Yesterday, I addressed the important issues relating to the Cyprus property market during the Business Delegation and Forum in Tel Aviv, while presenting the opportunities in real estate in Cyprus under his authority as a Board Member of Cyprus Chamber of Commerce and Industry (CCCI).
The forum was put together by the CCCI and the Cyprus Ministry of Energy, Commerce, Industry & Tourism in co-operation with the Cyprus-Israel Business Association and the Israel Chamber of Commerce, in an aim towards the promotion of business relations between the business communities of Cyprus and Israel. The focus sectors of the forum included real estate, the funds industry and professional services.
I hereby provide you with my speech transcript:
Ladies & Gentlemen,
It is a distinct honour and a privilege to be addressing such a distinguished audience which holds a strong interest to exploring the business opportunities that Cyprus Real Estate market has to offer. Please allow me to express my sincere appreciation for your invitation and for giving me this unique opportunity to share some of my thoughts with regards to opportunities in Cyprus Real Estate market.
Cyprus-Israeli cooperation currently extends in an array of fields, and includes energy, tourism, economic exchanges, agriculture, business and high tech industries, with arrivals in Cyprus from Israel increasing significantly year on year. Our solid cooperation is based on our mutual understanding that we share a common sphere, both geographically and also in terms of common values.
Investing in real estate is one of the oldest forms of investing, having been around since the early days of human civilization. Predating modern stock markets, real estate is one of the five basic asset classes that every investor should seriously consider adding to his or her portfolio for the unique cash flow, liquidity, profitability, tax, and diversification benefits it offers.
Real estate investing really can be as conceptually simple as playing monopoly when you understand the basic factors of the investment, economics, and risk. In order to win, you buy properties, avoid bankruptcy, and generate rent so that you can buy even more properties. However, keep in mind that “simple” doesn’t mean “easy”. If you make a mistake, consequences can range from minor inconveniences to major disasters.
As an investor – you will struggle. You will make mistakes. You will fail. The successful investors are the ones who can take those experiences and turn them into lessons to improve their skills.
Have you ever heard the phrase “real estate is cyclical?” If not… you are about to: Real estate is cyclical! Understanding the progression of each phase within the cycle is critical in being able to identify investment opportunities, as well as risks that can arise, with heightened sensitivity when phases are on the verge of transitioning.
The real estate market typically moves through four phases before going back and repeating again. Those phases, as labelled in a recent Harvard Blog post, can be described as:
Phase 1: Recovery
Phase 2: Expansion
Phase 3: Hyper supply
Phase 4: Recession
At this point you are likely asking me, “Okay… so which phase of the cycle are you in Cyprus today?” To answer this question we should take a look at the demand of real estate in Cyprus over the last 10 years.
Following a booming period during 2004-2009 when the Cyprus Real Estate Market flourished with total sales reached a record of over 21,000 in 2007, a severe contraction was followed for the period 2010-2013 mostly as result of the drop in demand for property by foreigners.
Throughout 2014 and 2015, there were signs of improved transaction activity. As a result of improved confidence in the Cyprus economy and the real estate market, a further significant increase was recorded in 2016 with total sales reaching a six-year high of just above 7,000 (7,063). Recovery of the real estate market continued during the first half of 2017 The number of Sale Contacts filed at the Department of Lands and Surveys (DLS) during first half of 2017 reached 3,610 compared to 3,012 in first half of 2016, representing an increase of 20%.
So, based on the above I strongly believe that the real estate market in Cyprus is currently in the “Recovery” period, which is in terms of investing this is the right time to invest! The market will expand in the years to come, reaching 15,000 or 16,000 sales per year, which is the normal market size for Cyprus, and you better be part of this ride.
The improved transaction activity observed in the last 3 years was largely driven by:
- The positive developments in the economy as indicated through the improvement of economic performance indicators such as the growth in real GDP which is close to 4%, the second highest in Europe.
- Continuous upgrades by International Credit Rating Agencies.
- The restored confidence of buyers to the Cyprus economy and the real estate market.
- The introduction of tax incentives such as the reduction in the real estate transfer fees and the abolishment of immovable property tax.
- The introduction of by the Government of two very attractive immigration schemes, boosting demand from non-European property investor from all around the globe.
All of the above contribute to a significant increase in real estate property transactions in the last 3 years and the recovery of the market.
In terms of regional distribution of transactions that occurred during the first half of 2017, the majority of transactions (37%) were in Limassol, followed by Paphos (25%), Larnaca (17%), Nicosia (16%) and Famagusta (5%).
The improved confidence in the property sector is also evidenced by the residential property prices. The behaviour of residential property prices across Cyprus is captured by the Royal Institution of Chartered Surveyors (RICS) index. RICS index has exhibited a negative trajectory since 2010, reflecting the declining trend in demand for residential property including demand for holiday homes by foreign buyers. This negative trajectory continued until 2015 and turned to positive in 2016. In first quarter of 2017 an increase of 4% was recorded, reflecting the higher demand and transaction activity.
The real estate market, and in particular the residential property sector, is directly affected by the overall economic performance of the country. Cyprus has a dynamic and flexible economy that has time and time again proven its capacity to adjust to continuously changing conditions. The recession and the financial crisis that our economy faced back in 2013 are fortunately behind us.
The positive developments in the economy as indicated through the improvement of economic performance indicators, such as the growth in real GDP, various upgrades of Cyprus’ credit ratings as well as increase in tourist arrivals (16,6% growth in H1 2017 Vs H1 2016) positively affected also the Real Estate market.
Dear friends, the revitalization of the property sector owes much to the increasing interest of foreign investors. Further increase in demand from foreign buyers was recorded during the first half of 2017, with sale contracts filed by foreigners recording a stunning 106% increase compared to first half of 2016. Paphos and Limassol appear to be the preferred cities by foreigners during this period.
Ladies & Gentlemen, Cyprus continues to offer unique options for beautiful holiday homes and represents a popular destination for permanent residency and retirement.
Real estate demand from wealthy buyers is active, ranging from the acquisition of top quality houses to office buildings. Other investors are looking over the island for other types of investment such as hotels, which are the top choice as the industry looks to have a positive future as tourist arrivals continue to increase.
Cyprus’ favourable and EU-approved tax regime, its low corporate tax rate, pro-business government and highly skilled workforce, have long attracted foreign investment into the country. Moreover, the geopolitical developments in the region further strengthened the position of Cyprus as a safe regional investment centre. The great growth in tourism, having exceeded all forecasts, also has played an important role. All these factors, in addition to the combination of high living standards, key geographical position, favourable climatic conditions, excellent infrastructure and human resources, have created an attractive business environment, making Cyprus an ideal place for entrepreneurship and living.
Cyprus enjoys political stability for decades. Although racism and terrorism rise in every continent, Cyprus is ranked as one of the safest countries in the world to live and invest in (Cyprus proudly holds the 5th place worldwide out of 106 countries according to a recent ValuePenguin research).
The local infrastructure is ideally suited for businesspeople that need to get things done. Thanks to its modern road network, extensive port facilities and two new international airports, travel and transport in and beyond Cyprus is fast, efficient and economical. Considerable investment has been made in transforming the island into a major telecommunications hub in the wider region. By building upon its technologically advanced infrastructure, Cyprus has established an extensive telecommunications network, both in terms of cable and satellite, which ranks amongst the best in the world.
Another sign of the important recovery of the real estate market is the particularly increased interest from overseas investors in new opportunities arising in the field of large investment projects. The market has shifted away from the mass provision of holiday homes mainly targeted to British buyers, to more innovative, high-end large scale developments including golf resorts, marinas, casino resorts and tourist development projects, presenting to potential investors a range of different investment opportunities.
The Integrated Casino Resort will be the island’s first casino and the first multi-theme casino resort in Europe The tender process for the luxurious integrated casino resort has been finalized and the government has signed a contract with a multinational consortium for this development. Construction for the ICR shall commence by next summer (2018) and the plans are to be operational by the end of 2020.
Another important form of investment that boosts the Cyprus economy’s competitiveness and significantly improves Cyprus’ image as an attractive investment destination are the Marinas. The Limassol Marina has been running for two years now, and buildings around the project are still going up. Promoted as a destination for living, yachting, dining and shopping, it’s not simply a specially designed harbour with moorings for pleasure yachts and boats, but a multiple use development. In Ayia Napa, a €220 million project backed by Egyptian legendary investor Naguib Sawiris, complete with shops and housing, is scheduled to be finished by 2022. Paphos and Larnaca marinas are also on their way.
The skyline of Limassol is set to be dominated by ambitious high-rise buildings in the coming years. These high-rise developments are not only raising the standard of living in Limassol, but the product offer as well. They include high-end amenities and offer hotel-like services to their tenants. Most importantly, they will soon transform the skyline of Limassol making it one of the most memorable of the region.
Dear friends, the real estate industry is a key driver and indicator of economic activity. On the back of a strong market performance in 2016, the first half of 2017 continued to show improved confidence in the Cyprus property sector. Government schemes encouraging foreign direct investments, have stipulated interest from foreign buyers, which has been a driving force for the market. All of these factors evidencing the improving confidence in the real estate market which is soon enter into the expansion phase, indicating that now is the best time to invest in real estate in Cyprus!
Thank you for your attention and I hope that you will enjoy the rest of the forum.