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The Cyprus property market witnessed a record number of sales during the second quarter of 2023, reaching a level not seen in 15 years, according to a report released this week by the Central Bank of Cyprus (CBC).

Furthermore, property prices, especially for apartments, have continued to rise, driven primarily by increased demand, itself fuelled by foreign investor interest.

Delving into the data, the CBC report noted that during the second quarter of 2023, the Cyprus House Price Index (HPI) reported a 1.5 per cent increase compared to the 2.1 per cent rise in the previous quarter.

This growth was primarily attributed to a 0.7 per cent increase in house prices and a substantial 3.1 per cent increase in apartment prices.

On an annual basis, housing prices increased by 7.4 per cent in the second quarter of 2023 compared to 7.7 per cent in the first quarter, with apartment prices rising by 10.1 per cent and house prices by 5.6 per cent.

The majority of property transactions involved domestic buyers. However, the largest annual increase in sales came from foreign investors.

The surge in demand, combined with limited new housing supply, appears to be the most significant factor contributing to the increase in property prices during the second quarter of 2023, the Central Bank of Cyprus noted.

What is more, the report explained that the increased foreign demand can be attributed mainly to the headquartering policy, which continues to drive the relocation of international firms to Cyprus, and the growing number of students and other investors in the real estate market.

Meanwhile, increased domestic demand appears to be mainly driven by investment purposes, including buy-to-let properties.

Furthermore, the Central Bank of Cyprus stated that, until the second quarter of 2023, the increase in the European Central Bank’s key interest rates and the subsequent decrease in demand for housing loans do not appear to have significantly affected domestic property demand, which continues to follow an upward trajectory.

“With construction costs stabilising in 2023, property price increases are mainly driven by increased demand in combination with limited supply,” the CBC said.

During the second quarter of 2023, property prices in all regions of Cyprus saw increases on a quarterly basis.

Specifically, in Nicosia, there was a 1.5 per cent increase, 1.4 per cent in Limassol, 2.7 per cent in Larnaca, 2.7 per cent in Paphos, and 2 per cent in Famagusta.

Regarding annual changes in the House Price Index by region, increases were observed across all regions for the seventh consecutive quarter.

In Nicosia, house prices increased by 4.4 per cent, 10.1 per cent in Limassol, 8.7 per cent in Larnaca, 7.9 per cent in Paphos, and 5.9 per cent in Famagusta.

On a quarterly basis, apartment prices increased in all regions except Limassol, which recorded a marginal decrease.

Additionally, in Nicosia, apartment prices increased by 1.8 per cent, 1.7 per cent in Larnaca, 0.9 per cent in Paphos, and 1.9 per cent in Famagusta, while Limassol showed a slight decline of 0.4 per cent.

Year-over-year, apartment prices increased in all regions for the eighth consecutive quarter.

In Nicosia, apartment prices rose by 4.2 per cent, 13.9 per cent in Limassol, 13.1 per cent in Larnaca, 16.3 per cent in Paphos, and 2.5 per cent in Famagusta, compared to the same quarter in 2022.

The Central Bank of Cyprus also reported an acceleration in the growth of property transactions during the second quarter of 2023, marking a 26.5 per cent increase on an annual basis.

A total of 4,115 transactions were recorded during this time, compared to 3,254 in the second quarter of 2022, marking the highest level in over a decade.

Notably, there was a 38.5 per cent increase in the number of properties sold to foreign buyers, with 1,871 transactions compared to 1,351 in the second quarter of 2022.

In contrast, the number of properties sold to domestic buyers increased by 17.9 per cent on an annual basis, with 2,244 transactions compared to 1,903 in the second quarter of 2022.

Meanwhile, following the increase in lending interest rates by the European Central Bank, new housing loans for property purchases in the second quarter of 2023 decreased by 2.9 per cent on an annual basis.

The average interest rate for housing loans during the second quarter of 2023 continued to rise, reaching 4.28 per cent, compared to 3.74 per cent in the first quarter of 2023 and 2.27 per cent in the second quarter of 2022.

The Central Bank of Cyprus also noted that lending criteria became stricter compared to the previous quarter.

However, these developments do not seem to have substantially affected the overall demand for properties in Cyprus until the second quarter of 2023, according to the Central Bank.

Finally, the Central Bank of Cyprus highlighted that, according to the state’s statistical service, the number of residential buildings for which construction permits were approved decreased by 13 per cent, falling from 906 in the April-May 2022 period to 788 in the same period of 2023. This decrease may indicate a decline in construction activity during this time.