Rising real estate prices expected according to Central Bank

Recent statements from the Central Bank indicate that price increases are forthcoming in the real estate market.

The Central Bank emphasised in its December 2023 Economic Bulletin that the outlook for property prices is still positive. Throughout the first ten months of 2023, the index that measures expectations for housing prices over the following three months, as reported in the Economic Sentiment Surveys by the European Commission, remained continuously high. This indicates that a majority of investors anticipate a rise in house prices in the near future.

Despite a slowdown in construction activity in 2022, evidenced by negative growth rates in the construction output index, demand for real estate remains strong. Sales data from the Department of Cadastre and Land Surveying showed a 19% year-on-year increase in property sales nationwide during the first ten months of 2023. Notably, sales to both domestic and foreign buyers increased by 13.8% and 25.8% annually, respectively, with domestic buyers maintaining the lion's share of the market.

However, confidence in the construction sector remains low, with the confidence index staying negative throughout the first ten months of 2023. Despite this, the high demand for real estate seems unaffected by the European Central Bank's decision to raise key interest rates, although it did lead to a decrease in demand for new mortgage loans.

In comparison to the same time in 2022, there was a 19.9% decline in new home purchase loans during the first nine months of 2023, according to data from the Central Bank's Monetary and Financial Statistics publication. In the same time frame, home loan interest rates increased sharply from 2.38% to 4.14%.

The Central Bank's House Price Index (HPI) indicates a 7.4% annual increase in house prices in Cyprus during the second quarter of 2023. While home prices grew by 5.6%, flat prices experienced a particularly notable increase of 10.1%. These increases are explained by a limited supply and rising demand.

According to data from the Statistical Office, the index of construction material prices in Cyprus experienced just a slight 0.3% annual decrease in October 2023, despite a global trend of falling prices for basic construction materials.