In its latest report on the stability of the financial sector, the Central Bank said although a possible reduction in real estate prices is always a concern for the banking sector, under today’s conditions, a drop in prices is unlikely.

“It is improbable that real estate prices will decline, mainly due to the increase in construction materials but also increased demand mainly from Cypriots, who prefer apartments, due to the good yields offered by rents,” said the CBC.

It said the real estate market has proven to be resilient during the pandemic, aided by fiscal measures adopted by the government, boosting local demand for housing units.

An upward cycle was launched in April 2020 due to a supportive framework of fiscal measures, including an interest rate subsidy scheme for housing and corporate loans.

The government had extended an interest rate subsidy scheme for housing and corporate loans until the end of 2021 and raised the ceiling for eligible loans.

“In 2021, the Central Bank’s House Price Index (CPI) started to show signs of recovery after the marginal stability observed in 2020.

“In fact, the prices of residential properties in Cyprus seem to remain at levels below their potential value.

“The course of the real estate sector and especially the performance of commercial property may directly and/or indirectly affect the financial system’s stability”.

The bank explained that property values in Cyprus are still estimated to be lower than potential suggests, and any corrections should not be expected to be significant.

It also sees the new lending for house purchases as sustainable.

“The fact that household home lending criteria, according to the Central Bank’s most recent Bank Lending Survey, has remained unchanged in the fourth quarter of 2021, following a continued tightening of criteria from the second quarter of 2020 to the third quarter of 2021, largely ensures that new mortgage lending will remain sustainable”.

Source: Financial Mirror