House price index drops 1.4% on the 3rd quarter 2020

According to data provided by the Central Bank of Cyprus, house prices registered an annual fall of 1.4% in the third quarter of 2020. This is the largest drop in this period in the European Union (EU), according to official data. Furthermore, Cyprus had the largest quarterly drop (-4.8%) and the third-largest drop in the EU since 2010. The current global context caused a year full of contractions, typical of the prevailing uncertainty.

The Housing Price Index (HPI) for the third quarter of 2020 reached 104.21 units. Compared to the second quarter of 2020, the HPI decreased by 4.8% while compared to the Index of the same quarter of 2019, the Index decreased by 1.4%. Compared with the second quarter of 2020, house prices increased by 1.3% in the euro area and by 1.4% in the EU in the third quarter. The largest annual increases in house prices in the third quarter were recorded in Luxembourg (+13.6%), Poland (+10.9%) and Austria (+8.9%), while prices fell by Ireland (-0.8%).

Restrictive measures implemented due to the Covid-19 pandemic, including the initial closure of airports, prevented foreign investors interested in investing in Cyprus from visiting the country. In addition, the lower demand from local and foreign buyers in the second quarter of 2020 directly impacted the real estate sector prices. For now, the market is supported mainly by local buyers and incipiently by foreigners. While the purchase and sale of properties are strongly reactivated, it is still unknown to what extent the market will be affected by the pandemic.

The International Monetary Fund (IMF) anticipates a better performance for the world economy in 2021 compared to the outlook it anticipated in autumn, driven by the dynamics of the United States and the vaccine's effect. In its update of expectations for the G-20, the IMF considers that the global economy will reach an expansion of 5.5% this year, which is higher than the 5.2% expected by them in October. By 2021, Cyprus' economy is expected to recover around 4.5% of gross domestic product, after a 5.5% contraction because of the Covid-19 pandemic. The residential property price indices for Cyprus are constructed by the Central Bank of Cyprus’s Real Estate Unit (REU), which is part of the Economic Analysis and Research Department, in collaboration with the member banks of the Association of Cyprus.

The indices are based on property valuation data collected since 2006 by the contracted banks, which receive the relevant information from independent property surveyors in connection with mortgage transactions, such as housing loans, mortgage refinancing and mortgage collateral.