20 Nov 2016 How far have Cyprus property prices fallen?

This week, the Central Bank of Cyprus published its residential property price index for the second quarter of 2016. Prices dropped by a comparatively mild 0.5% over the previous period and by 1.7% compared with the second quarter of 2015.

If you own an apartment in Paphos, the news was even better, as it was the only region that saw a year-on-year rise. Apartment prices rose by 3.3% over the same period of the previous year, although they slipped by 0.9% compared with the previous quarter. House prices in Paphos were also up 0.4% year on year.

We may, therefore, have reached the bottom of the Cyprus property-price collapse. How far have we fallen?

After rising by 21.8% in 2007, property prices reached their peak in the third quarter of 2008, right before the collapse of US financial giant Lehman Brothers. Since then, property prices have tumbled on average by 31.5%, according to the Central Bank index.

Prices in Famagusta, the smallest district, dropped by 40.6%. Larnaca fared second worst, with a decline of 34.7%. Nicosia was next, with a slide of 30.7%, then Limassol (27%) and finally Paphos (26.6%).

The index for Cyprus as a whole (73.2) is exactly where it was in the second quarter of 2006. In other words, prices have slipped back a whole decade.


Actual prices

The Central Bank of Cyprus uses a ‘hedonic’ index. This, the Central Bank says, “is able to disentangle that part of the price variation which is: a) due to changes in the mix of characteristics of the property; and b) caused by inflationary factors and market conditions”.

If we want an idea of actual prices, we need to look at the data published by the Royal Institute of Chartered Surveyors (RICS).

For most quarters, the RICS prices show a steeper fall than the Central Bank of Cyprus. Since the fourth quarter of 2009, they have fallen by 39.9%. Unfortunately, the RICS record does not go back any further.

However, comparing the RICS and the Central Bank of Cyprus price changes, I estimate that RICS apartment prices have fallen by 45.3% since their 2008 peak.

What has happened to actual prices? According to RICS, the average price of a standard, two-bedroomed apartment in Cyprus fell to €101,327 in the second quarter of 2016, compared with €168,466 when the records began in late 2009.

The cheapest place to buy an apartment was Famagusta, where the average price was €83,626, while the most expensive was Larnaca, with a price of €115,936. Limassol was €104,575, Nicosia €106,607 and Paphos €95,888.

The high price of Larnaca apartments is puzzling. It has the main airport and the beach, but it is a smaller town in terms of tourism. One reason could be that a number of people, including well paid public-sector workers, commute daily to Nicosia, so the higher prices could reflect their larger disposable incomes. Nevertheless, after Famagusta, Larnaca was hardest hit by the price falls.