Filenews 2 January 2021 - by Socrates Joachim
The real estate market as one of the largest productive sectors of the economy, is completely intertwined with the wider economy. It has often been the crown of growth in our country, but also sometimes the source of problems (see red loans). The real estate market and its course is influenced by the wider economy and mainly by supply and demand. So the market outlook for 2021 will also depend on these two fundamental factors.
To study the prospects and future of the real estate market in 2021 we need to see first how the market moved this year. We asked for the contribution of the Cyprus Real Estate Appraisers Association and the vice-president of the association Polly Kourousidis. The Cypriot real estate market in 2020 moved naturally as expected to lower levels than the previous year (2019) which was also the best of the decade, but generally at very good levels taking into account all the circumstances (pandemic and abolition of the JEP).
REVIEW 2020
At the beginning of the year (first two months of 2020 ) found the residential real estate market mainly to maintain its positive momentum, as the virus has only just begun to be perceived and little felt in Europe, Low interest rates mainly but also other sub-factors pushed the market in early 2020 until February, with an increase in domestic markets mainly compared to 2019 keeping values high.
From March to May, the pandemic and lockdown brought as expected consolidation in transactions both for procedural reasons (restrictions on movement, closed services, etc.) but also insecurity consolidated demand.
Since June, there has been a continuous increase in demand and in sales, but not enough to cover the lost ground created by the lockdown and the lack of foreign buyers. After the first shock to the entire global economy from the stroke of the pandemic and the total lockdown, there was a great deal of mobility in domestic real estate demand, which is also reflected in the statistics announced by the Land Registry each month. Since June we have seen an increase in sales in the purely Cypriot market, which in some cases reached last year's high performance. However, this demand as expected was not sufficient to fill the entire gap of foreign buyers who, for mainly procedural reasons (restriction on travel) were not able to visit our country and complete sales. Since October, due to the abolition of the Cyprus Investment Programme and the international e-book of Cyprus, purchases by foreigners and especially non-Europeans have fallen to the fore.
Despite these and all the adverse factors, the real estate market has endured and sales have fallen by only 20% compared to 2019 which, as mentioned above, was the best year of the last decade.
To date, there has also been no appreciable decrease in property prices, mainly due to the measures taken by the Government to support businesses and workers, a subsidy of interest rates for the purchase of first homes, suspension of divestments and, above all, the suspension of instalments adopted by the banks. All these measures have resulted in households and businesses maintaining their liquidity and the effects of the pandemic are not felt in the majority of the world.
The above as historical facts are important to see where the real estate market is driven in 2021. This will of course depend on what the course of the pandemic will be, whether we start the year with a new and complete lockdown, when the vaccination of the community will begin and most importantly when we return to normality.
What is important to mention and understand now by all, the real estate market cannot move uniformly but each category of real estate but also each city will have its own path. For example, unlike other cities, the capital, despite total lockdown for almost two months, managed to surpass last year's figures and total sales up to November reached 1877 compared to 1818 in 2019 in the same period. This proves that activity in the months after the lockdown was much more increased and demonstrates the dynamics that the real estate market has.
Pyi: Department of Lands and Surveys
The other cities, especially Limassol and Paphos, had the largest decrease with 30% and 42% respectively. This shows the dependence of these two cities on foreign buyers who, due to travel restrictions but especially the abolition of the JEP, are not expected to come to invest en masse in 2021.
But where do the properties lead?
But let's take the different parts of the market and analyze them separately with the help of the vice president of the Association of Real Estate Appraisers Scientists Polly Kourousidis.
MARKET OF APARTMENTS/HOUSE
'This category should be divided into first-home dwellings, investment apartments and luxury beachfront dwellings.
- FIRST HOUSE
I believe that this market will have the smallest impact since the need for housing cannot be replaced. Surely properties such as apartments and houses in good urban areas involving first home will be less affected than any other property. The pandemic and in particular the "lockdown" showed the importance of a residence for the members of a family, which is advisable to ensure comfortable indoor and outdoor spaces, so that every member of the family has the opportunity to carry out his work and interests seamlessly.
- INVESTMENT Apartments
In the short term, it is estimated that the purchase of student-oriented apartments may be under pressure. With regard to rents in urban dwellings and apartments it is estimated that there will be no large reductions and will remain resilient to demand as at pre-pandemic levels, except in some cases where a reduction of 10% is estimated. As a result, investors will be looking for higher returns to cover the risk of a possible rent cut. But low interest rates are pushing many to invest in real estate and their first choice is apartments in urban centres and near universities. This trend is expected to continue as there are not many investment options in our country.
- RESIDENTS
There has been a sharp decline in demand for beachfront homes in recent months, with interested buyers in 2018 and 2019, even early 2020, actively looking to buy properties. For investors from non-EU countries, an additional incentive was the possibility to obtain citizenship in Cyprus. Program that stopped. Pandemic, the resulting economic recession and the end of the Cyprus Investment Programme, are pushing up demand and prices, especially in luxury beach houses. Also what will change is estimated to be the short-term lease ('Airbnb'), which had already started to decline due to Covid-19 which will also push up prices since tourist accommodation yields will be lower.
PROVISION:
Stabilization of apartments and houses aimed at the Cypriot middle class with small downward pressures. Reduction of about 5% and in some cases 10% in apartments aimed at students which will be a price correction. Decrease in values in real estate aimed at foreign investors for the acquisition of Cypriot citizenship.
OFFICE MARKET
In addition to the resulting needs for owner-occupied housing, another important part of the real estate market is finding professional housing. The data are slowly changing in this area too, and the coronavirus pandemic may have accelerated in some cases.
For example, office search now comes with new requirements for more modern and energy-efficient buildings. Offices considered second and third class, the so-called class B and class C, will no longer be in such high demand, unlike offices belonging to class A and which meet the requirements of the health protocol, have better ventilation, better air conditioning systems and energy efficiency and are generally more modern buildings.
Therefore, it is possible to see companies turning to such properties, thus affecting prices for Class B and Class C offices.
In the short term, it is estimated that the needs of premises per business will be reduced, while providing the financial room for searching for areas of higher quality and location. In other words, it is expected that companies will reduce the area they use but prefer offices belonging to class A and that meet the specifications of the health protocol, have better ventilation, better air conditioning systems and energy efficiency and are more generally more modern buildings.
Therefore, negative effects are expected on the values and rents of secondary markets, while it is estimated that the rents of high-end offices will remain stable.
However, demand for office rental is expected to be at the same level despite the significant impact that the rapid adaptation of businesses to teleworking may have in the sense that companies that intended to buy will remain in the rent until the economy is fully restored and to ensure the liquidity of their companies.
PROVISION:
Decrease in prices (rents/sales prices) of class B and C office space, stabilisation of Class A offices due to reduced supply and shift of companies to more quality spaces. The incentives for Headquarters to attract foreign companies to set up regional offices in Cyprus will play a very important role.
COMMERCIAL LYANEBOR STOCKS AND REFERENCE CENTRES/ESTIATORIA
The sector that is going to be hardest hit is that of the shops. Due to the fact that the real economy is expected to suffer as a result of a decline in consumerism, this will result in some businesses closing and emptying shops and others reducing their ability to pay rent. This will result in a reduction in rents with the exception of privileged high-street commercials. Rent reductions are also expected in stores for food & bathroom businesses that do not have outdoor space and cannot easily adopt the health protocol.
The changes brought about by the COVID-19 pandemic and the health protocols also significantly change the way shops operate. Variations are expected in this area, as the resulting needs are now changing the way they operate.
It is estimated that the shops will be affected mainly those that gathered many people since people are expected to avoid such places in the future. Shops that hosted restaurants and cafes without much outdoor space will surely be affected. However, shops with large terraces and outdoor areas will benefit.
Surely the public's familiarity with e-commerce, which is rapidly achieved and the reticence of consumers to be indoors, pose a great risk to store rents.
- OTHER CATEGORIES
As mentioned in the Emerging Trends Europe report rankings, three of the top four types of real estate in Europe and perhaps Cyprus are likely to benefit from the increasing speed of digitisation around the world, including data centres, communication towers, fibre optics and logistics facilities.
The medical sector also seems to be attracting interest, with several investors rushing to learn about an industry that has traditionally been highly specialised, but in which strong prospects are recognised, especially after the operation of the GHS.
In conclusion, the pandemic will certainly affect the sector which is part of the wider economy, but with appropriate measures to support the economy to maintain the liquidity of households and businesses it is estimated that they will not be so large. It is estimated that the consequences of the pandemic will not be single and the pace of future recovery will vary depending on the type, city, location and specific characteristics of each property.
Perhaps the pandemic was also an opportunity to cool down the engines of building development a little and avoid an oversupply of real estate that would be much more dangerous.
The question is how much the abolition of the JEP will affect categories of real estate aimed at foreign investors who no longer have the motive to invest simply for naturalization.
Banks will also play an important role in helping sustainable companies not to launch "red" loans, due to the unprecedented conditions created by the pandemic in the economy. Surely our banks are in a much better position, and with a good enough cap to manage the crisis compared to the 2013 crisis, this will help the recovery in the economy come faster.
Surely one cannot expect increases in rents and expansion in values when the economy is suffering. On the other hand, as we explained above, some categories of real estate are resisting, such as residential real estate, and when an upward cycle comes in the economy, we will see a recovery in the real estate sector in general.
The recovery certainly needs the help of the banks and the help of the state."
NOTES OF CONNECTION OF SCIENTIFIC ASSESSMENTS OF CYPRUS MOBILITY
The Cyprus Association of Property Appraisers lists below its recommendations for crisis containment and recovery of the sector, which is once again expected to be a leader in the development of the economy.
- Tax incentives to invest in real estate (avoid paying future capital gains tax if someone invests in real estate in the two years 2021-2022)
- Reimbursement of part of the capital gains tax if the money from the sale of a property is reinvested in a property within a reasonable period of time.
- Continuation of interest subsidy
- Incentives for foreign companies to create Headquarters in Cyprus (many benefits in both residential and commercial real estate)
- Campaign to restore the name of Cyprus
- Attracting British and BRITISH companies after BREXIT
- Incentives for the regeneration of old buildings
- Cutting red tape
- Create a one stop shop for large investments
From Insider magazine (December 2020 issue)
