Property and Investment

Accession to the EU was widely predicted to have a major impact on inward investment in Cyprus, and so it has proved. The increase in prices of new builds nearly doubled after accession and remains strong. The underlying increase of property prices for new and existing stock is around 8% per annum. Prices for new builds have increased by some 15% per annum, and this may have been artificially inflated by developers in general who have not seen a slackening of demand for new property.

The Cypriot Government and the Central Bank have been effective in ensuring the housing market will remain strong and to learn from the mistakes of other countries. For instance, in Spain and other countries, there is an over-supply of new housing stock. Developers and speculative investors have been allowed to build too many properties that has resulted in a glut of buildings in certain areas.

In Cyprus, there are strict planning regulations and overall the supply of properties remain lower than demand. The Central Bank has recently introduced new lending criteria, increasing the size of deposits required in mortgage purchases for second time buyers and investors. This was in part a reaction to the partial collapse of the US housing market, where speculative purchases funded with little or no deposits caused an unprecedented level of repossessions.

So the strategy of the Government in this area is far sighted and is intended to preserve the financial well being of people who buy in Cyprus. The property market is forecast to remain strong in the next few years due to Cyprus’ adoption of the Euro in 2008, the strength of the economy, falling interest rates and a continued demand from retirees and second home buyers.

It should also be remembered that the demand for new stock comes from a strong domestic market particularly in the larger towns; and local Greek Cypriots have invested in second homes in the East. Other nationalities other than the British are becoming active investors, primarily visitors from the former Soviet Union. So there is a large variety of buyers, from an increasingly large pool of countries.

Another factor is the “substitution effect” with Spain and other more mature property markets. People who would have traditionally invested in these countries are now coming to Cyprus. Although property prices here are no longer cheap, they are still less expensive than the equivalent properties elsewhere in Spain, Portugal, Southern France and Italy.

The appeal to UK investors is the result of Cyprus being a former colony. The domestic legal system, banking practice, Land Registry System, lower taxation makes it a haven for investment funds.