For the majority of the last decade, the Cyprus property market has been at the mercy of international events, in part through its reliance on tourism which is very sensitive to global events and economic crises.
In a stable economic and political climate, countries like Cyprus which rely heavily on tourism can often convert those two weeks on a sun-drenched beach to fulfilling the dream of living and working somewhere sunny, warm and safe. The consequence of this would typically be increased demand for property and, with it, an increase in prices. Over the course of the last two decades, the picture looked rosy for investment in property, with rapidly rising prices contributing to a market peak reached in 2008. Few at that time would have bet against this run continuing – tourist arrivals at the island’s airports were increasing year on year and airport upgrades were put in place to cope with the influx.
Warning bells were already sounding as early as 2007 when the global housing bubble saw lenders moving into riskier sub-prime lending to maximise profits. As these loans turned bad, banks collapsed and liquidity was removed from the market shutting down demand and creating the worst recession since the Great Depression of the 1930s. The effect reduced discretionary spending for holidays and the purchase of second homes as well as limiting the availability of equity to fund deposits for overseas property purchases.
The Cypriot housing market took a big hit and was only starting to recover when, in 2013, in the wake of EU bailouts of near bankrupt government finances, the EU Central Bank took the surprise decision to punish the island for its financial indiscretions by imposing a ‘haircut’ on deposits and insisting on stringent reforms to the banking system. Tied to this was a clampdown on the loose monetary controls for currency flows in and out of the country. Understandably, the impact hit the property market hard, causing prices to drop below the lows of 2009/2010.
From 2013, property prices edged up slowly, in some sectors clawing back much of the losses incurred in the previous decade but then, unexpectedly in January 2015, the Swiss central bank abandoned the euro ceiling and the appreciation of the franc by nearly 20% hit those who’d borrowed in supposedly stable francs, massively increasing the value of their mortgage debt and causing many borrowers to default, giving us the new financial acronym – NPLs: non-performing loans, which hit the capitalisation of Cypriot banks and destabilised the housing market.
As if these shocks weren’t enough, once more the market had stabilised and prices started to climb again when the Covid-19 global pandemic hit, decimating the country’s major source of revenue and causing potential overseas purchasers to reconsider their international options in the wake of travel restrictions.
Early in 2022, the pandemic began to ease and there was optimism that tourism would return to close to pre-pandemic levels and bring much needed income to the Cypriot economy and, with it, the potential for the purchase of holiday homes or permanent residences. In late spring the Russian invasion of Ukraine began and, with sanctions on Russia including a restriction on flights from the country, one of the island’s biggest tourism markets was almost completely closed off, causing another hit to the economy. The Cypriot government has sought assistance from the EU Relief and Recovery Fund which should alleviate some of the economic impact but it remains to be seen what the medium-term damage may be.
Providing no further surprises impact the island’s economy, now could be a good time to buy and Blue Sky Houses are well-placed to be able to offer the best advice on buying for investment or as a family home. Whether you choose to invest in Limassol, where property prices are driven by local demand, or Paphos which appeals more to the holiday market, expats and retirees, Blue Sky Houses will be able to give you an indication of potential returns on your investment or find you the beautiful ‘forever house’ you’ve dreamed of.