RICS Cyprus property price index published

eighty people gathered for the launch of the RICS Cyprus Property Price Index in Nicosia earlier today. The Index will be published quarterly and aims to contribute to the transparency of the property market in Cyprus.

Attendees at the launch were addressed by the President of RICS Cyprus, Petros Stylianou MRICS, the vice-President of ΣEEOKK Anna Iacovou FCIArb MRICS, and by the ex-Minister of Finance, Dr Michalis Sarris.

Mr Stylianou highlighted the significance of the Index in bringing an identifiable measure of property prices and returns, whilst Mrs Iacovou noted the need for a similar Index on construction costs which identified market trends and the changing economic landscape.

Dr Sarris elaborated further on the importance of clarity in times of economic turbulence in order to instil confidence in investors and the public as a whole.

The Index has been designed to provide reliable indications of trends and broad changes in real estate pricing of apartments, houses, offices, high street retail premises, warehouses and offices and it tracks property prices and rents across 46 locations.

The methodology on which the RICS Cyprus Property Price Index is based was designed by Professor Dr Pat McAllister MRICS and Dr Franz Fuerst from the Reading University Department of Real Estate & Planning at Henley.

Professor McAllister spoke of the important role of the Index in identifying what is happening in the Island’s property market and its usefulness to buyers, sellers, mortgage lenders, real estate companies and associated businesses. He then went on to present the first issue of the RICS Cyprus Property Price Index (click here to view Professor McAllistair’s presentation):
Average Unit Price (Euro)
Nicosia Limassol Larnaca Paphos Famagusta -
Paralimni
Apartments 171,155 177,978 187,590 154,917 153,790
Houses 523,438 496,250 438,750 460,417 412,500
Retail 1,079,167 912,500 550,000 775,000 350,000
Warehouse 2,280,000 2,700,000 1,933,333 1,405,000 1,200,000
Office 758,000 600,000 480,000 523,333 337,500

Source: RICS Cyprus
Average Monthly Rent (Euro)
Nicosia Limassol Larnaca Paphos Famagusta -
Paralimni
Apartments 560 560 502 467 350
Houses 729 1,226 800 677 500
Retail 7,000 4,239 3,433 2,383 1,525
Warehouse 5,500 9,500 8,750 6,500 7,500
Office 2,700 3,050 1,655 1,800 1,300

Source: RICS Cyprus
Initial Yields (Annual Rent/Price)
Nicosia Limassol Larnaca Paphos Famagusta -
Paralimni
Apartments 3.9% 3.8% 3.2% 3.6% 2.7%
Houses 1.7% 3.0% 2.2% 1.8% 1.5%
Retail 7.8% 5.6% 7.5% 3.7% 5.2%
Warehouse 2.9% 4.2% 5.4% 5.6% 7.5%
Office 4.3% 6.1% 4.1% 4.1% 4.6%

Derived from: RICS Cyprus Property Price Index

Outline of the properties used in calculating the index:

Apartments – Two bedroom, 85m2, Medium quality.
Houses – Three bedroom with garden, Semi-detached, 250m2, Medium quality.
Retail – High-street retail, 100m2 ground floor area with 50m2 mezzanine.
Warehouse – Light industrial area, 2,000m2, 200m2 office space.
Office – Grade A, City centre location, 200m2

Commenting on the Index Professor McAllister said that “compared to other EU markets, initial yields appear low” and “the values will provide you of the best estimate of what you will be able to sell your property for”.

On the general subject of property price indexes, Professor McAllister said that indexes produced by banks tended to undervalue property because they used them for evaluating mortgage applications.

Dr Sarris referred to the (now defunct) BuySell Home Price Index. He said that this attempt to monitor selling prices was followed with close interest by the banks which, “wrongly” in his opinion, were lending 100% or 110% of property values on the basis that a rising index provided confirmation that their loan portfolios were secure.

He suggested that a certain approach by the banks had helped to sustain inflated prices, which will be reflected in any index. “Some people would argue that over the last few years, there was an explosion in property prices connected with the profitability of developing. Prices have not been affected (currently) because banks have chosen not to press developers to repay their loans – they have extended more loans to allow the original ones to be paid. So the developers are now saying: why should I reduce my price, if I’m not forced to sell?”

Chairman of the Cyprus Land and Building Developers Association, Lakis Tofarides, said that property prices were 10 to 11 times the average salary because the price of land has rocketed over the last ten years and represented some 40% – 50% of a property’s overall cost. He added that distortions in the market were due to the tax system in Cyprus and that property-related taxes were very high compared to other countries. He also expressed his concern over the government’s intention to reassess the property tax system as it might lead to even higher level of taxation.
Press Release from RICS Cyprus

The RICS Cyprus Property Price Index monitors hypothetical or notional buildings, each having specific characteristics. Details of these hypothetical properties are provided in the University of Reading’s report.

The provided price per square metre is based on the Gross External Area of the property (as defined in the RICS’ Code of Measurement Practice 6th Edition), which includes the living area and covered verandas but excludes common areas.

This is the first publication of RICS Cyprus Property Price Index, a quarterly publication which is based on methodology produced by the University of Reading, UK. The Index has been designed to track property and rental prices across all the districts of Cyprus, and monitors changes in residential properties (apartments and houses), offices, high street retail, and warehouses. This first round of data gathering and processing has produced the base of the Index, i.e. the base prices, on which all future changes in price and rental level will be benchmarked against.
Introduction

The beginning of 2010 finds Cyprus in the midst of the global economic crisis, as the economy begins to feel the brunt of the slowdown in economic activity, a decrease in income from taxation, and a severe reduction in property transactions (circa 50% lower in 2009 from 2008). The latter is attributed to the decrease in overseas buyers (down around 80% compared to 2005-2008) and to the curtailing of loans by banks and other financing institutions for property purchases.
Market Selling Values

The Property Price Index has recorded what can only be described as the anticipated spread of property prices across Cyprus’ major urban areas. The highest prices for high street retail, offices, and warehouses is recorded in the bigger urban centres of Nicosia and Limassol. Warehouses are more expensive in Limassol by 18%, likely due to the presence of the Island’s main commercial port.

House and apartment prices are spread evenly across the Island, with an average price of €1,865/m2 for apartments and of €2,001/m2 for houses. The low standard deviation across all cities of only 9% and 10% respectively shows that, excluding tourist areas and areas of special value, e.g. areas with sea views, “named areas”, etc, the vast majority of homes for locals are evenly priced.
Market Rental Values

The distribution of rents shows an interesting dichotomy between Nicosia and the coastal cities. Compared to Nicosia, rents for office space and for houses are higher in Limassol, by 68% and 13% respectively, probably due the presence of overseas companies. Also, warehouse rents are 78% higher due to the presence of the port. Indeed, Nicosia has the lowest warehouse rental costs across Cyprus.
Investment Yields

Investment yield is a term rarely used in Cyprus as most companies own their real estate instead of leasing it. However, yields are a useful tool showing the relationship between rent and property prices. Initial yields on commercial property stand at 6.1% for retail, 4.7% for offices, and 4.8% for warehouses.

These low yields may show that rents are being kept artificially low by the tendency of companies to occupy properties with alternative uses (mainly residential) in order to minimise their costs. An alternative explanation is that property prices are too high due to the lack of land supply and the price boom of the past few years.
Contributing professional bodies

Profile of RICS

RICS – the Royal Institution of Chartered Surveyors – is the largest organisation for professionals in property, land, construction and environmental assets, worldwide. The organisation was created in 1868 and now has over 140,000 members in 146 countries. RICS Europe is based in Brussels and represents 17 national associations, with over 8,150 members in Continental Europe. Visit www.joinricsineurope.eu and www.rics.orq for more information.

Profile of ΣEEOKK

The Cyprus Association of Quantity Surveyors and Construction Economists (ΣEEOKK) is the association that represents Chartered Quantity Surveyors and Quantity Surveyors whose main area of work is in Cyprus and they permanently live in Cyprus. Visit www.seeokk.orq for more information.
Index parameters and methodology

Methodology

The methodology underpinning the RICS Cyprus Property Price Index was developed by the University of Reading. UK. The report is available on http://www.joinricsineurope.eu/en/na/view/rics-cyprus

Coverage and Variables Monitored

The RICS Cyprus Property Price Index monitors the urban centres of Nicosia, Limassol, Larnaca, Paphos and Paralimni-Famagusta. The Index only tracks prices in Republic of Cyprus’ government controlled area and not in the occupied North.

In each of these centres, the index monitors the Market Value and Market Rent, as defined in the RICS Red Book, across the four main property sectors – office (CBD), retail (high street), industrial (warehouse) and residential (houses and apartments).

Recognising that there are sub-districts within these urban areas which operate and behave in a varying manner, a number of these is monitored in order to derive the composite index for each category per urban area.

The information provided in this publication is based on the average price and rent of the sub-districts monitored per urban centre per sector. The complete list of these sub-districts can be found in the University of Reading’s report which is available on http://www.joinricsineurope.eu/en/na/view/rics-cyprus

Nature of Notional Buildings

The RICS Cyprus Property Price Index monitors hypothetical or notional buildings, each having specific characteristics. Details of these hypothetical properties are provided in the University of Reading’s report.

The provided price per square metre is based on the Gross External Area of the property (as defined in the RICS Code of Measurement Practice 6th Edition), which includes the living area and covered verandas but excludes common areas,

Frequency

The index is produced on a quarterly basis.

Monitoring Process

The estimation of price levels is carried out by accredited RICS property professionals who are active in the relevant markets.