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Cyprus housing market remains depressed, but interest rates are falling and transactions are rising

Last Updated: July 14, 2015

After six long years of house price falls Cyprus' housing market is still falling, amidst a struggling economy. The market is truly depressed.  But there is hope - transactions are rising, so maybe, just maybe, this is a sign that things are changing.

Average house prices in Cyprus fell 3.03% (-1.52% inflation-adjusted) during the year to end-Q1 2015, according to the Royal Institution of Chartered Surveyors (RICS). During the latest quarter house prices fell 0.56%.

During the year to end-Q1 2015:
  • Nicosia, Cyprus’ capital, house prices declined by 6.9% (-5.45% inflation-adjusted) to an average price of €374,488 (US$416,206)
  • Paphos house prices declined by 0.1% (a rise of 1.45% inflation-adjusted) to an average price of €347,743 (US$386,482)
  • In Limassol, house prices declined by 3.97% (-2.47% inflation-adjusted) to an average price of €314,078 (US$349,066)
  • In Farmagusta-Paralimni, house price declined by 4.36% (-2.87% inflation-adjusted) to an average price of €320,916 (US$356,666)
  • In Larnaca, house prices rose by 1.54% (3.12% inflation-adjusted) to an average price of €285,725 (US$317,555)

Unsurprisingly apartment prices have followed house prices down. Limassol saw the biggest drop of all Cyprus districts, with apartment prices falling by 4.32% (-2.83% inflation-adjusted), followed by Nicosia 4.17% (-2.68% inflation-adjusted), Paphos -3.54% (-2.04% inflation-adjusted), Larnaca -2.44% (-0.92% inflation-adjusted), and Famagusta-Paralimni -1.19% (0.35% inflation-adjusted).

Cyprus house pricesThis across-the-board decline is largely driven by two factors: Cyprus' weak economy has hit local consumer demand, and the tightening of lending criteria. The Cyprus real estate market has historically been divided into the major urban centres of Nicosia, Limassol and Larnaca, primarily driven by local demand; and the seaside resort areas of Paphos and Famagusta, which are mostly driven by foreign demand. The economic decline of recent years affected both.

While property sales are now gradually increasing, prices are expected to continue falling in 2015, mainly due to the country’s strict lending regime following its banking crisis, according to RICS.

“The market is affected by increased property taxes and the issue of foreclosures on mortgaged properties, preventing the market from stabilizing,” said RICS spokesman.
Rental Yields Last Updated: July 14, 2015

Rental returns on property in Cyprus are not high

Nicosia is now the most expensive district of Cyprus, followed by Limassol and then by Larnaca. Paphos is the cheapest district to buy apartments. Prices have fallen significantly since last year.

The average price per sq. m. of a 120 sq. m. apartment in the districts we cover is as follows:

  • Limassol - EUR 1,891
  • Nicosia - EUR  2,045
  • Larnaca - EUR 1,356
  • Paphos - EUR 1,297

If you are buying specifically with a view to renting out your property, Larnarca is the place. Gross rental yields are distinctly higher here, at around 4.02% to 5.81%. But generally, Cyprus is not a great location for gross rental yields, which are generally from just under 2% to just above 4%.

Read Rental Yields »

Taxes and Costs Last Updated: July 14, 2015

Rental income tax is low to moderate in Cyprus

Rental Income: Rental income exceeding €19,500 is taxed at progressive rates. Standard deductions for income-generating expenses are deductible from the gross income.

Capital Gains: Capital gains realized from the sale of immovable property are taxed at 20%, with a lifetime exemption of 85,430 if the property was owner-occupied for at least 5 years.

Inheritance: There are no inheritance taxes or estate duties in Cyprus.

Residents: Residents are taxed on their worldwide income at progressive rates, from 0% to 35%.

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Buying Guide Last Updated: July 14, 2015

Total transaction costs can be high

Total roundtrip transaction costs range from 7.60% to 16% of the purchase price. The buyer pays around of 4.60% to 11%, whereas the seller pays 3% to 5% for the agent’s commission.

The transfer tax rate ranges from 3% to 8%, depending on the purchase price of the property. If the property is in joint names, the property value is halved, leading to lower transfer fees.

Read Buying Guide »

Landlord and Tenant Last Updated: July 14, 2015

Cypriot laws are pro-tenant

Cyprus beachfront propertiesRent Control: The rental market can be divided into two broad categories: Houses controlled by the Rent Control Law (1983), and the free market.

Foreigners are not covered by the provisions of the Rent Control Law, except the non-Citizen wife of a citizen of the Republic, and legal entities controlled by non-residents.

Tenant Eviction: Eviction of tenants is relatively difficult, especially in the case of ‘statutory tenants’ protected by the Rent Control Law. It takes an average of 360 days to evict a tenant.

Read Landlord and Tenant »

ECONOMIC GROWTH Last Updated: July 14, 2015

Economy hamstrung by massive non-performing loans

Cyprus gdp inflation

Cyprus’ economy contracted about 2% in 2009, mainly due to the adverse impact of the global crisis. This was in sharp contrast to the robust annual average growth rate of 4.25% from 2004 to 2008. After registering anaemic growth rates of 1.4% in 2010 and 0.26% in 2011, the economy shrank again by 2.4% in 2012.

The economy remained depressed, contracting by a huge 5.4% in 2013 and by another 2.3% in 2014, based on IMF figures.

Cyprus faces enormous economic problems.  Non-performing loans (NPL) are a key issue.  NPLs amounted to €24.1 billion (US$26.78 billion) or 147% of GDP in 2013.  Many NPLs are in the construction sector, consisting of about 20% of all NPLs. In March 2015, NPLs surged by 14.5% to €27.6 billion (US$30.67) from almost two years ago.

The IMF has identified these NPLs as a “key challenge” to the economy and called on legislators to put in place a “strong legal framework to facilitate foreclosures”, arguing that facilitating asset seizures to be an effective remedy for rising NPLs.

The Bank of Cyprus (BoC) is on the edge of setting up a separate “development bank” to deal with mortgaged properties. The move, according to BoC Chairman Christis Hassapis, is not intended to split the bank into a “good” and a “bad” bank. The aim is to set up a new bank to deal with property development and handle NPLs. The government is now holding talks with the European Investment Bank (EIB) which plans to invest at least €100 million annually in Cyprus.

Unemployment reached a record 16.17% in 2014, according to the IMF. Jobless rate is expected to decline slightly to 15.9% this year.

Title: Property in Cyprus | Cypriot Real Estate Investment

Description: A look at real estate investment in Cyprus from the perspective of property income, taxes and Cypriot investment prospects

Keywords: global property guide, property guide, global property, Cyprus, rental yields, overseas property, property markets, property investments