Cyprus Property Prices

THE AVERAGE price per house in Cyprus has reached €2,000 per square metre and €1,865 per square metre for an apartment, according to the first-ever quarterly Cyprus Property Price Index (PPI), launched yesterday.

The average home purchase price in Nicosia at the start of 2010 is €523,438 compared to €496,250 in Limassol but when it comes to apartments, the situation is reversed with the average price in Nicosia at €171,155 and Limassol €177,978. Office space in Nicosia is the highest in all areas at €758,000 per unit on average.

Former Finance Minister Michalis Sarris, who was at yesterday’s launch, stressed the importance of a reliable property price index to the state (in terms of estimating revenues from property taxes and duties), the banks (who need to regularly test the reliability of their loan portfolios), other property market practitioners and the buying public.

Sarris said that the contribution of the property market “bubble” to the economic crisis in countries like the US now means that governments and central banks are paying more attention to price indexes, with a view to anticipating similar potential problems in good time.

Sarris referred to the BuySell Home Price Index (BHPI), which was created on behalf of BuySell Cyprus Real Estate by MAP S.Platis. He said that this attempt to monitor selling prices was followed with close interest by the banks, which – “wrongly” in his opinion – were lending 100 per cent or 110 per cent of property values on the basis that a rising index provided confirmation that their loan portfolios were secure.

He suggested that a certain approach by the banks had helped to sustain inflated prices, which will be reflected in any index. “Some people would argue that over the last few years, there was an explosion in property prices connected with the profitability of developing. Prices have not been affected (currently) because banks have chosen not to press developers to repay their loans – they have extended more loans to allow the original ones to be paid. So the developers are now saying: why should I reduce my price, if I’m not forced to sell?”

According to the new index, in terms of home rentals, Paphos is the cheapest with an average monthly rent of €467 for an apartment and €677 for a house. Rents in Nicosia are on average €560 for an apartment and €729 for a house.

The report showed that the highest valued prices for high street retail, offices, and warehouses were recorded in the bigger urban centres of Nicosia and Limassol. Warehouses are more expensive in Limassol by 18 per cent, most likely due to the presence of the port. A low deviation between all cities shows that, excluding tourist areas and areas of special value, such as areas with sea views, the vast majority of homes for locals are evenly priced.

The distribution of rents showed that compared to Nicosia, rents for office space and for houses are higher in Limassol, by 68 per cent and 13 per cent respectively, probably due the presence of overseas companies. Also, warehouse rents are 78 per cent higher, again due to the presence of the port. Nicosia has the lowest warehouse rental costs across Cyprus.

The new PPI index is compiled by the Royal Institution of Chartered Surveyors (RICS) Cyprus in association with the Cyprus Association of Quantity Surveyors and Construction Economists (SEEOKK).

Professor Patrick McAllister and Dr Franz Fuerst of the School of Real Estate and Planning at the University of Reading, UK were commissioned by RICS Cyprus to develop the methodology underpinning the PPI, and will continue to be involved in monitoring its findings.

“Most European (property) markets have had indexes for a decade at least, including Eastern Europe”, McAllister said, so this respect Cyprus was an “exception”, especially given the importance of the property market to the economy.

He added that the transparency of the PPI was a valuable tool for policy-makers and those who are concerned with the stability of the economy, as it offers the means to understand what is happening in real estate.

However, “a lot of the major financial crises of the last 20 or 30 years have had real estate “bubbles”, over-lending in real estate markets, but a lot of those countries had property indexes. So indexes don’t stop instability, they just give you signals of what is happening, but maybe they don’t change human behaviour.”

“Measurement is one thing, interpretation is quite another,” McAllister said. The result is that different indexes can produce “conflicting messages” about what is happening in the market.

The PPI for the first quarter of 2010 has recorded what can only be described as the anticipated spread of property prices across major urban areas, based on valuations rather than actual sales.

“Valuers will always try to hit the bulls-eye (the sale price) on a dartboard, but it is very hard to do, and they don’t always do it,” said McAllister.

“What is striking is that yields on commercial property are quite low by European standards, but also hugely variable, even within Cyprus. Yields on residential property, for example 1.7 per cent in Nicosia, are also extremely low. These incredibly low yields suggest that people pay over fifty times the rent for a property. That would be a strong signal of a market being overvalued.”

According to the “affordability” index in the UK, a person can expect to pay up to four times the average annual salary in order to buy a flat or house. Cyprus Land & Building Developers Association President Lakis Tofarides said a person in Cyprus can expect to pay 10 or 11 times the average annual salary. He said that financial contributions of parents and family network towards purchases by younger first-time buyers are common in Cyprus, so this kind of family support has fed price inflation in the property market.

Cyprus Mail By Charles Charalambous Published on January 30, 2010

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