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Is the Cypriot market in recession?

Tuesday, September 30, 2008

Catherine Deshayes

As international investors desert the Cyprus property market as the global economic crisis rages on, sales, especially of holiday homes, drop by 40 per cent and the market heads towards a recession. Despite this, Cyprus remains a good long term investment...

Despite the number of sales falling in Cyprus, the country remains a good long term investment.

Following sharp rises in prices over the last few years - a steady increase of up to 15 per cent per year on year- a second tier of growth in Cyprus at the end of 2009 is expected, with the opening of the new airport terminal, and, with this, more budget airlines offering cheap flights to the island.

The recently discovered oil reserves just off the Southern Coast will make the country a viable prospect for long term investment as it will boost the economy and bring solid employment prospects to the market.

However, short term, as is the case with the majority of markets at the moment, the Cyprus property market has been hit hard by the dramatic drop in sales.

Hardest hit has been the second homes and holiday homes market, due to a current lack of property investment from the UK.

The country's Finance Minster, Charilaos Stavrakis, has warned that the decline in sales will have a large impact on the island's revenue as it means a reduction in Capital Gains Tax, which has already fallen by 18 per cent this year alone.

Mr Stavrakis said, "The downturn in the market - the Land Registry has found that sales have fallen by 40 per cent- is expected to affect public revenues.

"The Government is taking this into account and if recession continues it will take additional measures," he added.

"The falls in capital gains tax was expected due to the dependence of the property market on the British market which is experiencing an economic crisis due to the drop in the value of Sterling," Mr Stavrakis added.

The Government expects activity in the property sector to continue shrinking in 2009. As well as lack of foreign investors the property market is also suffering from more lending restrictions. There is no doubt that Cyprus is a fairly tricky property market to deal in, with many properties and areas still under dispute from before the time the island was separated. 

The Cypriot Government have put in place a number of restrictions to deter foreign speculators who may be looking to take advantage of the boom time. EU nationals that are current residents in Cyprus have the freedom to purchase as much property as they wish. EU nationals that are not residents are restricted to one house or apartment that has received approval from the Council of Ministers.

Non EU nationals must seek approval from the ‘Council of Ministers' to acquire any property. Even then, ownership will be strictly limited. There are plans for the Cyprus market to be de-restricted which will open up investment opportunities.

The other major factor behind the long term investment potential of Cyprus is the much talked of reunification.

The Cyprus President, Dimitris Christofias met Turkish Cypriot leader Mehmet Ali Talat to discuss reunification, and

Mr Christofias said, "This is a common will, a common desire and we shall take a common effort to achieve this target for all Cypriots."

If the two sides can come to a final agreement, it could open up the Northern property market in the Turkish side of the island to international investment. It will also act as a further boost to the ever-popular market in the Greek side of the island. 

Browse Cyprus property for sale.

Picture by Robbie Jim

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