Since the start of the pandemic in 2020, the world has seen a lot of economic instability, with common price fluctuations, government incentives and grants to keep the world afloat.
However, as we move into the latter stages of the pandemic, recent surveys carried out by the EBA (European Banking Authority) have seen a huge growth in real estate investment over the last 1-2 years, with real estate growing up to 25% in some cases.
The fear of this rapid growth in real estate is the creation of a possible property bubble from the overheating of the residential markets across the European Union.
Collectively, banks in the EU have recorded over €4.1 trillion in loans via residential property due to such a high demand for housing. In fact, in some cases, the supply of housing couldn’t keep up with the demand, especially due to war-related and pandemic-related supply chain disruptions.
On the back of these two factors, living costs have also increased, which can put pressure on lower-income and indebted households, with the fear that mortgages will not be met. This creates more exposure for banks, with just under 1/3 of their loans being mortgages, they need to make sure that people are able to pay.
Therefore, it begs the question, is property a risky investment? More specifically, is real estate in Cyprus safe from the EU property bubble?
Safety and Crisis Aversion
Due to delays in recovery from the 2008 crisis, the Cypriot real estate market has been typically behind Eastern Europe (where much of the real estate demand has risen). Therefore, the market in Cyprus is much further away from “heating up” than other EU nations.
CEO of Ask WiRE mentions that the real estate recovery came as late as 2016 due to the banking crisis in Cyprus in 2013, therefore, banks are at much less risk of over-exposure because they started giving out housing loans much later than the other countries that are said to be causing this “property bubble”.
Therefore, due to the conservative nature of banks from recent crashes (ie. 2013), Cyprus has mitigated a lot of risk from providing housing loans and have been focusing on local demand and investment, which further lowers risk from reliance on foreign investment.
Manageable Changes
While there is a pandemic and a Russian-Ukraine war, supply chain pressures have put prices up on raw materials which result in housing increases, inflation and rises in interest rates.
Yet, the economic instability caused by both the pandemic and the war is said to be very manageable and will have a minor effect on buyers and mortgage payments. While it may make things a bit more difficult, any issues will be minor and manageable.
Cypriot employment rates also remain high, and consumers are in good positions to pay their mortgages, despite small increases, therefore it is expected that Cyprus is safeguarded from the risks of an “overinflated EU property bubble”. Perhaps demand will drop off a little bit for new purchases but the current economic climate in Cyprus is nowhere near that of the 2013 crisis.
Concluding Thoughts
Although EU property lending has risen a lot in the last 2 years, the risk of overexposure localised in Cyprus is relatively low due to their conservative mortgage approach post-2013 banking crisis. Property for local or foreign investment in Cyprus is likely to stay prosperous and beneficial to the consumer. Yet to be cautious of slightly increases interest rates as well as the cost of living inflation, these issues will most likely affect lower-income households.
