Cyprus real estate needs a rethink

By Jonathan Shkurko and Andrew Rosenbaum

Real estate is still a critical sector for Cyprus, but recent changes suggests that the sector needs a rethink. A report from PwC, along with comments from industry leaders, suggest new directions.

Real estate is still the fastest-growing sector in Cyprus, and, despite the pandemic, it still increased its contribution to Gross Value Added (GVA) by 4  per cent to 17 per cent during the 12 months to 30 June 2020, according to the recently released PwC report “Cyprus Real Estate Market H1 2020.”

The report documents a shift from reliance on foreign buyers to greater engagement of the domestic market.

The total value of transactions not surprisingly fell during the first half of 2020, to €1.2 billion, down 55 per cent from the respective period in 2019.

“The developments have prompted an urgency to pursue a much needed sector reform and for the market participants to set new priorities and strategies,” writes PwC Cyprus CEO Evgenios Evgeniou. “Going back to the old-normal is not a viable option.”

In 2019, real estate transactions and construction had been on the rise until the first half of 2019, reaching 11 per cent growth in GVA during the 12 months to 30 June 2019. Business was buoyed by the citizenship scheme and by increased disposable income for Cyprus residents – up nearly 10 per cent in that year, as the PwC report shows.

But private consumption is expected to decline by more than the GDP anticipated contraction (i.e. -6,4 per cent), while the citizenship scheme was first restricted and then disappeared.

This led to a 44 per cent drop in  foreign transaction activity, as pandemic restrictions made it difficult for buyers abroad to visit properties in Cyprus.

Need for a real-estate rethink

Commenting on the report, Panos Danos, CEO of Danos, a real estate agency based in Nicosia and affiliated to BNP Paribas Real Estate, said: ““With construction now also at a standstill, there is a multitude of projects that are unfinished. The prominent marina, casinos and Larnaca port projects will all suffer in the short-medium term.

“I believe 2020 and 2021 will be two difficult years and the government will need to step in and rethink the ‘investment environment’ in order to bring back interest in the Cyprus real estate market,” Danos said.

The chairman of the Cyprus Property Owners Association, George Mouskides said the government should find a way to revive the citizenship scheme.

“The government should commit to bringing in third-party auditors to monitor the programme in an effort to regain the investors’ trust.

“We are talking about a scheme that pulled the Cyprus economy out of recession in 2013, breathing new life into the construction industry, and by default into the country’s economy,” he said.

PwC proposes a number of different solutions: New strategies which refocus the market.

• By 2070, one in three Cypriot residents is expected to be 65+ years old, while at the same time 10 per cent of the country’s population is expected to be >80 years old. A significant portion of the elderly population ends up living alone or in couples in their three/four-bedroom family homes where they have raised their families. The adoption of planning incentives to encourage the development of specialised Elderly Housing and Assisted Living communities and the introduction of tax incentives to attract specialised operators would provide a solution.

• Composite real estate projects have a positive impact on the economy and can support sustainable growth. Incentives should be provided for the development of composite projects, like affordable living, education and student housing etc. These projects should include, in addition to the real estate component, other uses and facilities such as retail space, health centres, recreation areas etc which will help other sectors of the economy.

• Our city centres are crowded with buildings which are commercially and occupationally obsolete. At the same time, there is increasing demand for space, resulting in urban sprawl. The solution: Repurposing existing buildings away from uses now seen as increasingly obsolete and therefore less profitable, towards real estate that fits the way people use buildings today. Over the coming five years, repurposing assets from one sector to another is on the agenda for nearly 75 per cent of institutional investors across Europe.

These changes in focus would make a big difference for how real estate in Cyprus operates. But it’s clear, from these viewpoints that  a new way forward is needed.