There is a lot of discussion about Cyprus joining the euro (on 1st January 2008) and the secondary effects this will have on the real estate sector in Cyprus.

o The first effect is that the loans will be less expensive. The current 4½% libor (Cy) rate will become (Euro) 4%. Although there is an expectation of an increase in the base rate of the euro, the difference is quite large and the rate of the euro is not expected to reach 4½% soon. This, in turn, will encourage funds/individuals to increase demand for real estate, with positive effects on property values.

o The deposit rate will also be reduced from the maximum 4.20% (Cy) to 3.70% (Euro), further encouraging real estate investments and acquisitions. Considering that land shows capital growth in Cyprus of around 10% to 15% per annum and buildings around 5% to 10% per annum, it will encourage holders of surplus cash to take a more enthusiastic interest in real estate. estate. It will also somewhat discourage those who hesitate to buy or rent, especially considering that rental income is around 3%-5% of the value of the properties (there is a great fluctuation depending on the type and location of the properties ). property).

o It will reduce delays and collections of money in transfers of funds from the Eurozone, encouraging greater real estate investment due to the reduction in costs/speed.

o Potential buyers (foreigners) will be able to compare Cyprus more easily with other competitive countries, such as Spain, Portugal, etc., with respect to their competitors in the euro zone, facilitating the decision, something that could again help the Cyprus market.

o There will be no single currency in relation to the exchange rate between money sent from abroad and money received in Cyprus (pensions, etc.), which often causes exchange rate problems.

So, despite the other negative effects that are expected to come especially in perishable goods (as has been the experience of other countries in similar situations), the euro is always welcome in terms of real estate. However, the positive effects on the real estate market should not be overestimated. Taking into account that the main market for foreign demand is the British market and to a lesser extent the Russian market, the possible effects will be limited.

One point to consider is the frequent fluctuation of the interest rate, which appears more frequently in the Eurozone, unlike Cyprus. Fluctuating rates, especially now with inflationary pressures caused by higher oil prices, will add uncertainty to buyers, who will consider their finances more carefully. The same, of course, applies to developers, who need cost security and we may find some additional cost due to the higher risks developers involve in terms of borrowing costs. What we will find, especially for Cyprus, is increasing competition from Cypriot banks, who will now have millions of pounds deposited in offshore/external accounts available and who are now not allowed to lend in Cyprus.

These additional millions will be available at local banks to lend, thereby increasing cash availability and hopefully reducing bank charges. So we will have to wait and see what the effects will be, but the situation is far from clear in terms of spillover effects on the Cyprus real estate market. But the safest thing is that the Eurozone will help, to a certain extent, to increase real estate demand, the effects of which we will soon discover.