The economic downturn that has hit Cyprus and which is much of our own (our Government’s) doing, is starting to show its teeth in the spending power of the public. It is a fact that our standard of living will fall and much to this and to the extent that this will happen, will depend on the Troika’s suggestions to be (or not) adopted by the Cyprus economy. The level of unemployment is rising from the prior to recession figures of 3%-4% to 11% and there are signs that this upward movement of unemployment will continue. Based on press reports, it seems that Governmental employees salaries will be reduced (be it scaled) by approximately 10%-15%. Similarly Banks and semi-Governmental employees will be reduced by a similar level, whereas the private practice employees have already had a reduction of 20% (at least) in addition to those fired. Redundancy payments are not paid immediately, but 16-18 months after dismissal, whereas unemployment benefits last only 6 months. Also press reports refer to increased retirement age (over 65 years) and a reduction in pensions. All these measures, coupled with the expected taxation of the provident funds, will help continue and increase the reduction in the spending power.

Quite serious, as one might think, and notwithstanding that young people spending is from handouts by their parents, even low cost goods have got a notable hit in reduced demand. A chain of kebab houses whose average bill was €6/pitta, is closing down 4 of its 16 shops and reducing the quantity. Chinese products are on an increased demand as are all sorts of low cost furniture stores, whereas slightly damaged (new) white goods are also noticing better business. Our favourite bar at Nicosia has complaint to us that a bottle of whisky is now shared amongst more people than before, while the duration of stay has increased. On the other hand, petrol stations have not noted any appreciable decrease other than those who supply building firms. This negative climate for the future, makes spenders/consumers more careful, since basic costs remain more or less the same e.g. electricity, telephone, water bills, rents etc. So even those who have not suffered are worried about the future, cutting down in spending as a precaution.

These circumstances will have a major affect on real estate demand, which will make things worse. Nowadays it is not a matter of further price reductions but more of availability of demand. Buyers are now called upon to come up with 100% of the acquisition cost and save those who are connected with some cash rich co-operatives, the remaining finance houses are not eager to lend.

So that we make you more depressed, Troika’s conditions (as we understand) will change the rules regarding non-performing loans (i.e. if instalments are not paid in 3 consequential instalments) and forced sales procedures (now take 5-8 years) to be effected within 1-2 years at maximum. Bearing in mind the excess supply and the hundreds of properties which might be placed in market under these forced sale conditions, you do appreciate what this means.

There is little that we can do and we are all trapped in a vicious circle including the banks. The only good news is the improving tourist flow both in numbers and in income, eminating from the Russian and next year from the Ukrainian markets. The possibility of having open skies is another future positive possibility, as is the gas find. The Chinese market in terms of housing acquisition is another plus as is the new/amended visa for passport residence (especially that now Malta, Canada and Spain is placing a lid on this route). What is also interesting and looking at the Limassol Marina, it is noted that the most expensive units are/have been sold (beach villa at €16.6 mil. and another one €12 mil.) as well as the penthouses of around €2.0 mil., with the average priced units waiting for buyers. It is such a confused market with the odd sale here and there, that one cannot get a clear data indication how the market is moving. So how can one plan ahead and make predictions, when 20-30 buyers make the difference? Our views on the Chinese market have been published in a previous article, but then this is not the source of demand that we expect to turn the real estate market on top, at least over the immediate future.

Regrettably, after our “happy” article on the “sougla” party for a Russian house buyer, we are now coming back to realities. What is needed is patience and cash reserves (if any), but then who can afford to last for another year or so!!

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