Recent comments made by investment companies, developers, estate agents, and various organised groups have already called the end of Cyprus’ property crisis and have forecasted a rapid recovery in activity and pricing. According to Pavlos Loizou MRICS, a valuer at Antonis Loizou and Associates and a board member of RICS Cyprus, these statements are unfounded and do not help improve the workings of the local property market.

The primary concern of those involved in the Cyprus property market should be the lack of transparency, caused in part by the absence of a property price index. RICS Cyprus has commissioned the University of Reading (UK) to produce the methodology for such a price index and will present the first series of the index (the RICS Cyprus property index) in January 2010. The index will cover the price of homes and offices, shops, warehouses and industrial estates in all districts.

The RICS’ main concern is the affordability of housing for locals, i.e. the cost of a house as a multiple of a couple’s total income. This ratio has increased from 7 times in 1998 to 11 times in 2008. Since 2003, the price of housing has increased faster than income making houses less affordable and hence prices unsustainable. Prices need to adjust to their long-term average of approximately 7 to 8 times. With the cost of land currently comprising 40% of the total cost of a house, compared to 14% in 1998, this indicates the key variable that needs to be rebalanced.

Emphasis has been given to the monthly fluctuations in the volume of transactions. RICS Cyprus expects that total sales will be approximately 50% lower than any of the years 2000 to 2008. We expect that 2009 will end with 7,900 transactions, nearly 46% below 2008. Although things are not positive in terms of volume of transactions, the three month average is showing an upward trend indicating that the worst is probably behind us.

To increase trading, developers must reduce the price of their finished product (apartments/houses/etc) so that it reflects, at least in part, the low price they bought the land (land has increased by more than 575% over the past decade). At the same time banks have to rectify the bad image caused by their approach towards their customers by carrying out continuous increases in interest rates and spreads. Finally, valuers must become more realistic in terms of pricing and speak with our clients more to explain what is happening in the market; the public needs to realise that prices are not where they were.

We must realise that Cypriot banks and COOPs have lent 230% of the country’s GDP and that state revenues are reduced. The worst is probably behind us, but at the same time there is a long road to travel before things stabilise, with the recovery being anaemic at best.

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