities arising in the field of large investment projects which continue to attract stronginterest from overseas investors.
New Investment
Trends
Marinas and tourist developme
ntsHigh-end
commercial and
residential buildings
Shopping Malls
Casino Resorts
Golf Resorts
Rehabilitation,
Medical, Sports Resorts
Hotels
Infrastructure
Projects
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