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20 July, 2024
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Why building a home is rare today

Luxury villas and flats dominate new housing developments

Andreas Andreou

Andreas Andreou

As discussed in our previous article, the housing landscape in our country is changing, with home ownership rates decreasing and aligning with the European average. We also outlined several reasons for this shift. One aspect that wasn't highlighted, but is clear from statistical measurements, is that the rate of home ownership tells us very little about the economic prosperity of a society: the two are not strongly linked. Given that three out of four owners live in a house and one out of four in a flat, and considering recent socio-economic trends, we can reasonably expect an increasing trend in flat ownership and a decline in house ownership.

This also provides a strong indication of where new housing stock will be added in the coming years. Housing demand is divided into four main categories: buying a flat, buying a house, constructing a privately owned house, and purchasing housing units for rental purposes.

While constructing a private residence was once a common option, this category has now been reduced to the construction of luxurious private villas. Those who choose to build their own homes today are usually wealthy individuals who want to create something unique in design, services, and materials, which is not available on the market. Because the costs and risks are enormous, developers avoid speculative construction. Imagine being a developer and building the perfect house in the wrong location, or the wrong house in the perfect location, only to be left with an unsellable property.

Developers of high-end properties are limited to offering expensive housing in more complex projects, such as towers, marinas, golf courses, and seaside developments. While these are advertised as "unique," they are often repetitive and limited in scope (with small gardens, limited spaces, shared buildings, and complexes). Thus, the construction of private homes is primarily undertaken by a very few individuals. This has a negative impact on the demand for vacant plots in low-density residential areas, now sought after by some developers, land investors, and a few bold individuals.

The second category of demand involves those who buy houses. After studying the matter in depth, these individuals typically decide not to build their own homes. They prefer to have fewer headaches—dealing with just one developer rather than multiple urban planning authorities, consultants, contractors, and subcontractors. The "turnkey" option relieves them from the daily grind of managing every detail, making payments, and wasting valuable time. Their involvement is usually limited to the final stages of construction, where they decide on socket placements and choose finishing materials like floors, timber, sanitary ware, lighting, and paint colours.

Additionally, issues of house size and purchase price are significant. Today, it is difficult for an individual to build a house on half a plot of land. While not impossible, it is increasingly rare. Building on 60%-65% of a plot is almost impractical for an individual. In contrast, a developer can provide this opportunity comfortably by building three houses on two plots. Thus, the buyer can obtain a comfortable house with a manageable garden at a more reasonable price.

This brings us to the first and fourth categories of buyers: those who choose to buy flats. The two categories differ because their motives are different. The fourth category comprises investors who aim to rent out properties. They usually focus on studios and one- and two-bedroom flats. Larger units do not attract investment interest because the range of potential tenants narrows. Furthermore, they prefer mid- to smaller-sized units within the category. The logic is that a 60m² unit will not yield significantly higher income than a 55m² one, while the purchase price difference limits the income return. The same applies to studios and one-bedroom flats.

The first category of buyers seeks exactly the opposite: comfortable flats for home ownership. Thus, an 85m² two-bedroom flat is more appreciated than a 75m² one.

Therefore, those on the supply side must decode demand as accurately as possible to offer the right product at the right time. Given the trend towards flat ownership, the sector should make significant strides in the design and quality of this category of housing.

[This article was translated from its Greek original]

Cyprus  |  housing

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