by Johnson&Johnson » Tue Aug 26, 2008 7:25 pm
Real estate agents’ concerns on property prices
First Published: 26/08/2008 08:00:11
Stockwatch
The boom in the property market has been affected badly lately, since the sharp decline in Paphos has spread to other regions too. The increase in interest rates and inflation has pushed domestic demand down and together with the drop in external demand, the problems are acute in many Cyprus’s regions.
In his statements to StockWatch, Chairman of the Pancyprian Association of Real Estate Agents, Solon Kourouklides said that the drop in the construction activity in Paphos is more than real. “Sales have dropped significantly and the number of indisposed properties increases drastically. In the past three months, the drop is of 30-40% for the external market and 5% for the domestic, while forecasts say that it will continue until the end of the year – early 2009”, he said.
The decline, however, does not concern sales only, but prices too. “Comparatively, Paphos had the highest prices. Today, property prices show a drastic decrease of up to 30% or even 50% for flats”, Mr. Kourouklides noted.
The problems in the property market do not concern Paphos only. “The future of the property market is gloomy due to the slowdown in the number of sales across Cyprus. The commercial plots and land are exempted since the demand by foreign investors – Russians mostly – who want to expand their business activities to the island, is big”, he added.
Reasons
Mr. Kourouklides said that the positive course has been overturned due to:
- The interest rate increase by 125 base points in few months.
- The impacts from the CB Circular, which provided for the increase in the advance payment for the purchase of a home from 30% to 40%. Although it has been withdrawn, it still causes problems because it is too hard to regain the external demand.
- The global economic crisis that hit the British market, which is 80% of external demand.
- The devaluation of the sterling against the euro.
“The interest rate increase, which pushes monthly installments up, is the main reason for the drop in domestic demand, which will continue in the next few months”, Mr. Kourouklides stressed.
Other reasons are the drop in the purchasing power of the consumers due to the sharp increase in the price of fuel and the confusion from the upcoming imposition of 15% VAT on properties.
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Banks to impose stricter criteria
First Published: 25/08/2008 07:45:06
Last Updated: 26/08/2008 07:53:51
Stockwatch
The commercial banks decided to introduce stricter criteria for the loans granted to property investors and developers, increasing their charges. The international credit crunch and the drop in the price of properties in countries such as Spain, Estonia and the UK have shaken the banks, which decided to make borrowing more difficult. The first signs of the defensive policy were apparent since early 2008, but become clearer as time goes by.
Banks mostly focus on the foreign property investors since the crisis in their countries makes their ability to pay off the loans more uncertain. Certain banks think of introducing stricter criteria for them, especially with regard to the period given until they start to pay the loans.
Measures will also be taken for those developers with small volume of activities. Due to the sharp drop in external demand, many developers face financial problems. In order to deal with the issue, banks started to observe the development of the economic activities on a more systematic basis.
“If the crisis goes on, lending will become more difficult for other professional groups too, such as hoteliers and traders”, bank officials say.
At the current stage, many businessmen and householders go through hard times due to the installments that they are called to pay after the interest rate increase. The increase in ECB rates to ease inflation together with the consecutive increases in the price of the bank interest rates have pushed interest rates up to 125 base points. The banks have also increased their charges for relevant services.
Inevitably, the interest rate increase and the acceleration of inflation have affected the loan market. Bank officials say that demand for loans has dropped in the past few months, although part of this decline is seasonal. However, credit growth, which neared 32% according to latest figures – remains at 20-25%.
