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Residential Rents on the up
24 October 2017
The post 3/2013 disaster, has brought about a change of the rental scene of real estate. Between the period 2013-2015 very little number of buildings were developed causing nowadays some sort of shortage for most type of investments. This coupled with the beginning of a revival of the economy (2015) and the availability of finance, caused an increasing demand (be it very slow) for purchasers of real estate. However demand for purchase is still low and this has caused demand to be directed from purchase to rentals, whereas buy to let is nowadays a rarity. In general, we could say that residential rentals increased by approximately 10% over the last year, whereas good quality properties in attractive locations reach a more than 15% rental increase. This is a trend that we expect it will continue as economic circumstances improve.
In terms of Nicosia there is rental demand within Nicosia Municipality, as well as the immediate suburbs with the main market source being locals and to an extent foreign employees including embassies (very limited number of foreign Cos operates in Nicosia). Units in demand are mainly 2-bedroom apartments at the price range of €600 p.m. and 3 bedroom of the €750 range. One bedroom and studio units are mainly in demand near the colleges and universities where rents have shot up over the last couple of years. Studios in the range of €400 p.m. and one bedroom of ±€500 p.m. are not easily found and there is a waiting list by students especially in the Engomi / Makedonitissa area with occupancy rate reaching 100%. The Nicosia and Cyprus universities in particular which are English speaking attract foreign students (as well as locals) and they have reached over 20.000 students, whereas the Greek speaking university of Cyprus have only 8.000 students (and with an abundance of supply) mainly locals who are quite mobile by comparison to the foreign ones. The announcement of the creation of a medical school by the University of Cyprus is bound to increase demand and with the hospital (Nicosia Central) benefiting the wide neighborhood – e.g. Laxia and Strovolos.
Students halls have been developed recently, whereas others are at the design stage (estimated approximately 500 units in the pipeline) but still demand is expected to exceed the supply. This shortage of students accommodation has drawn the attraction of foreign investors as well, ranging from Chinese to British investors, directing their interest for Nicosia.
Expected residential returns are nowadays in the range of 4% other than students hostels, which can reach 6% and there will be an increase of rentals and returns over the immediate period of 2 years (hopefully as more units are being built, so the pressure on accommodate will ease, but as we have said for certain locations supply will not meet demand).
Limassol is another “country” altogether. The town center has benefited considerably for the Technical University which undertakes the lets itself making it more attractive for investors, whereas the large number of foreign employees and tenants have reached rental levels of approximately 30% more than that of Nicosia. This town has also demand for high end houses in the region of €4.000 - €10.000 p.m. with localities such as Neapolis, Ayios Tychonas and the area on hills with sea views.
Larnaca is slighter at a lower level than that of Nicosia (approximately 10%-15%) but demand is mainly directed towards the Makenzy area.
Each town has its own infrastructure and attractions with Limassol with its cosmopolitan living and the seaside promenade in Larnaca Phoenicoudes area and the improved beach facilities have helped.
Villas to let is another source of rental which is experiencing a sudden upsurge of demand and the top market being the Famagusta region is the tops at the Protaras and Sotira area which yields/returns show an average of 8% net (after let expenses and running cost are deducted). To this end the shortage of tourist beds as well as the upsurge of tourist demand is a case in hand for this.
Pafos is at the end of the preference regarding rents and the market is mainly directed towards short lettings as opposed to other towns where lets are for long lets (of 12 months+).
Regarding apartment units of the small size is on the top of the demand list.
For letting properties make sure that the common expenses are included in the rental income, so that you do not face surprises at the expiry of the lease, whereas villa to let and BRNB (the latter of an increasing interest at this point of time) have an increased management time and effort.
For those with money and time in their hands letting residential units can be an attractive business, be it for a number of units in one building, or in various buildings and locations but within the central locations).
Returns from real estate in Cyprus are relatively low, but then one must compare the deposit rates in the region of ±1%, Governmental bonds ±2½%, whereas if one wishes to venture in foreign share investment must consider the rates that could vary. If the situation continues (less demand for outright residential accommodation for living as a buyer) so will demand for lets will continue, so we do not expect that rental levels will ease within a short period of time.
We refer to returns/yields which is the income received p.a. as a percentage of the current value of the property (not its historical cost). In Cyprus we seem to ignore to an extent, the various taxes involved with tenancies/real estate (such as Municipal, sewage taxes etc) as well as vacant fields (voids) the non payment of rent in addition. So bear this in mind since these can reduce the described rates by another 1% from the given level.
For us Cypriots real estate has its own “personal” attraction which makes it more attractive against other nature of investment “you can see it, walk in it, live in it, watch it grow and care for it etc” as opposed to deposits and shares which are “lifeless”. This attraction for real estate has been “exploited” to the U.K. with London residential properties are most popular by U.K. Cypriots (and some locals) where returns are higher (around 6%-7% - London) but if one is to compare the two Cyprus-London, you must bear in mind the much higher initial investment involved, the tax situation in each country and the possibility to pay death duties.
P.S. Regarding returns for the high end residential properties which nowadays sell at €4.000/sq.m. (Nicosia) around €10.000-€15.000/sq.m. (Limassol) we have to wait and see, since we find the whole situation as being “scary” at this point of time and we have to wait since supply is increasing at an alarming rate (see our previous article on the subject). Especially Limassol with around 600 high end residential units in the coming market with an increasing risk / lets only to foreign tenants - for the locals it is too expensive).