A positive angle coming out of Cyprus, that the country will weather the financial crisis. I don’t know if that is because the banks in Cyprus are less exposed to all the toxic debt that seems to be in the system. I recall that the Spanish banks and Government took a long time to admit their exposure to the banking crisis, and we know that Spain has turned out to be in a pretty rotten position – maybe the worst in Europe. Just talking up the property market in Cyprus will not help if the buyers have all disappeared.
Cyprus economy and financial system will weather the crisis
With house prices falling across Europe by the end of 2008 and prospects even gloomier, the revival of the housing sector now relies on the ability of European governments to cope with the mortgage credit shortage and on the scale and duration of the economic recession, according to the Royal Institution of Chartered Surveyors (RICS) European Housing Survey.
Despite the overall pessimism with regard to static or falling house prices in Europe and the chances of core housing markets escaping market downturns now being slim, the survey’s analysis of the Cyprus market allows for some optimism.
The survey concluded that the sustained housing boom is over, with property registrations between October 2007 and October 2008 down 24% according to the Property Valuers Association and the Real Estate Agents Association, adding that sales were 40% down in coastal areas because of a decline in foreign buyers.
The housing market had experienced buoyant conditions in recent years. When Cyprus joined the EU a few years ago, a boost was given to both the economy and the housing market, which was reinforced by accession to the euro area in 2008. In the run-up to the euro, the housing market was very active and prices rose rapidly. However, by 2008 the asking prices for houses had levelled off.
Housebuilding levels in Cyprus are very high and Cyprus seems in recent years to have the highest rate per population in the EU, with the housing stock expanding by 30% in the past decade. Though a slowing in the market is evident, the extent to which the general global economic slowdown will affect the housing market is hard to predict.
The Central Bank of Cyprus is confident that the economy as a whole and the financial system will both weather the crisis. But much depends on overseas interest in homes on the island as both UK and Russia have been badly hit by the economic crisis and have seen their currencies slump against the euro.
The government offered assistance to the construction industry in late 2008 with a EUR 25 mln stimulus package, but the survey predicts that job losses may be high.
“The world financial crisis and economic downswing have hit European housing markets badly. Some countries, like Ireland and the UK, led the decline but by the last quarter of 2008 the effects had spread across Europe,” said the report's author, Michael Ball, professor of Urban and Property Economics at the Department of Real Estate and Planning at the Business School at Reading University.
“Given the broader context in which these housing market downturns are taking place, there is greater synchronisation of housing market decline in Europe than has been seen in the past and there are going to be some tough times before marked recovery occurs.”


More optimism from Cyprus – having not been in the Euro it seems that they managed to maintain their growth targets and are still forecasting growth in the coming year, albeit admitting that it will be reduced by drops in the tourism and construction sector. Find out about our latest mortgage deals for Cyprus by checking out our websites http://www.amortgageincyprus.com and http://www.europamortgages.com
Cyprus economy in enviable position

THE GOVERNMENT is maintaining its growth forecast of 2 per cent of GDP for 2009, and expects a deficit of about 1 per cent, Finance Minister Charilaos Stavrakis said yesterday.

“Cyprus has been more successful than the norm in facing up to the crisis, and is in an enviable position in the EU”, he added.

Stavrakis was reviewing the 2008 results and prospects for 2009 in a presentation given to the press. Given the Minister’s frequent statements over recent months on matters of substance, there were no surprises in the presentation.

He reiterated that the three main pillars of his economic policy during 2008, which will be maintained during the current year, were economic growth, social cohesion and macroeconomic stability.

“We hit our growth targets in 2008. Annual growth was 3.7 per cent, the third highest in the eurozone, and fourth quarter growth of around 3 per cent was the highest in the eurozone”, Stavrakis said.

Contributing factors identified by the Minister were Cyprus’ success in attracting foreign investment thanks to its continuing favourable tax environment, the new focus on the Russian market, and the government’s programme of public works. Stavrakis pointed out that while Russian investment has dropped significantly elsewhere, it has remained relatively stable in Cyprus. The public works programme will continue in 2009, and is expected to have a real impact in the second half of 2009, he said.

The government’s forecast for 2009 is 2 per cent growth, which factors in an anticipated 10 per cent or more reduction in the key tourism sector, sluggish consumption and a further slowdown in the construction sector. For 2010, the growth forecast is between 1 and 2 per cent. “If tourism is reduced by more than 10 per cent, this will push growth below the 2 per cent forecast for 2008”, Stavrakis said.

The government’s forecasts may appear optimistic when compared with those of the IMF and European Commission (EC). Although Stavrakis acknowledged that what happens in the global economy cannot be predicted and is likely to have an impact in Cyprus, he drew attention to the fact that between Spring 2008 and January 2009, the EC revised its forecasts downwards by 3.5 per cent for the eurozone, 4.4 per cent for the UK and 3.8 per cent for Germany, but by only 2.6 per cent for Cyprus. “This confirms our view that Cyprus has been more successful than the norm in facing up to the crisis”, he said.

Inflation was relatively high at 4.4 per cent in 2008, roughly 1 per cent higher than the eurozone average throughout the year. However, the December 2008 figure showed a sharp dip to 1.8 per cent, practically matching the eurozone average.

There was a fiscal surplus of about 1 per cent of GDP in 2008, and public debt was reduced from 59.4 per cent in 2007 to 49.3 per cent. These two successes contributed towards the upgrading of Cyprus’ credit rating from A to A+ by Standard & Poor’s.

The government is expecting a fiscal deficit of less than 1 per cent in 2009, “despite the big drop in public revenues in 2009, despite the increase in social payments, despite the packages for stimulating the real economy, and may well be the lowest in the eurozone”, Stavrakis said.

Taken together with its forecast of 1 to 1.5 per cent inflation and public debt of less than 50 per cent of GDP, Stavrakis said that “Cyprus is in an enviable position in the EU.”

Looking further at prospects for 2009, Stavrakis reiterated the details of the two stimulus packages announced in December 2008 and February 2009 respectively, with a total value of €470 million, and the measures already taken by the government and Central Bank to inject liquidity into the banking market.

Stavrakis included a slide in his presentation which showed that the result of the government’s continuing programme of keeping around €1 billion in 7-day deposits with the commercial banks was that the cost of those funds had come down from over 6 per cent in September 2008 to less than 2 per cent in recent weeks. “This clearly shows that there is no longer any need for the commercial banks to offer high deposit rates to their customers”, he said pointedly.

During the question and answer session, Stavrakis repeated his view that lending rates “are much higher than they should be, although some banks and the co-ops have started to reduce them on some loan products.” He added: “I have full confidence that the Governor of the Central Bank is taking the right measures so that lending rates will also come down in Cyprus.”

Invited to comment on this week’s statement by Marfin Group Executive Vice-Chairman Andreas Vgenopoulos that Marfin Laiki is prepared to refinance the state’s public debt at a favourable interest rate, Stavrakis said that although the offer is welcome, “there is a transparent offers process which would involve asking all banks for their best offer.”