CYPRUS: Luxury homes and student residences are driving property market

Key trends and major drivers of the Cyprus real estate market are student housing, foreign investment in new builds and the emergence of Airbnb, according to a KPMG survey.
 
On the basis of KPMG internet research, it appears that student accommodation has seen a strong growth over the last year, with an estimated 97% increase in the number of available rooms from 2017 to 2018.
 
Major student hall rooms have gone from 960 in 2017 to an estimated 2,197 for this year.
 
This year is expected to add another 16% to the existing stock of accommodation units. The number of university and college students saw a strong growth of 8.4%, which is reflected in the increasing demand for student accommodation units.
 
Unsurprisingly, Nicosia is the dominant city with regard to student accommodation units, as most of the major universities and colleges are based in the capital.
 
The number of students in post-secondary education in 2016/17 academic year rose 8.4% to 44,446.
 
Airbnb
 
Airbnb is seen as a key new trend emerging in the tourist industry.
 
Given its rapid development, it has attracted the attention of the House of Representatives with a recent discussion regarding the introduction of related regulation for the units offered through the online platform.
 
“Looking into the numbers in detail, Airbnb is still a small part of the tourist accommodation market but may soon emerge as a sizeable challenge to the traditional hotel accommodation sector in the coming years, as it may partially replace the more traditional hotel accommodation market,” said KPMG.
 
Particularly, it has attracted approximately 34,500 guests in Q1-Q3 2018, but the strong y-o-y growth in the number of bookings (48% for 2017-2018) is an indicator of emerging trends of this kind.
 
In September 2018 there were 4,500 active Cyprus listings on Airbnb.
 
High value residence
 
High value residential property transactions exceeding €1 million have been exhibiting a remarkable increase in the past few years.
 
Notably, the CAGR from 2013 to 2017 was 88%, while 2017 and 2016 exhibited a 39% and 146% y-o-y growth, respectively. During Q1- Q3 2018, high value residential property transactions move along the same lines as in 2017.
 
Limassol is the key player of growth, with more than half of the transactions made in the coastal city in every year since 2016.
 
Some 65% of high value residential property transactions are priced between €1-2 million, with 27% in the €2-3 million range and 8% over €3 million.
 
The biggest volume for high value residential property transactions in Limassol are flats. In contrast, the Paphos market for high value residents is dominated by luxury homes.
 
Despite the economic crisis of 2013, Residential yields both for apartments and houses have been relatively steady according to RICS.
 
The latest available data (Q2 2018) indicates a yield of 2.4% for houses and 4.5% for apartments.
 
In contrast, yields for commercial and industrial properties have had more volatility as a result of the crisis.
 
Office yields have been contracting since the economic crisis of 2013 but have shown a notable growth since the end of 2016, with the latest data by RICS suggesting yields in the region of 5.1%.
 
Retail properties have been constantly performing better compared to the other non-residential properties.
 
 Following the drop experienced in 2013, retail properties have been yielding a steady rate of returns with a slight increase since 2016.
 
Warehouse (industrial) properties have exhibited a constant decline, with no signs of recovery over the past few years.
 
Following the 2004-2008 boom in transactions, the market experienced a sharp drop in 2009 and remained stable until 2013, mainly due to the constant local economic conditions.
 
After the sharp drop during the peak of the financial meltdown, the market is rebounding, with consecutive increases every year since 2014, said KPMG.
 
The largest y-o-y increase in transactions since 2013 was recorded in 2016 (43%) followed by 2017 (24%).
 
“And 2018 is on track to reach similar number of transactions as in 2017. Arguably, the increase in property transactions has been enhanced by improved economic conditions.”
 
The latter led to improved domestic confidence levels and to an increase in domestic demand.
 
 KPMG said the various government incentives have not only increased domestic demand but have also led to a surge in foreign demand; such measures include the abolition of immovable property taxes, schemes for permanent residency and naturalisation of investors by exception.
 
“It should be noted that a considerable number of the transactions is attributable to Debt for Asset Swap (‘DFAS’) transactions where properties are taken by the banks for settling debt.”
 
DFAS exemptions from taxes and levies were enacted by the government, in order to drive the reduction of the NPLs in the banks’ portfolios.
 
Contracts of Sale
 
There was a 21% increase in the total number of Contracts of Sale submitted until Q3 2018 compared to the previous year.
 
The majority of transactions were recorded in Limassol (37%) followed by Paphos (24%). The largest growth in the number of transactions was recorded in Famagusta (+37%) followed by Nicosia (+34%).
 
In terms of transactions by non-national citizens, the growth recorded is even more pronounced.
 
Up to Q3 2018 a total of 3,186 Contracts of Sale were submitted to the Land Registry by non-nationals, a 103% increase on the previous year.
 
The highest share of Contracts of Sale by non-nationals was recorded in Paphos (39%), followed by Limassol (30%), Larnaca (16%), Famagusta (10%) and Nicosia (5%).
 
Paphos and Limassol remain the preferred destinations of choice by non-nationals, with Nicosia being the least popular.
 
In terms of growth, compared to the previous year, Famagusta recorded the highest increase (171%), followed by Paphos (116%), Larnaca (94%), Limassol (84%) and Nicosia (68%).
 
According to RICS, commercial properties have moved along similar lines, with a negative trajectory from 2010 onwards and mild growth exhibited towards the end of 2016 - beginning of 2017 onwards.
 
“As a general observation, price indices for all property types are still much lower than the respective 2010 levels.”
 
Construction
 
The average construction cost per building permit issued varies between regions, implying moderately higher scale developments in certain geographical areas.
 
One such example is Famagusta, which is mainly tourist-oriented, and a large percentage of the development is attributed to hotels; for H1 2018 it had the highest average construction cost (followed by Limassol).
 
Building permits are enjoying a steady growth over the last few years, reflected in the increased construction activity of the island.
 
Nicosia is the district with the highest number of building permits, which is likely to result in an increased development in the capital in the coming years.
 
The value of the new permits issued increasing at a higher rate compared to the number of permits.
 
More specifically, the value has increased 20% compared the H1 of 2018 and 2017.
 
Nicosia is the district with the highest total value of building permits in H1 2018, taking the lead from Limassol, which was the number one city in terms of total value of building permits in 2017.
 
Source: Financial Mirrors