When travelling with airplanes, the stewards go through the routine of explaining what the passengers should follow in the event of the plane having troubles and explain to us, the passengers, that when we hear from the intercom “brace-brace”, we should follow a certain procedure and in the event of having to abandon the plane, floor lights come up to guide the passengers towards the emergency exits.
Although we are not in a plane, the virus has produced many negative effects on the Cyprus economy and by projection to the real estate market. The precautionary measures that our Government has/will be taking have as a goal to reduce the effects of the virus, not only to protect the health of the people, but to protect also to the extent possible the economy, which has only started to revive. We hope that the virus will be beaten within a short period of time, but then no one knows when (the experts opinion varies from July this year to next year).
It is admitted that the foundation of the Cyprus economy is tourism which will not reach the number of 4.0 mil. of last year. And with the bookings recorded early this year, we will “suddenly” have this reduced at best at 50%, which will bring everything upside down. This inevitably affect seriously the economy and the expected growth of 3% p.a. does not seem that it will be attained. In terms of tourism this will affect all the other competitive countries of ours which have a similar problem, so we are more or less in the same boat, but then, we have the real estate market/building industry, being the third largest foreign/earner which in relation to other countries they do not have. We are also told that the virus has difficulties in surviving in hot weather. So, and notwithstanding our discomfort on the hot weather temperature, there is, here, a positive effect.
The measures taken by the Government and in addition to the reduction of tourism (blocked travel, cancellation of our connection, have quarantine etc.) we will have repercussions regarding the Cyprus Investment Scheme, the reduction of income from the employees and business, the outstanding debts by developers and others all of which are expected to reduce demand from locals as well as from foreign buyers. So, there you go, another blow on the Cyprus Investment Scheme and its demand for visas/passports, whereas the reduction/uncertainty of income by the locals, will also affect the local real estate demand/market to buy.
Will this cause a reduction in sales prices of real estate? In our opinion definitely yes, with the extent of the reduction depending on the time frame that these measures are in place and if a vaccine is found, the reduction will be much less (nobody knows).
This again will increase demand at least for this/next year for rentals, especially for residential apartments in all towns possibly increasing rental levels further. To this end the new restrictions of the Airbnb (in addition to tourism reduction) will increase somewhat the supply at least for the summer season, having a sort of a counterweight to rental levels/demand.
It is certain that business/Government will suffer, but on the other hand the various measures (e.g. working from home) is an alternative which if successful might be to our benefit with a new way of doing business and which might be adopted post the virus era (less office space requirement, internet conferences etc.). If successful, there is no turning back which might at the end will work to the benefit of the economy.
At this point of time will there be “opportunities” for the reduced sales prices? Yes, we expect so depending always on the time frame, especially for those units that are directed towards the foreign market. On the other hand, bearing in mind the expected postponement of purchases by locals (until the situation is stabilized) rents for the local market will go up again.
We often report in our articles that the plight of other competitive countries has helped Cyprus economy (Egypt, Turkey, Yugoslavia/Serbia, Russia etc.). This time however the circumstances are different since we have in addition to the above, the “oil war”, that is going on between Russia and Saudi Arabia, which has dropped oil prices at a historic low level (reducing income for the Russian investors, in addition to the other factors).
The world economy is now in trouble and it seems that yet again real estate in Cyprus remains the only “stable” investment in terms of returns and security of asset/rental income (for the local residential owners).
We have to wait and see as circumstances change almost on a daily basis, whereas the recent giving in by the Government to accept Cypriot students coming from the U.K. is not an example to give us confidence that our Government has the guts to carry on its “no discount” protection program.
A very recent announcement is that rents should be reduced (nothing official mind you) for a (?) period or to postpone the fast track eviction of non-paying statutory tenants. This measure, be it temporary, will place this income in line with the other income/salary reduction, but at this point of time and until we know the details, it is not expected to reduce returns of real estate to the extent that it will direct investors to other investments (if any).