Property prices fall in Cyprus in wake of weak economic outlook

Both residential and commercial property is increasingly viewed as a risky option for investors in Cyprus, according to the latest report from the Royal Institution of Chartered Surveyors (RICS).

It says the weak economic outlook is to blame. ‘During the third quarter of 2012 Cyprus’ economy bore the consequences of the slowdown in the economy, the lowering of the sovereign’s and the banks’ rating, and the continuing political turmoil in Greece,’ the report says.

‘The worsening state of Cyprus’ economy and the growing political and economic uncertainty across the eurozone, led to a pronounced slowdown in mortgage and corporate lending and a further rise in the rate of unemployment,’ it explains.

TICS points out that there was a minimal number of investment transactions during the first half of 2012, with the third quarter lacking any notable transactions except the sale of some prime homes in the Limassol area.
‘Property, both commercial and residential, is increasingly viewed as a risky asset and one with negative prospects in the near to medium term. Local buyers in particular were the most discerning as the increase in unemployment and the worsening prospects of the local economy led to a sharp reduction in interest,’ it adds.

The RICS Property Price Index has recorded significant falls across Cyprus’ major urban areas, with prices and rents falling across all districts. Nicosia faired the worst, as it was the least affected markets up until the second half of 2012.
Across Cyprus, residential prices for both houses and flats fell by 1.1% and 0.4% respectively, with the biggest drop being in Larnaca at 2.1% for apartments and 4.6% for houses.

Values of retail properties also fell, down by an average of 7.1%, whilst those of offices and warehouses fell by 3.3% and 2.8% respectively.

Compared to the third quarter of 2011 prices dropped by 6.4% for apartments, 6.7% for houses, 15.1% for retail, 10.8% for office, and 10.8% for warehouses.

Across Cyprus, rental values decreased by 0.3% for apartments, 3.1% for houses, 5.3% for retail units, 1.9% for warehouses and 0.1% for offices.
Compared to the third quarter of 2011, rents dropped by 3.1% for apartments, 5.8% for houses, 12.6% for retail, 9.8% for warehouses, and 13.1% for offices.

‘All asset classes and geographies continue to be affected, with areas that had dropped the most early on in the property cycle now nearing the trough,’ says the RICS report.

At the end of the third quarter of 2012 average gross yields stood at 3.8% for apartments, 2.0% for houses, 6.2% for retail, 4.8% for warehouses, and 4.6% for offices. ‘The parallel reduction in capital values and rents is keeping investment yields relatively stable and at very low levels (compared to yields overseas). This suggests that there is still room for re-pricing of capital values to take place,’ the report points out.

The RICS Cyprus Property Price Index monitors the urban centres of Nicosia, Limassol, Larnaca, Paphos and Paralimni-Famagusta. The Index only tracks prices in Republic of Cyprus’ government controlled area and not in the occupied North.

Meanwhile, there has been a sharp fall in the number of building permits issued. Figures from the Statistical Service shows that the number of permits authorised by the municipal authorities and the district administration offices during December 2012 stood at 471.

The total value of these permits reached €124.9 million and the total area 90,400 square metres. These building permits provide for the construction of 404 dwelling units.

During the period January to December 2012, some 7.172 building permits were issued, registering a decrease of 4,4% compared to the corresponding period of the previous year. The total value of these permits decreased by 21% and the total area by 33.4%. ?he number of dwelling units recorded a decrease of 33.5%. Building permits constitute a leading indicator of future activity in the construction sector.