Cyprus and Greece diverge sharply in their economic and housing strategies, according to Pavlos Loizou, CEO of Ask Wire. This distinction highlights how both nations navigate their respective growth models, with Cyprus focusing on expansion through construction and Greece leveraging existing assets.
- “The model followed in each case becomes income-based rather than investment-based,” Loizou explains, highlighting the need for both countries to reassess their strategies for sustainable growth.
Housing: Distinct Economic Models in Cyprus and Greece
Loizou explains that Cyprus continues to build its economy, relying heavily on real estate-related activities that contribute approximately 15–16 per cent of its GDP. This places Cyprus among the highest in Europe for the ratio of GDP derived from real estate. Two-thirds of this contribution stems from rental income and property management, while construction accounts for the remainder.
In urban centres like Limassol and Larnaca, the impact of foreign investment is notable. Loizou points out that “one in three new apartments is purchased by foreigners, if not more,” indicating a robust international interest that is reshaping local landscapes through large projects such as marinas and tourist complexes.
Growing Concerns Over Economic Vulnerability
However, this heavy reliance on construction poses risks. Loizou cautions that the sector’s vulnerability could become more pronounced in the event of a significant project freeze or a downturn in foreign markets. He states, “Housing prices have increased by over 25 per cent since 2020,” emphasising warnings from both the Central Bank of Cyprus (CBC) and the International Monetary Fund (IMF) regarding affordability and rising inequality.
Without a diversified economic approach, Cyprus’s growth is at the mercy of external cycles. Loizou’s insights reveal that the health of the economy is closely tied to construction activity, making it pivotal for long-term sustainability.
Greece’s Reliance on Established Assets
In contrast, Greece maintains a more stable economic model where real estate contributes around 11–13 per cent of its GDP, with construction only representing a modest 2–3 per cent. Loizou attributes this to a reliance on sectors like tourism, shipping, and consumption, rather than new construction projects. The modest gains in construction are primarily linked to European Recovery Fund initiatives.
Despite this stability, Greece has witnessed a surge in foreign direct investment (FDI) in real estate, now constituting 40–45 per cent of total inflows. Loizou notes, “The majority of it concerns the purchase of housing through the Golden Visa programme,” with Athens and Thessaloniki being prime locations for these investments.
Impacts on Property Development and Employment
While foreign investments have bolstered market interest, Loizou highlights a significant issue: “This has not translated into widespread production of new properties,” as most transactions involve existing apartments, particularly for short-term rentals. He draws attention to the low levels of capital renewal, with investment rates hovering around 12–13 per cent of GDP—almost half of pre-crisis levels.
Building permits in Greece correspond to only a third of the numbers issued in 2007, and the average building is over 30 years old. This stagnation suggests a need for revitalisation in infrastructure to enhance the country’s long-term economic prospects.
Social Ramifications of Economic Strategies
The contrasting approaches of Cyprus and Greece lead to different social outcomes. Loizou articulates that Cyprus’s construction boom provides jobs but also intensifies economic precision. In Greece, while stability mitigates risks, it simultaneously curtails opportunities for new projects and employment.
“The model followed in each case becomes income-based rather than investment-based,” Loizou explains, highlighting the need for both countries to reassess their strategies for sustainable growth.
Implications for Investors and Real Estate Agents
Looking ahead, the implications for the real estate markets in both nations are significant. For real estate agents in Cyprus, Loizou predicts that “activity will remain intense,” although buyers are increasingly pressured by rising prices. Conversely, in Greece, the market remains largely influenced by foreign investors and Golden Visa purchases, with fewer new developments emerging.
For investors, Cyprus may offer higher returns but comes with increased volatility. Greece, on the other hand, provides stable returns, particularly in rental and tourist properties, albeit with lower risk exposure.
Opportunities Ahead for Builders and Developers
For builders and developers, Loizou identifies opportunities in both markets. Cyprus has potential for more affordable and energy-efficient projects, while Greece presents avenues for renovations and the reuse of existing properties, supported by European funds.
Both economies have shown resilience following past crises, but their future challenges lie in achieving a balanced approach. Loizou concludes that “Cyprus is called upon to diversify its development by interconnecting it with sectors beyond real estate, and Greece to transform foreign interest into real investment renewal.”
