Real estate: A closer look at prices and rental trends

With the chapter on imposing a reduced VAT rate of 5% on primary residences as a social policy measure finally moving towards resolution, an unresolved issue that has been lingering in the real estate market for years is being addressed.

This naturally has two perspectives that someone can see: the perspective of the buyer who benefits from the existing provisions, and the perspective of the buyer who benefits from the (anticipated) new provisions. Of course, since the existing provisions are much more lenient, the number of people, in this case, is much higher. Buyers who benefit more from the existing provisions rush to secure a deal now, resulting in an increase in demand, which in turn exerts upward pressure on prices.

It is understandable that the decision to buy a property, especially a first home, is not an easy task. The evident requirement for a financial commitment of 3-4 decades from young individuals who lack significant experience in the professional field certainly causes anxiety, deep thought, and concern. That is why a clear course of action, the establishment of a feasible framework of requirements and compromises, and thorough research with the guidance of knowledgeable advisors who can assist them, rather than opportunistic intermediaries of the system, are necessary. All these factors undoubtedly create a final wave of turbulence in the market because the era of the existing system is coming to an end, and the remaining time may be limited to making the right decisions without pressure. However, beyond that, we believe that the implementation of the new provisions will bring relative stability to the market.

But what is happening with prices and rents in general?

Prices for some short period now seem to show a relative stabilization, but we could argue that this is more temporary than substantial. We have on the one hand construction costs showing smaller increases because some materials have been reduced compared to last year and inflation is also down. So on the supply side, we are seeing smaller to zero increases in asking sales prices recently.  On the other hand, we also have the effect of the continued rise in interest rates which has led to a relative decline in new lending and thus a corresponding decline in new demand - particularly from domestic buyers. However, the above data are not a guarantee of an imminent cycle of price declines because there is demand from foreigners in the equation which is still possible. A small upward shift in demand will (ceteris paribus) lead to a new upward price rally.

Of course, we must stress that this situation with sanctions (of the few) is doing a lot of damage to Cyprus' reputation which can act as a catalyst against direct serious investment in our country with all the negative consequences. As far as rents are concerned, this period is seen as a more comfortable period for the tenant looking for housing. And the reason has to do with the fact that the university academic year is coming to an end and many apartments are re-entering the market boosting the supply. So, where there were zero options, now there may be more. Although inflation and the values of these investment properties have also brought about severe increases in rents in the past period, we are currently seeing a stabilization in rental rates due to the increase in supply.

What is certain is that from August onwards at the latest the market will return to a situation characterized by limited supply and increased demand. Speaking of the availability of options at this time say that everything is relative. Relocation can be an expensive sport, so if the landlord of the property asks for an increase in the rent paid by the tenant, the tenant would be well advised to come to a compromise with him, because this may be the best option for his pocket, recognizing that the landlord is also entitled to compensation for inflation and for the increased cost of maintaining his investment.

[This article was translated from its Greek original]