In the current financial crisis, many of those who do not own their own home in Cyprus are wondering whether to buy or rent a house or apartment. Those less familiar with the island and those with no prior experience in Cyprus property are concerned to learn of the large increases in Cyprus property prices in recent years and whether or not it is a smart business decision to invest. in a market that is in a difficult period.
Although many variables need to be considered before responding to this decision, currently it initially appears that renting in Cyprus is the smarter economic decision.
The time has changed
Six months ago it was relatively easy to get a low interest loan from local banks in Cyprus which made buying easier and also local property prices continued to rise which was also favorable for buyers.
The actual situation?
- Local interest rates have increased, and now Cypriot retail banks monthly home loan lines are much higher than 6 months or a year ago and the cost of borrowing has gone up.
- Sales across the island have declined so there are plenty of apartments and houses available on the Cyprus market in all the main residential areas including Limassol, Paphos and Nicosia.
- Local banks, such as the Marfin Laiki Bank and the Bank of Cyprus, no longer lend easily because they feel that there is already too much lending in the real estate sector and are unwilling to continue lending at high rates.
The factors to take into account when deciding: income and costs
When looking for property for sale in Cyprus, whether you are buying a villa in Limassol as an investment or to live in, the factors you need to consider are:
- Annual rent to be paid compared to the value of the property
- Rate at which property prices in Limassol increase year on year
Assuming the cost to buy is basically the cost of the loan (7-9% today), then if the annual rental fees due will be more than the cost of the loan then it is better to buy, otherwise renting is the Better option. . Property in Nicosia in particular is less affected by trends in tourism due to its city and business center location and lack of coastline, therefore more likely to retain value.
Perhaps renting in Cyprus is more advantageous nowadays, but this needs to be investigated.
Due to the current high cost of borrowing and the uncertainty of future property market prices, many may feel that it is a safer option at this time to rent a home in Cyprus rather than buy. However, if your annual rent paid is close to or more than 10% of the property’s value, you should probably reconsider getting a loan to buy the property if possible. The current high cost of borrowing may be temporary.
Of course, interest rates are a big factor and the high cost of borrowing today is a deterrent to buyers, but in Cyprus it is debatable whether these levels can be sustained in the long term. Since home loans typically have a duration of 20 to 30 years, if it only turns out to be a few high-interest months, this probably has little to do with overall repayment over this extended period.
Annual increase in property price
Due to the current market uncertainty in the crisis, the rate of increase in property prices in Cyprus cannot be estimated as it could go either way. However, over time, as Cyprus real estate agents, we expect property values to start increasing again at an average annual rate related to inflation, GNP and other factors such as cost of construction.
Buying a house is a decision of the heart and not just financial one
This approach outlined above is of course just one way of looking at it, as the decision whether you want to stay in a house temporarily or for a much longer period is also a personal choice. A person who lives in their own home has a very different feeling than someone who lives in a rented house. Every decision has its good and bad points. Ownership at the end of the day allows you to make your house your home, decorate and change it as you wish, without regard to an owner, but at the same time gives you responsibility for all the care and maintenance of the house. Buying or renting is not a purely financial decision after all, but rather a combination of personal feelings and financial considerations.