Real estate prices are falling after 4 years

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The Central Bank’s Housing Price Index (DPI) recorded a small first during the third quarter of 2020 and this is the first small quarterly decrease after sixteen quarters of continuous increases. Specifically, it recorded a quarterly decrease of 0.3% compared to an increase of 0.9% in the second quarter of 2020, while on an annual basis it recorded a slowing increase of 1.2% compared to 2.2% in the previous quarter.

For the first time since the first quarter of 2016, quarterly reductions in housing prices are recorded in four provinces simultaneously. Specifically in Paphos a decrease of 1.8% was recorded, in Nicosia 0.5%, and in Larnaca and Famagusta 0.4%.

In terms of prices per type of house, apartment prices recorded a small decrease of 0.2% on a quarterly basis for the first time since the third quarter of 2016, mainly due to the effects of the pandemic and the decrease in demand from foreign buyers. House prices also decreased by 0.5% compared to the previous quarter. On an annual basis, both house and apartment prices recorded a slowdown of 0.7% and 2.5%, respectively.

Inevitably, the effects of the pandemic and the contraction of economic activity have an impact on the wider real estate market and construction activity, with a passing on these effects to real estate prices. At the same time, however, support for real estate demand from domestic buyers appears to be provided by low interest rates and the government’s plan to partially subsidize interest rates on mortgages.

Changes in other relevant indicators
The interest of domestic buyers in real estate and the support they offer to the market seems to be confirmed by various indicators of the real estate sector and the economy, such as sales documents. According to the latest data from the Department of Lands and Surveys (SCC) for the third quarter of 2020, sales documents for real estate showed an annual decrease of 0.2% compared to a decrease of 2.7% in the same period of 2019.

Demand from foreign investors decreased by 23.2%, while demand from domestic buyers increased by 17.6%. The decrease in foreign markets was expected both due to restrictive measures and due to the stricter KEP criteria applied in 2019, while on the contrary the increase in the market of local investors reinforces the view that the incentive given by the government to subsidize mortgage rates seems to positively influence the Cypriots to proceed with investments in the real estate sector.

The number of approved building permits for residential real estate, which is considered a precursor to construction activity, recorded an annual increase of 9% in the third quarter of 2020. Indicatively, in August and September 2020 there were increases of 16.9 % and 9.5%, respectively. It is noteworthy, however, that despite the increase in the number of building permits, the value per square meter of the licensed houses decreased from € 1.33 / sq.m. in the third quarter of 2019 at € 1.15 / sq.m. in the third quarter of 2020.

In addition, the area per license issued in the third quarter of 2020 decreased to 390 sq.m. in relation to 526 sq.m. in the third quarter of 2019.

According to the CBC Monetary Statistics, new loans for the purchase of housing in the third quarter of 2020 amounted to € 211.9 million compared to € 214.9 million in the corresponding quarter of 2019, showing a small decrease that could have been much greater without providing government incentives to increase demand for mortgages. It is noteworthy, however, that in the third quarter of 2020. From which the mortgage interest rate subsidy began, new loans for the purchase of housing increased by 49.8% compared to the second quarter of 2020 (€ 141.5 million .).