Cyprus property market: rising rates and construction costs

The market in Cyprus is seeing record-breaking transaction volume, yet the growing effects of rising interest rates as well as construction prices provide a fascinating picture of adaptability and resilience. In this article, discover the fascinating highs and lows that have shaped Cyprus' real estate market.

The Cyprus property market, though demonstrating resilience, has felt the reverberations of mounting challenges in the second quarter of 2023. The total value of properties sold during this period reached a substantial €1.52 billion, yet the market's growth has been influenced by increased interest rates, surging inflation, and escalating construction material costs. These tendencies are highlighted in a recent report issued by the Cyprus Real Estate Agents Registration Council, which also calls on the government to offer assistance to the real estate industry in order to keep up its pace.

Property Sales Performance

The Cyprus Real Estate Agents Registration Council's report reveals that property sales amounted to €1.7 billion in each of the preceding two quarters, indicating a slight decline in the second quarter. This decrease is attributed to a combination of elevated interest rates and soaring construction costs, factors that are impacting both the value and volume of transactions.

Notably, the districts of Nicosia and Famagusta stood out as exceptions during the second quarter, witnessing an increase in property values sold compared to the first quarter. In Nicosia, despite a decline in the number of sales transactions, the value of properties sold increased to €299.8 million. Similarly, Famagusta experienced a surge in both the value (€59.7 million) and the volume of sales transactions (303).

However, a significant slowdown was observed in the Limassol district, where the value of properties sold dropped by €200 million compared to the first quarter, impacting the overall market performance. The districts of Paphos and Larnaca also experienced declines in property sales during the second quarter, with the former experiencing a more significant downturn in terms of both value and volume.

Construction Costs and Production

Cyprus's construction industry is struggling with rising costs, which caused building prices to increase 6.5% year over year in the first quarter of 2023. Despite this rise, quarter-over-quarter construction prices dropped by 1.3%, providing some relief to sector participants.

The Producer Price Index for Construction reached 133.02 units during the first quarter of 2023, a 1.3% decline from the record high of 134.71 units seen in the fourth quarter of 2022. However, compared to the same quarter in the previous year, the index still showed a significant 6.5% increase.

The report further highlights that construction production witnessed a noteworthy surge of 5.5% in the first quarter of 2023 compared to the same period in 2022. The Production Index for Construction reached 184.13 units, showcasing a rebound from the lows experienced in the first quarter of 2022.

By type of project, building prices recorded a 3.4% increase, while civil engineering projects saw a substantial 17.9% rise during the first quarter of 2023 compared to the corresponding period in 2022.

There are still difficulties for both buyers and sellers in Cyprus as it navigates the effects of rising interest rates and building prices. Despite a minor decline in property sales, the market's general toughness and support from the government are still essential for keeping things moving and fostering long-term growth. Industry participants are attentively observing these trends so they may plan and adjust to the country's shifting dynamics in the real estate market.