Q3 2018 Cyprus Economy & Real Estate Updates A quarterly update of Cyprus Real Estate Market November 2018
contents 4 overview 5 economy update 8 real estate market 14 industry news 16 who we are 16 what we do 17 work with us
overview The third edition of LGA s Real Estate Market report provides an outline of the main economic factors affecting the Cyprus property market and an outlook of the performance of the market during the period January September 2018. Cyprus currently enjoys one of the highest growth rates in the EU, just short of 4% of the GDP, and the outlook remains positive. All the key sectors of the economy are now contributing to growth. According to Eurostat, Cyprus registered the largest annual decrease in unemployment for August 2018, dropped to 7.5%. Driven mainly by the positive economic performance of the country, international rating agencies, Standard and Poor s and Fitch have upgraded Cyprus sovereign rating to investment grade with a stable outlook. The main downside risks to the outlook stem from very high levels of public and private debt as well as a stillelevated non-performing loan ratio burdening the banking system. The positive developments in the economy of the country directly impacts the Cyprus real Estate market which there is no doubt that the previous years has concluded with significant signs of stability. Growth in all property indices was recorded in 2018, proving the steady boost in demand for Cyprus real estate. According to the latest data released in 2018, sales transactions rose annually by 21.4%. Real estate prices have also increased and sales to overseas buyers constituting almost half of the total property transactions. Similarly, the construction sector has experienced a healthy growth, with the value and the number of new building permits continuously increasing. Cyprus Economy & Real Estate Updates, Q3 2018 4
economy update Key Economic Indicators GDP Growth rate After expanding by 3.9% in 2017, a nine-year high, Cyprus economy continued its cyclical upswing in early 2018, posting 3.8% (y-o-y) growth in the first quarter of 2018. According to IMF forecasts, the Cyprus economy will sustain a positive outlook with projected GDP growth of c.4% in 2018, c.4.2% in 2019 and c.3.3% in 2020. (Source: CYSTAT and European Commission Summer 2018 Economic Forecast) Graph 1 Source: IMF (World Economic Outlook), October 2018 Cyprus Economy & Real Estate Updates, Q3 2018 5
Unemployment The unemployed persons, registered at the District Labour Offices on the last day of September 2018, reached 21,399 persons. In comparison with September 2017, a decrease of 6,552 persons or 23.4% was recorded which was mainly observed in the sectors of trade (a decrease of 1,270 unemployed persons), construction (a decrease of 813), accommodation and food service activities (a decrease of 729), manufacturing (a decrease of 708), public administration (a decrease of 580), transportation (a decrease of 257) and to newcomers in the labour market (a decrease of 1,550). According to Eurostat, Cyprus registered the largest annual decrease in unemployment for August 2018. The unemployment rate in Cyprus dropped from 10.5% in August 2017 to 7.5% (7.0% in males and 7.9% in females) for August 2018. Graph 2 Source: IMF (World Economic Outlook), October 2018 Cyprus Economy & Real Estate Updates, Q3 2018 6
Credit Rating Driven mainly by the positive economic performance of the country, Standard & Poor s upgraded Cyprus credit ratings to investment grade (BBB-) from BB+ with stable outlook. Following S&P, Fitch has also upgraded Cyprus sovereign rating to investment grade, BBB- from BB+, with a stable outlook. Credit Rating Agency Rating Outlook Date S&P BBB- Positive September 2018 Fitch BBB- Positive October 2018 Moody s Ba3 Positive July 2017 Non-Performing Loans (NPLs) Significant progress has been made in the financial sector. However, NPL remains a key challenge, in order to restore the country's credit worthiness, economic growth and the creation of new jobs. Cyprus has registered one of the highest quarterly non-performing loan sales in the EU in the second quarter of 2018 mainly due to Bank of Cyprus sale of NPLs amounting to 2.8 billion. According to the European Banking Authority s (EBA) risk dashboard for the second quarter of 2018 NPLs declined to 13.2 billion from 16.3 billion in the previous quarter marking a decline of 19%. The quarterly reduction is the third largest in the EU but the highest among the banking systems with high NPL rates. Despite the quarterly reduction, NPL rate in Cyprus remains the second highest in the EU amounting to 34.1% of total loans from 39% in the first quarter, following Greece with 44.8%. The average NPL rate in the EU stood at 3.6% which in absolute terms corresponds at 731 billion. (Source: www.stockwatch.com.cy) Cyprus Economy & Real Estate Updates, Q3 2018 7
Real estate market Property transactions Graph 3 Source: Department of Land and Surveys (DLS) Evident from the graph above, 21.4% increase in property contracts submitted to the DLS during the first nine months of 2018 compared to the equivalent period of last year. In actual numbers, property sales contracts submitted in all areas of Cyprus amounted to 6,706, while in the comparable period of last year they were 5,523. Graph 4 Source: Department of Land and Surveys (DLS) Based on the graph above and the data released by the DLS, July 2018 is the month with the highest level of transactions during the year and June is the month with the lowest level of transactions. Cyprus Economy & Real Estate Updates, Q3 2018 8
Geographical distribution of transactions Regarding the regional distribution of transactions that occurred during the period January-September 2018, Limassol is leading the way (37%), followed by Paphos (24%), and Nicosia (17%). Famagusta demonstrated the highest growth in the number of sales contracts filed at the DLS (37%), followed by Nicosia (34%) (Graph 5). Graph 5 Source: Department of Land and Surveys (DLS) Evident from the contract of sales per region (Jan-Sept 2018) graph, Limassol recorded the highest contract of sales of 2,488 in this period. It can also be observed that the least sales occurred during this period is in Famagusta region with a contract of sales of 488. Graph 6 Source: Department of Land and Surveys (DLS) Cyprus Economy & Real Estate Updates, Q3 2018 9
Foreign transaction activity The foreign segment of the real estate sector continues to be of great importance to Cyprus despite its declining share in sales during the crisis. This is reflected in the statistics of transactions relating to foreign buyers. Out of the total number of sales contracts submitted at the DLS for the first nine months of 2018, 48% related to overseas buyers (3,816 sales). During the period January-September 2018, the highest level of transactions by overseas buyers, was recorded in Paphos (1,248 sales), followed by Limassol (949 sales) and Larnaca (507 sales). Nicosia is the district with the lowest number of sales contracts filed at the DLS by overseas buyers (168 sales). Graph 7 Source: Department of Land and Surveys (DLS) Graph 8 Source: Department of Land and Surveys (DLS) Cyprus Economy & Real Estate Updates, Q3 2018 10
Construction activity Price Index of Construction Materials The Index of Production in Construction for the second quarter of 2018 reached 176.0 units (base year 2015=100.0), recording an increase of 13.1% over the second quarter of 2017. By type of project, an increase of 17.1% was observed for buildings and a decrease of 2.9% for civil engineering projects in the second quarter of 2018 compared to the corresponding quarter of 2017. (Source: CYSTAT) Building permits Graph 10 Source: CYSTAT During the period January July 2018, 3,699 building permits were issued compared to 3,362 in the corresponding period of the previous year. The total value of these permits increased by 21.5% and the total area by 25.5%. Τhe number of dwelling units recorded an increase of 23.7%. (Source: CYSTAT) Cyprus Economy & Real Estate Updates, Q3 2018 11
Residential Property Price Indices House Price Index (HPI) House Price Index (HPI) is a quarterly index which measures the change in the average prices of residential dwellings. It captures all types of residential properties, both new and existing. The land component of the residential property is included. In the second quarter of 2018, the residential property price index, compiled by the CBC (houses and apartments) rose by 0.3% with the index of house and apartments rising by 0.2% and 0.7% on a quarterly basis. On an annual basis. the residential property index rose by 1.7% in the second quarter of 2018.Prices in all districts rose with the exception of Paphos which registered a marginal reduction of 0.2%.Residential property prices in Limassol showed significant increase especially in apartments for five consecutive quarter notably in the coastal areas where price growth is the largest compared with all other areas of Cyprus. (Source: CBC, House Price Index Q4 2017) RICS Residential prices The Royal Institute of Chartered Surveyors ( RICS ) Cyprus Property Price index is published on a quarterly basis and focused on both residential and non-residential property (including retail and offices) and also tracks trends on rental rates. The information provided by RICS is based on the average price and rent of the subdistricts monitored per urban centre per sector. Across Cyprus, residential prices for both houses and flats increased on a quarterly basis by 1.3% and 2.9% respectively, with the most significant increase being in Nicosia, 4.7% for flats and Famagusta 3.6% for houses. Notably, Paphos remained stable for residential prices, while Limassol showed a slight decrease of 0.8% in house prices. Values for holiday homes on a quarterly basis across Cyprus increased by 3.4% for flats and 1.1% for houses. Famagusta showed the highest quarterly increases for holiday apartments at an increase of 3.2% and 1.8% for holiday homes. Cyprus Economy & Real Estate Updates, Q3 2018 12
Market Rental Values Across Cyprus, on a quarterly basis, rental values increased by 6.5% for apartments, 5.1% for houses, 0.6% for retail, 4.4% for offices and 0.4% for warehouses. On an annual basis, rents increased by 18.1% for flats, 10.9% for houses, 4.8% for retail, 18.1% for offices and for warehouses 2.2%. All asset classes have shown consecutive quarterly growth. (Source: RICS, Cyprus Property Price Index Q4 2017) Appraisal based initial yields At the Q1 of 2018 average gross yields stood at 4.4% for apartments, 2.2% for houses, 5.5% for retail, 4.3% for warehouses, and 5.2% for offices. The proportionately higher quarterly rental increases compared to quarterly price increases have marginally improved yields for apartments and offices. (Source: RICS, Cyprus Property Price Index Q4 2017) (Source: RICS, Cyprus Property Price Index Q4 2017) Cyprus Economy & Real Estate Updates, Q3 2018 13
Industry news The ICON: Construction contract signed Imperio Group of Companies has commissioned the construction of a luxurious residential project The Icon in Limassol to one of the largest construction companies in Cyprus, Iacovou Brothers. Construction works are well underway and will be completed in twenty-four (24) months. The execution of the contract is expected to bring multiple benefits to the economy of the city, since it will create hundreds of new jobs in both the construction and service sectors. The official signing of the contracts took place on the 19th of October at the headquarters of Imperio in Limassol. Altamira boosts real estate sales Altamira Asset Management Cyprus is changing the way we search for real estate in the Cypriot market, by launching a new pioneering website where properties across Cyprus will be available exclusively for sale. The creation of the website is part of the international expansion of its activities, with Cyprus being the first country after Spain where the digital platform for real estate management has been implemented. The platform on one hand, will channel the high level of the company s expertise, and on the other, highlights its keen interest in the Cypriot market. (Source: www.stockwatch.com.cy) Pafilia: Withdraws interest in Paphos Marina Pafilia Property Developers withdraws interest from the tender for the design, build and operation of Paphos Marina. The reason for its withdrawal, as announced by Pafilia, was due to the endless litigation procedures that subsequently did not allow the bid to be awarded. Furthermore, the government commenced preparing the launch of a new contest to identify an investor. (Source: www.inbusinessnews.reporter.com.cy) Limassol Marina: Only 12 villas and 19 apartments are available for sale The sales of properties in Limassol Marina exceeded every expectation with sales of more than 400 million. Four years after the official operation of Limassol Marina, only 12 villas with private marine space and berth, and 19 apartments are available for sale. Limassol Del Mar: Remarkable construction progress Stepping above the ground is only a breath away. The fully licensed project, Limassol Del Mar, is about to complete the foundations of the building under the surface level. The latest timelapse video shows the remarkable construction progress achieved in the last two months. The construction works continue as planned and in a short period, the project will start to grow as expected, with floors being constructed at a fast rate. Based on the construction timeframe, phase one will be completed for delivery within 2019, followed up by phase two in 2020, with the delivery schedule becoming a luring advantage for buyers and a record for the Cypriot market. (Source: www.inbusinessnews.reporter.com.cy) Dream Tower Property Gallery Holdings Ltd officially announces its collaboration with HKCY Hotels Ltd to create Dream Tower, a new high-rise residential building located in Limassol The Dream Tower is a residential development project designed by the architectural firm PPA Architects and has already secured a building permit with reconstruction work to begin before the end of the year. The development plan of 27 floors is designed to offer style and comfort to the owners as well as unobstructed views of the sea, creating vertical development spaces while at the same time using the remaining area that surrounds the building with a green graphic composition. (Source: www.inbusinessnews.reporter.com.cy) Bill seeks to lower VAT on land for primary residence The government is preparing a bill to exempt the payment of the full 19 per cent VAT for the purchases of an undeveloped land for the purposes of building an owner-occupied primary dwelling. Currently, when someone purchases a complete housing unit or apartment as their primary dwelling, they pay 5 per cent VAT, whereas buying a plot of land for owner-occupied housing incurs a 19 per cent VAT charge. Lawmakers had called for a change, arguing that is unfair to newlyweds who typically are buyers of undeveloped land where they plan to build their first house. Cyprus Economy & Real Estate Updates, Q3 2018 14
European Commission - Housing Market Developments in Cyprus September 2018 In this report European Commission analyses demand, supply and price development in Cyprus, in the runup to its banking crisis and the early years of the recovery, taking into account particular country characteristics and developments. In summary European Commission has reached to the following conclusions relating to the Cyprus Housing Market: There appears to be a correlation between house prices and purchasing capacity, deposits, foreign sales, housing stocks, and NPLs. The presence of higher NPLs appears to drag house prices down. High NPLs reflect pressure on households and business for real estate asset disposal as a mean to assist deleveraging and therefore an ensuing increase in real estate supply. Although indicators point to 2017 as a turning point, according to this report when credit and excess supply indicators are included in the analysis, the signs are of a more protracted recovery. In Cyprus there has been a vicious loop between low house prices, NPLs and low credit to the economy, which will be difficult to break without ensuring that proceeds from sales are channelled to reducing the NPL stock. Despite the sales transactions have been steadily increasing, even though the numbers are still much lower than previously. Many of these sales are undertaken in cash, and currently in Cyprus there is no means to ensure that the proceeds are used to pay the non-performing loans of the seller if applicable. If the proceeds are used instead to finance new buildings, this will protract the absorption of the existing stock, maintain house prices low at least in some areas, and will delay the balance sheet adjustment of banks. This adjustment is essential for credit to be channelled to productive investments that can secure the growth potential of the economy. Higher rental yields would also assist deleverage by increasing the investment value of housing. Removing existing obstacles for further development of the rental market would help increase rental yields and increase the investment value of housing. (Source: European Commission, Housing Market Developments in Cyprus, September 2018) Cyprus Economy & Real Estate Updates, Q3 2018 15
who we are As markets grow, contract and fluctuate, intelligent real estate decisions depend on accurate insights into markets and sectors around the world. Our professionals strive to consistently deliver levels of service and success beyond our clients expectations. By developing a long-term relationship with Lionlobal Advisors (LGA), you can be sure that you have the industry s mot talented and committed people working toward the success of your business. We use our market intelligence, expertise and influence to help you achieve, and surpass, your business goals. LGA s real estate consultant team can assist you turn complex real estate matters into opportunities for growth. From business owners and investors to lenders and corporate groups, we offer you the experience, know-how, and the strategic planning that helps lead to better decisions. what we do We will follow the journey with you throughout every step of the real estate cycle: Phase 1: Identify opportunity and analysis Phase 2: Asset Acquisition Market analysis Investment appraisal Feasibility study Research on town planning issues Evaluation of development options Acquisition/purchase management Business plan Due diligence Valuation advice Assistance in raising finance Phase 4: Asset management Phase 3: Development Property management Sales management Contracts negotiation and administration Annual operations budjet Construction management (Pre-construction stage, Construction stage and Rectification period) Construction administration services Marketing and branding Interior design Cost control Insurance advice Cyprus Economy & Real Estate Updates, Q3 2018 16
work with us We look forward to sharing our experiences with you, and exploring the possibility of working together to achieve your vision. Please get in touch with your LGA contact or visit our website. Yiannis Misirlis Director T: +35725586582 yiannis@imperio-group.com Antonis Misirlis Director T: +35725586582 antonis@imperio-group.com Nicolas Gavriel Business Development Manager T: +35725586582 M: +35796770808 nicolas@lionglobal.eu Cyprus Office: LionGlobal Advisors 131 Gladstonos street 3032, Limassol Cyprus lionglobal-advisors www.lionglobal.eu +357 25581005 Proud member of Imperio Group
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