| We are experiencing a unique and an unprecedented | | | | have the time to exchange some information how |
| economic situation, which has so far affected most | | | | this scam was planed and is organized and how some |
| countries and at this point of time we do not have | | | | of these international crooked estate agency firms |
| signs on whether the situation will improve or it will | | | | suddenly left the island with the downturn of the |
| worsen. Living in a global economy, no country will be | | | | market, whereas other have gone into a voluntary |
| exempted, although it will depend on the extent of | | | | liquidation (obviously so that no (one can chase |
| its negative effect from country to country. | | | | them). So their clients are now left stranded in the |
| Usually, Cyprus so far has been lucky enough to | | | | desert during a period of no demand with nowhere |
| override economic and other crisis, based on the | | | | to turn and with very little advice. Most of their staff |
| misfortunes of others. So the 1974 invasion was | | | | has left and the bosses are nowhere to be found, |
| followed by an influx of the Lebanese as a result of | | | | whereas as the British legal system is at the |
| their civil war, with millions of investments in Cyprus, | | | | moment, they bear no responsibility towards their |
| the oil boom that followed in the 1980's had again | | | | clients. |
| helped Cyprus due to the influx of millions of petrol | | | | A basic criterion in the worsening or not of this |
| dollars, including the creation of an Arab based | | | | situation, is the strength and support of the local |
| demand for real estate, the Yugoslavia civil war has | | | | banks who are financing developers and buyers. It |
| had a similar effect, whereas the Russia revolution of | | | | appears that local banks have a solid foundation and |
| the Yeltsin era, has added to the island's good future. | | | | their loans are covered by a 20%-25% buyer's |
| Now, I am afraid, the situation is quite different and | | | | contribution (in contrast to the 100%-110% loans in |
| more difficult. Cyprus has not, as yet felt the full | | | | U.S.A. and some European countries). At the same |
| affects of the situation, no one has lost his job and | | | | time, locals, who are very much attached to their |
| the only noticeable affects at this point of time in the | | | | land/property, will most unlikely offer their property |
| drop of the stock exchange values. This globally | | | | at substantially reduced prices. A Cypriot very rarely |
| uncertain situation however has caused demand | | | | sells under pressure (they either withdraw their |
| especially from abroad to be reduced drastically. | | | | property from the market or you may even notice |
| Cyprus real estate demand comprises of | | | | that some of them increase the prices), whereas |
| approximately 80% locals and 20% foreign. As such | | | | local banks will not/cannot take speedy action on a |
| and bearing in mind the large percentage of the | | | | mortgage foreclosure. So whereas in U.S. a |
| foreign market, the local market is affected positively | | | | mortgaged property can be sold within 3-5 months, in |
| or negatively depending on the economies of the | | | | the U.K. 5-6 months, in Greece 9 months, in Cyprus |
| countries whose nationals buy in Cyprus. Out of the | | | | the system is such that it will most likely take 6-9 |
| total foreign demand, approximately 70% comes | | | | years, whereas if it relates to the main residence, it |
| from Britain, 10% from Russia and the rest from | | | | will extend to 12-15 years (see Pieris example that it |
| other European countries. With the dependence of | | | | took 40 years). So, this inefficient system causes, in |
| the market on the U.K. and with the prevailing state | | | | such occasions, luckily for Cyprus a technical |
| of the U.K. economy, it is evident that demand from | | | | reduction in the supply, which will help towards the |
| this market source has been reduced considerably. So | | | | minimization of property prices reduction. |
| we notice that in those localities that the Brits are | | | | The Cypriot economy depends basically on the |
| interested at (Paphos and Famagusta area primarily | | | | tourist industry with a foreign currency of EUR2 bil. |
| and to a lesser extent Larnaca and Limassol) there is | | | | foreign exchange, the building industry with a EUR1.3 |
| a considerable drop of interest. For Paphos the | | | | bil. foreign sales and the offshore Cos with a foreign |
| reduction in demand and sales prices is around 25% | | | | income of around EUR600 mil. So if this situation |
| for apartments and 20% for villas, whereas for the | | | | continues and in addition to the real estate there is a |
| Famagusta area the reduction is 25% for apartments | | | | sharp reduction in the nos and spending power of |
| and 10% villas. For the Larnaca region the reduction is | | | | tourists, it will affect the economy substantially. If the |
| 10% across the board other than apartments at | | | | reduction of the foreign demand reaches 50%, it will |
| Oroklini -25%. Limassol has not experienced any | | | | produce a loss of 10% of the total market and |
| noticeable reduction at this point to time, primarily | | | | based on a prediction of a local demand drop of |
| because the Russian market is quite active there | | | | 20%, it may cause the reduction in the property |
| (approximately 80% of the Russian demand directs | | | | prices of around 20%-30%. This refers basically to |
| itself for this town and the rest 20% all over) and | | | | residential (routine projects) and residential land. It is |
| because Limassol is experiencing heavy infrastructure | | | | worthy to note that the Office and Commercial |
| investment and development. The new seaside | | | | market is quite active and especially in Nicosia and |
| sports ground, the promenade works, the land | | | | Limassol, demand is improving. Again it is a matter of |
| reclamation, the old fishing port conversion, the new | | | | timing and how the financial year 2009 will behave. |
| marina and the location of the new technical | | | | Predictions are predictions and must be studied as |
| university, are all factors, which have helped the | | | | such, since the situation is very flu and it changes |
| Limassol market. It is, of course, a matter of time. If | | | | from day to day. A careful watch must be directed |
| the situation that exists at the moment continues for | | | | towards the Russian market, which is quite active in |
| another 6-9 months, I would expect a direct price | | | | Cyprus and which so far has not shown signs of a |
| reduction for Paphos/Paralimni around 30% and for | | | | reduction. On the contrary with the state of the |
| the Larnaca region 18%, whereas Limassol will also | | | | European Banks there in hope that Russia deposits in |
| feel the pitch at around 10% in certain areas. Nicosia | | | | Cyprus will increase. On the other hand oil prices are |
| market, which is Cypriot demand based, is not | | | | going down and the Russian stock market is having a |
| expected to be affected more than 12%-15% (price | | | | down turn and these signs must be monitored. |
| reduction). | | | | In concluding I would like to say that we do not |
| The Cyprus real estate market is more sensitive for | | | | expect that local property values will reach the U.K.'s |
| the routine projects, which have no competitive edge | | | | price reduction of 25% (commercial properties) and |
| against other market alternatives and for which there | | | | the 15%-20% for residential, but some ill affects will |
| is ample supply. So routine flats in individual blocks or | | | | certainly reach us. Again on a positive note local |
| in projects with a common pool not in attractive | | | | banks are not known for their aggressiveness so the |
| localities, will be affected more than others. On the | | | | pressure placed on the clients will not cause them |
| other hand beach property will sustain their market | | | | necessarily to rush and sell. |
| since the available supply is fast reducing and we are | | | | A logical question is then shall I buy now or wait next |
| running out of beach!! Beach prices have shot from | | | | year when prices will be reduced further? A difficult |
| EUR8.500/sq.mts. to EUR15.000/sq.mts. within one | | | | question to answer, since if on the one hand you find |
| year (we refer to beach villas of good quality in the | | | | something you like now, but you give it a miss, |
| Limassol area). Beach property at Larnaca and | | | | because you expect the prices will drop further next |
| Protaras are expected to sustain their existing prices | | | | year, the property might not be there by the time |
| of around EUR6.000-EUR8.000/sq.mts. (beach villas). | | | | you decide. On the other hand if you are not |
| What is more worrying is the number of resales | | | | particular, then perhaps, waiting for another 6 months |
| (property bought and the buyers due to the situation | | | | may be a good move. In my estimation, based on |
| back home sell them at discount prices) that it is fast | | | | international analyst economic expectations, that |
| increasing. Most resales are from the British market | | | | prices will reach the bottom by mid 2009 prior to the |
| and it is not uncommon to offer their property with | | | | tourist season and from there on they will be on the |
| a discount of 20%-30% from their pre-crisis situation | | | | path of improvement. |
| values. The large reduction is encouraged by the | | | | On a positive note we are all aware of the anxiety |
| increase in value of Euro vis-à-vis the sterling, | | | | that people have for their bank deposits. If you are |
| so the effective reduction may not be more than | | | | really worried that your money deposits will be gone |
| 10%-15%. Again referring to the British demand, the | | | | and as an alternative of buying a safe and keep your |
| mainly British based cowboys-illegal estate agents, | | | | money in house, buy property since at least it will not |
| who charge 15% commission and who organize | | | | go anywhere and sometime in the future prices will |
| inspection trips etc, have passed on this high | | | | recover. Real estate might drop in price, but then, as |
| commission level to their buyers (through the | | | | you know, the real estate market is a cycle, so at |
| developer). As such numerous people have bought | | | | least you have a hope to reduce your loss in the |
| property at inflated prices in excess of 10% and | | | | future. |
| without having the right to choose. Perhaps we will | | | | |