By Pavlos Loizos, CEO of Ask WiRE
A reminder of the government's role in housing and providing access to education and health care: Governments establish housing affordability policies by offering financial assistance for housing and supporting the construction of low-cost housing. In the field of education, governments fund public schools and universities, making education accessible to all, and provide financial aid to students. In addition, they implement health care systems or programs to provide affordable medical services and insurance to citizens. By focusing on these key aspects, governments promote equal opportunities and improve the overall well-being of their people, promoting a fairer and more prosperous society.”
There is no mention of the increase in wealth of professional classes such as land developers or construction companies. Unfortunately, the government, encouraged by lobby groups consisting of contractors, investors and professionals related to the real estate industry, e.g. brokers, contractors, lawyers, accountants, etc. they push for the wrong things, such as:
- Reducing VAT on build-to-let properties so that they are 'encouraged' to build more residential properties to let out at lower rents. Who will guarantee that rents will be lower? Lower than what?
– Remove minimum apartment size so they can build/sell smaller units, which makes them more “affordable” to the world. So the answer is not “to make less profit” but “to make smaller apartments”?
– To put state land up for development in order to increase the supply of housing and thus meet the demand. I note that the government is pricing its land at 'zero', which means on paper it is giving away something that is worth nothing. Why is the government giving away an asset instead of forcing the private sector to solve the problem?
But, let's take a closer look at the residential real estate market. Rising interest rates are reducing the appetite for mortgages, and yet demand for residential real estate investment continues to defy gravity. It seems that external factors dominate, while fundamentals have taken a back seat.
The main external factors affecting property demand in Cyprus are three: First, immigration after the war in Ukraine, which brought about 30,000 highly skilled people. Second, the economic downturn in Lebanon is pushing Lebanese families and businesses to our sunny shores. And third, political instability in Israel leads families and businesses to seek stability in Cyprus.
These new entrants have caused a stir in the residential property market, particularly in Limassol, Larnaca and Paphos and are disrupting the market data. Rising rents and high property values are attracting capital, making us optimistic that property supply will increase to meet demand. But rising property prices are creating a struggle for locals, whose wages can't keep up. While some benefit from the influx of capital, there is an undeniable toll on the less fortunate. Unfortunately, the main problem with what is happening will not be lack of affordability, but gentrification (gentrification: A barbaric gentrification that victimizes the residents). This term describes a process in which a previously low-income neighborhood is transformed by an influx of affluent people, leading to an increase in property values and the cost of living, which can displace the original, often less privileged, residents. Service delivery may also be affected. For example, shops, restaurants and other services that catered to the original population may be replaced by high-end shops catering to the new, wealthier residents, e.g. restaurants on Lady's Mile beach, private schools etc. What should the government do? A strict and transparent regulatory framework is vital.
The government should consider the following:
- How can we unlock all the unexploited land and the unexploited building factors in our cities? We need to develop the city centres, which already have all the infrastructure in place and which will create the necessary density of people for commerce to work without people having to drive into the city. To tax idle wealth, much of which is in the hands of a few families, banks, investment funds, and the Church.
- Affordable housing programs: Could include policies such as rent control, housing vouchers, and zoning (requiring that a portion of new construction be set aside for affordable housing, etc. .g. to be given to the COAG).
- Development of low-cost housing: Encouraging the construction of low-cost housing can increase the supply of affordable housing. This may include subsidizing such construction, reducing regulatory barriers, or using innovative construction methods to reduce costs.
- Urban planning: Better urban planning can make cities more accessible by improving public transport (to make more remote and cheaper areas more accessible), as well as rezoning areas for residential use and planning mixed-use developments. . Unfortunately, government intervention seems limited and any long-term planning seems even more distant. We hope that the government's focus will not remain on superficial issues, and that important problems such as
underutilized and untaxed properties, low urban density and unresolved social security issues will not be ignored. While the current situation in the Cyprus housing market has led to an increase in prices and rents, it is important to see this as an opportunity for the state to capitalize on these challenges in order to develop sustainable and long-term solutions.
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