Headline Verdana Bold - Deloitte US...Deloitte Limited Cyprus Real Estate Market 4 Transactions Following the market collapse in 2013, property sales in Cyprus continue to record growth

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Headline Verdana Bold

Cyprus Real Estate Market

May 2017

ECONOMIC OUTLOOK

1

Deloitte Limited Cyprus Real Estate Market 2

Economic Outlook

Gross Domestic Product

According to the most recent European Economic Forecast (Spring 2016) issued by the European Commission, Cyprus real GDP annual growth reached 1,6% in 2015 and 1,7% in 2016. Forecasted annual growth is expected to climb up to 2,0% in 2017 (Graph 1). Tourism and professional services remain the strongest sectors of the economy while at the same time the emerging energy sector appears to provide promising prospects for Cyprus.

Graph 1 – GDP Annual Projections

-7

-6

-5

-4

-3

-2

-1

0

1

2

3

2012 2013 2014 2015 2016 2017

% change

Source: European Commission

Labour Market

The high level of unemployment remains an important obstacle to the economic recovery of Cyprus. While the unemployment rate decreased to 13,4% in 2016 from 15,1% in 2015, it still remains substantially higher than the pre-recession rate of 7,9% (2011). Nonetheless, the forecasted economic growth is expected to generate improvements in the local labour market with the EC’s economic forecast indicating that unemployment is expected to decrease to 12,4% in 2017.

Graph 2– Unemployment Rate Projections

7,9%

11,9%

15,9% 16,1%15,1%

13,4%12,4%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

2011 2012 2013 2014 2015 2016 2017

Source: European Commission

TRANSACTIONS

3


Transactions

Following the market collapse in 2013, property sales inCyprus continue to record growth for the third consecutiveyear, while foreign investment in real estate is also pickingup. According to the statistics issued by the Department ofLands & Surveys (DLS), the number of registeredcontracts of sale nationally has increased by 42,5%between 2015 and 2016.

In terms of regional distribution of transactions that occurred during the first eight months of 2016, Limassol is leading the way followed by Paphos and Larnaca as shown on Graph 5.

Source: Department of Lands and Surveys

Graph 5 – Contracts of Sale per Region (2016)

640 (15,7%)

251 (6,1%)

861 (21,1%)

1350 (33,0%)

986 (24,1%)

0 200 400 600 800 1000 1200 1400 1600

Nicosia

Famagusta

Larnaca

Limassol

Paphos16953

21245

14667

81708598

70186269

376745274952

7063

0

5.000

10.000

15.000

20.000

25.000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Contract of Sales (2008-2016)

0

500

1000

1500

2000

2500

3000

2010 2011 2012 2013 2014 2015 2016

Contract of Sales-Pancyprian Regional (2010-

2016)

Nicosia Limassol Larnaca

Famagusta Paphos


Transactions

The total number of sale contracts deposited at the local Land Registry offices in favour of overseas buyers represents 26,4% (1193 sales) of the total sales completed in 2014. In 2015, the proportion of the total number of contract of sales completed by overseas buyers reached 27,2% (1349 sales), while the percentage of sales to overseas buyers in 2016 reached 25,7% (1813 sales).

The citizenship and permanent residency schemes as well as the reduction in transfer fees have played a major role in attracting foreign investors to the real estate of Cyprus.

Source: Department of Lands and Surveys

26,4%

73,6%

Sales to Domestic vs Overseas

Buyers (2014)

OverseasBuyersDomestic

Buyers

27,2%

72,8%

Sales to Domestic vs Overseas Buyers

(2015)

Overseas

BuyersDomestic

Buyers

25,7%

74,3%

Sales to Domestic vs Overseas Buyers

(2016)

Overseas

BuyersDomestic

Buyers

BUILDING PERMITS

6


Building Permits

The construction sector of Cyprus has contracted severelysince the peak of the market in 2008. More particularly,according to the statistics issued by the Cyprus StatisticalAuthority (CYSTAT) the contribution of the sector to theeconomy was limited to 2% in the first quarter of 2015 asopposed to nearly 11% during 2008. The weakening inconstruction activity is mainly attributed to the prolongedand severe recession, the drop in demand and the lack ofliquidity. All these factors, along with the oversupplyobserved in some regions, are acting as barriers to therecovery of the sector.

Nonetheless, the production in construction index whichmonitors short-term developments in construction activity,has recorded positive growth in building constructionespecially in the number, area and value of building permitsas shown on the charts below.

Source: Cyprus Statistical Authority

8896 8950 8777

7506 7172

53414933 5014 5354

Number of Building Permits Issued Pancyprian (2008-2016) 3.689,1

3.136,52.917,9

2.253,0

1.499,9

1.044,8784,9 881,1

1.047,0

thousand s

q.

m.

Area of Building Permits Issued Pancyprian (2008-2016

2.904,6 2.815,8

2.639,5

2.065,1

1.632,3

1.141,0

859,51.071,4

1.157,5

€m

illion

Value of Building Permits Issued Pancyprian (2008-2016)


Building Permits

In terms of regional distribution, Nicosia represented the highest proportion of the total building permits 39% oftotal building permits issued during 2016, followed by Limassol (27%), Paphos (14%), Larnaca (15%) andFamagusta (5%). This is an indication of where development activity will focus in the short-term when thebuilding permits will be translated into construction projects.

As far as the type of permits issued are concerned, throughout the last three years, it is obvious that the biggestproportion of permits with approximately 68% relate to Residential Buildings, followed by approximately 20% forNon-Residential (commercial) buildings. A proportion of 4% relate to civil engineer projects, around 7% for plotdivisions and finally around 2% relate to road constructions.

Source: Cyprus Statistical Authority

1723

1889

2067

1322 1262

1444

678 698791

971899

772

230 266 280

0

500

1000

1500

2000

2500

2014 2015 2016

Building Permits per Region (2014-2016)

Nicosia Limassol Larnaca Paphos Famagusta

68% 68% 69%

20% 20% 19%

4% 4% 4%6% 7% 7%

1% 2% 2%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2014 2015 2016

Building Permits per Type (2014-2016)

Residential Buildings Non-Residential Buildings

Civil Engineer Projects Plot Divisions

Road Construction

MARKET PERFORMANCE BASED ON PROPERTY PRICE INDEX

9


Market Performance

Capital and rental values of local real estate have been on a negative track since 2009 in line with the negative economic indicators and the decline in demand. Nonetheless, the first signs of market stabilisation appeared in 2015 with continuing deceleration in the rate of decrease of property prices as demonstrated by the relevant property price indicators.

Residential Property Price Index (RPPI)

As demonstrated by the residential property price index which is issued quarterly by the CBC, residential property prices in Cyprus have been experiencing decline in prices since mid-2008.

Source: Central Bank of Cyprus

0,0

20,0

40,0

60,0

80,0

100,0

120,0

Pancyprian Residential Property Price Index (2008-2016 Q3)

Apartments Houses RPPI

0,0

20,0

40,0

60,0

80,0

100,0

120,0

2008 2009 2010 2011 2012 2013 2014 2015 2016

Q1-Q3

Regional Residential Property Price Index (2008-2016 Q3)

Nicosia Limassol Larnaca Paphos Ammochostos


Market Performance

RICS Property Price Index (RPPI)

The Cyprus Property Price Index which is issued on aquarterly basis by the RICS, provides an insight on marketcapital and rental values and appraisal-based initial yieldsfor the main property sectors across the urban centres ofCyprus. The 2015Q4 publication recorded signs of stabilityin line with the overall improvement of the economy.Capital prices decreased, nonetheless at a slower rate thanprevious years while for some sectors rental valuesrecorded marginal increase. Yields remained relativelystable and at relatively low levels, indicating that there isroom for further capital re-adjustment.

Residential (Apartment & House)

Source: RICS Cyprus (Cyprus Property Price Index)

900

1.100

1.300

1.500

1.700

2012 Q

1

2012 Q

2

2012 Q

3

2012 Q

4

2013 Q

1

2013 Q

2

2013 Q

3

2013 Q

4

2014 Q

1

2014 Q

2

2014 Q

3

2014 Q

4

2015 Q

1

2015 Q

2

2015 Q

3

2015 Q

4

2016 Q

1

2016 Q

2

2016 Q

3

Average Apartment Price per SQM (2012-

2016 Q3)

Nicosia Limassol LarnacaPaphos Famagusta Cyprus

Average House Price per SQM (2012-2016 Q3

1,9%

2,5%

2,1%1,8% 1,7% 2,0%

4,3%4,2%

3,6%

3,4%

4,1%

3,9%

Appraisal Based Initial Yields (2016 Q3)


0,00

1,00

2,00

3,00

4,00

5,00

6,00

7,00

Apartments Average Monthly Rental Price per

SQM (2012-2016 Q3)

2012 Q4 2013 Q4 2014 Q4 2015 Q4 2016 Q3

0,00

0,50

1,00

1,50

2,00

2,50

3,00

3,50

4,00

Houses Average Monthly Rental Price per SQM

(2012-2016 Q3)

2012 Q4 2013 Q4 2014 Q4 2015 Q4 2016 Q3



Market Performance

Offices

Office prices in Cyprus decreased by 21,3% between 2012Q1 and 2016 Q3 as a result of the impact of the economicrecession on business activity. The recent years sawnumerous companies downsizing or even going out ofbusiness, causing the demand for office space andsubsequently prices and rents to drop significantly before thesigns of marginal increases in the market values wererecorded in 2015 Q4.

Regionally, Nicosia experienced the highest drop in officeprices between 2012 Q1 and 2016 Q3, while the smallestdecrease was recorded in Larnaca.


Average Office Price per SQM (2012-2016 Q3)

0,00

2,00

4,00

6,00

8,00

10,00

12,00

14,00

16,00

Average Monthly Office Rental Price per SQM

(2012-2016 Q3)

2012 Q4 2013 Q4 2014 Q4 2015 Q4 2016 Q3

5,0% 4,9%4,3%

3,7% 3,8%

4,5%

0,0%

1,0%

2,0%

3,0%

4,0%

5,0%

6,0%

Appraisal Based Initial Yield (2016 Q3)


Market Performance

Retail

The performance of the retail property sector is directly related to household spending which is in turn affected by the state of the economy. It is therefore not surprising that the impact of the economic recession has been greater on retail properties compared to other properties. The large number of vacant shops and showrooms is representative, particularly in secondary locations.

In particular, retail property values decreased by 37,5% nationally between 2012 Q1 and 2016 Q3, with Nicosia recording the largest fall (nearly 50%).


Average Retail Price per SQM (2012-2016 Q3)

0,005,00

10,0015,0020,0025,0030,0035,0040,0045,00

Average Monthly Retail Rental Price per SQM

(2012-2016 Q3)

2012 Q4 2013 Q4 2014 Q4 2015 Q4 2016 Q3

5,1%5,7% 5,8%

4,9%3,8%

5,4%

0,0%

1,0%

2,0%

3,0%

4,0%

5,0%

6,0%

7,0%

Appraisal Based Initial Yield (2016 Q3)

OTHER MARKET INFLUENCES

15


Other Market Influences

The Cyprus government has introduced a number of tax incentives in order to boost the real estate market as follows:

• Cyprus Citizenship and Permanent Residency

• Abolishment of immovable property tax

• Properties exempt from Capital Gain Taxes (for properties acquired up to 31 December 2016)

• Properties subject to exemption or reduced Transfer Fees

• Properties subject to exemption or reduced VAT

• Improved process of issuance of Title Deeds

NEW INVESTMENT TRENDS

17


New Investment Trends

Despite the challenges currently faced by the real estate sector of Cyprus, in the recent years the country haveexperienced new opportunities arising in the field of large investment projects which continue to attract stronginterest from overseas investors.

New Investment

Trends

Marinas and tourist developme

ntsHigh-end

commercial and

residential buildings

Shopping Malls

Casino Resorts

Golf Resorts

Rehabilitation,

Medical, Sports Resorts

Hotels

Infrastructure

Projects

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Headline Verdana Bold - Deloitte US...Deloitte Limited Cyprus Real Estate Market 4 Transactions Following the market collapse in 2013, property sales in Cyprus continue to record growth