In the current financial crisis, many who do not own their own home in Cyprus are questioning whether, it is in their best interests to buy or to rent a house or apartment.Those less familiar with the island and those who have no prior experience of property in Cyprus are concerned as they hear of the large increases in recent years in Cyprus property prices and whether or not it is a smart business decision to invest in a market that is in a difficult period.
Although one needs to consider many variables before answering this decision, currently it would initially appear that renting in Cyprus is the smarter economic decision.
Times have changed
Six months ago, it was relatively easy to obtain a low interest loan in from local banks in Cyprus, which made buying easy and also local property prices continued to rise, which was also favourable for buyers.
The current situation?
- Local interest rates have increased, and now monthly housing loan instalments from Cypriot retail banks are far higher than they were 6 months to a year ago and the cost of borrowing has gone up.
- Sales throughout the island have gone down, so there are many available apartments and homes on the Cyprus market in all major residential areas including Limassol, Paphos and Nicosia.
- Local banks, such as Marfin Laiki Bank and Bank of Cyprus, no longer grant loans easily as they feel there is too much lending already in property sector and they are not willing to continue giving high rate loans.
The factors to consider when deciding: income and cost
When looking at Cyprus properties for sale, whether you buy a villa property in Limassol for investment or to live in it, the factors you need to consider are:
- Annual rental payable compared to the value of the property
- Rate at which property prices in Limassol increase year on year
Assuming that the cost of buying is basically the cost of the loan (7-9% nowadays) then if the annual rental fees due will be greater than the cost of the loan, then it is better to buy, otherwise renting is the best option. Properties in Nicosia in particular are less affected by trends in tourism due to the city and business centre location and lack of seaside, therefore are more likely to retain value.
Perhaps renting in Cyprus is more advantageous today – but this needs to be researched
Due to the high current cost of borrowing and the uncertainty of future property market prices, many perhaps will feel that it is a safer option at the moment to rent a Cyprus home rather than buy. However if your annual rent paid is close to or greater than 10% of the value of the property, you should probably reconsider getting a loan to buy the property if possible. Current high cost of borrowing may be temporary.
Of course, interest rates are a major factor and the high cost of borrowing today is a deterrent for buyers, but in Cyprus, it is arguable if these levels can be maintained in the long term. As housing loans have a normal duration of 20-30 years, if it only turns out to be a few months of high interest, this probably have little bearing on the overall repayment over this extended time period.
Annual increase in property price
Due to current market uncertainty in the crisis, the rate of increase of property prices in Cyprus cannot be estimated, as it could go either way. However, over time, as Cyprus estate agents, we expect that property value will once again begin to increase at an annual average rate related to inflation, GNP and other factors such as cost of construction.
Purchasing a home is a decision of the heart and not only a financial one
This approach outlined above is of course only one way to look at it, as the decision of whether you wish to stay temporarily in a house or for a much longer extended period, is also a personal choice. A person living in a home they own has a very different feeling to one who lives in a house they rent. Each decision has its good and bad point. Ownership at the end of the day allows you to turn your house into your home, decorate and change as you wish, with no regard for a landlord, but at the same time gives you responsibility for all upkeep and maintenance of the house. To buy or to rent, is not purely a financial decision after all, but a combination of personal feelings and financial considerations.