Polys Kourousides: Developers are taking a more energy-efficient approach

Polys Kourousides, Chairman of the Cyprus Valuers Association (CVA) shares his predictions for the housing market in 2023, explains why the country should utilise its strategic advantages more effectively and notes the increasing importance of sustainability in the real estate sector.

How would you describe the investment outlook for Cypriot real estate in 2023?

The Cyprus real estate sector has entered 2023 with a general sense of optimism, despite the negative events of the previous year – the war in Ukraine, the energy crisis, rising inflation and higher interest rates – which undoubtedly disrupted the market and created a great deal of uncertainty. Numerous Russian companies pulled out of the market and the tourism industry had lost a significant source of visitors, as Russia was second only to the UK in terms of arrivals. However, the market has proved to be resilient once again; tourist arrivals recorded significant levels last year, with revenues reaching about 80% of those in pre-pandemic 2019. In addition, a number of Russian-based Ukrainian and American companies have now relocated their headquarters to Cyprus, bringing in significant numbers of employees, which revitalised the market – especially Limassol – following the termination of the Cyprus Investment Programme, which had disrupted the demand for high-end properties. Looking ahead into 2023, housing affordability is expected to significantly affect local demand due to rising interest rates but that is expected to be offset by foreign demand, which is well on the rise. Compared to 2021, the number of new sale contracts submitted in 2022 increased significantly (by around 30%).

The pandemic and geopolitics have created a challenging environment for investors everywhere. Why should someone invest in real estate in Cyprus?

The real estate market is undoubtedly volatile and is characterised by high levels of investor uncertainty. Apart from the consequences of the pandemic, which is now gradually fading, other geopolitical upheavals, including the war in Ukraine, as well as unstable relations with Turkey, are certainly creating challenging conditions for investors. Therefore, it is particularly important that we solve the longstanding Cyprus issue, which, in turn, will boost investor confidence and lay the foundations for long-term stability on the island. Other significant challenges that investors face is instability in the Middle East, the effects of the global energy crisis on the cost of construction materials and the increased cost of borrowing due to higher interest rates. However, despite all these challenges, the real estate market offers tremendous opportunities for investors and there are numerous reasons why someone should invest in Cyprus. Apart from its strategic location, Cyprus offers significant returns, companies benefit from tax incentives and other programmes offered by the Government, which wishes to make the island a headquartering hub for multinational organisations. There are also various investment opportunities in logistics, energy, the oil & gas industry and tourism, as well as in the office market.

What trends do you expect to dominate the market over the next decade?

Among the trends that are expected to dominate the real estate market in the following decade is a more energy-efficiency-oriented approach by developers. The focus will be on utilising natural resources and integrating renewable materials into the construction process, in order to benefit from lower operating expenses. More specific to the Cyprus real estate market is the fact that we are heading into an era of high interest rates and high inflation and both will have profound effects on the cost of borrowing, as well as on the purchasing power of households. At the same time, the reduced availability of financing, in conjunction with the increased cost of construction materials, will make potential buyers seek smaller units.

How can the sector respond to the challenge of environmental sustainability while remaining profitable?

The real estate sector is gradually moving into an era in which environmental sustainability is becoming a key factor in the design and construction of residences. As I have already mentioned, developers are increasingly taking a more energy- efficient approach to their buildings while, at the same time, increasing profitability. Buyers are willing to pay higher prices for energy efficiency features because they recognise the long-term effect on savings and running costs, which more than offsets the additional cost involved in the initial installation of such features. This is particularly important for Cyprus, given the abundant levels of sunshine throughout the year.

If a long-term investor, looking for returns with a 10-year+ outlook and willing to invest €1 million in real estate in Cyprus, were to appoint you as his/her investment consultant, how would you advise him/her to structure the portfolio?

Taking current and projected trends into consideration regarding the Cyprus real estate market, as an investment consultant, I would advise the investor to structure his portfolio with a degree of diversification. The capital should be spread across different markets, in order to maximise returns, while at the same time minimising risk exposure. Investing in Grade A offices should be a key portfolio component. Other property types that I would advise someone to invest in are apartments in city centres or near universities, as they attract tremendous levels of demand and solid returns, given the present shortage of supply. Other areas to be considered are assisted-living houses and logistics, as both are expected to perform significantly well in the future.

(This interview first appeared in the February 2023 issue of GOLD magazine. Click here to view it.)