RICS Cyprus Property Index Q3 2014
This is the twentieth publication of RICS Cyprus’ Property Price Index, a quarterly price and rental index which is based on methodology produced by the University of Reading, UK. The Index tracks property and rental prices across all districts and main property types.
Introduction & Commentary
During the third quarter of 2014 the Cyprus economy showed some signs of stability, with the economy’s performance being better than expected at the end of 2013 and tourism outperforming forecasts. Unemployment remained at a historical high level, stabilised at ca 17-18%, further decreases in salaries were recorded, and discussions were ongoing regarding privatisations of state owned enterprises, the revised Immovable Property Tax, and the foreclosure bill. At the same time Bank of Cyprus raised an additional €1.0bn to shore up its capital base.
Given prevailing economic conditions and the turbulence in Cyprus’ banking system, there was a lack of transactions during the quarter. Local buyers in particular were the most discerning as the increase in unemployment and the prospects of the local economy maintained the lack of interest. Furthermore, those interested were unable to access bank-finance or their deposits.
Market Capital Values
The Property Price Index has recorded falls in almost all cities and asset classes, with significant falls being recorded in Nicosia. Nicosia is clearly feeling the impact on the government and banking sector (the two sectors who dominate the local employment market), whilst other cities are progressively bottoming out.
Across Cyprus, residential prices for both houses and flats fell by 1.6% and 1.0% respectively, with the biggest drop being in Nicosia (3.4% for houses) and Limassol (1.5% for flats). Values of retail properties fell by an average of 2.0% and those of offices by 1.4%, whilst those of warehouses remained stable.
Compared to Q3 2013, prices dropped by 6.3% for flats, 4.4% for houses, 9.6% for retail, 6.3% for office, and 4.2% for warehouses.
Market Rental Values
Across Cyprus, on a quarterly basis rental values decreased by 1.2% for apartments, 0.9% for houses, 3.2% for retail units, 0.4% for warehouses, and 0.9% for offices.
Compared to Q3 2013, rents dropped by 4.7% for flats, 4.1% for houses, 11.2% for retail, 9.2% for warehouses, and 4.6% for offices.
The majority of asset classes and geographies continue to be affected, with areas that had dropped the most early on in the property cycle now nearing the trough.
Appraisal based initial yields
At the end of Q3 2014 average gross yields stood at 3.9% for apartments, 1.9% for houses, 5.2% for retail, 4.3% for warehouses, and 4.4% for offices. The parallel reduction in capital values and rents is keeping investment yields relatively stable and at very low levels (compared to yields overseas). This suggests that there is still room for re-pricing of capital values to take place.
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