While uncertainties remain for 2021, the Cyprus property market will continue to show its strength. With at least two viable vaccines, low mortgage rates, tight supply and supportive government initiatives; the housing market will remain stable in 2021.
Property sales in 2020 fell by 23% compared to 2019; while almost all of last year experienced lockdowns, semi-lockdowns, travelling restrictions and huge uncertainty. Despite this environment, sales in 2020 were above 2016 by nearly 13% while declining just 9% from 2017.
In contrast with the widespread belief that the market and rental values would collapse in 2020, prices have instead held quite well (RICS Cyprus & Central Bank of Cyprus Residential Indices). At a European level, according to Eurostat, in the second quarter of 2020 house prices rose by 5% in the eurozone (and 5.2% in the EU ) compared to Q2 2019.
Assuming we manage the current infections well, and on the back of historically low interest rates, the abolishment of travel restrictions and government stimulus packages, it is looking more and likely that demand will keep being strong. It is worth highlighting the propensity of households to save has reached unprecedented levels in response to COVID-19. According to Eurostat, in 2020 the household saving rate in the euro area was the highest observed since the beginning of the time series in 1999. That is explained by a sharp decrease in household consumption.
Real estate supply in 2020 is lower compared to 2019. The uncertainty associated with the pandemic has stalled new construction while property-owners pulled back considerably as they anticipate a more favourable sale price if they waited. This limitation of the supply is more likely to continue in 2021. This combination of relatively strong demand and low supply will keep the Cyprus real estate market at least stable in 2021.
However, there are some key things to watch that could potentially be signs of trouble. If unemployment stays elevated, interest rates unexpectedly increase and further economic stimulus is slow to come, it could hurt demand for property as well. And if COVID-19 vaccinations are unexpectedly delayed or become problematic, it will be devastating to the anticipated normalization of 2021. With so much uncertainty affecting employment and business, many have speculated whether we will be hit with a property market crash this year.
To quell any concerns, the real estate market in 2021 will look a lot more normal than in 2020 and any recession is highly unlikely to happen this year.
While we are facing another spike in COVID-19 cases, the most negative impact we are likely to see is a short-term decline during the first quarter of 2021 in the number of sales and values; before reentering a period of steady recovery through the remainder of the year.
