Euro effect cools 'overheated' cyprus

Cyprus house price inflation will cool this year, according to Assetz…

Cypriot property has been in the news for many reasons in recent years. A period which has seen the small Mediterranean island join the European Union in 2004 and adopt the euro from New Years' Day this year has been a particularly active one for investors.

During this time many have been getting involved in a market which offers buy-to-let prospects for those looking to serve a tourist market drawn in by sunshine, beaches, culture and history, while also hosting a large ex-pat community and having links to Britain via the Commonwealth.

What is clear is that property prices have risen substantially in line with the boom. The latest figures for house prices, from the BuySell Index, indicate that 2007 saw prices rise by 19.2 per cent. This was despite a 1.9 per cent year-on-year fall in December.

Prices ‘spiralling’

The Cyprus Mail noted that the annual rate of inflation in the market was nearly three times that of 2006, when it was 6.6 per cent. Perhaps just as significantly, it also noted that prices fell in each of the last three months of 2006 before rising by 2.6 per cent last January. This may suggest that seasonal factors are at work and the December 2007 figure may thus be no more than a blip.

However, those looking for bargains will prefer lower house price inflation this year, which will help prevent prices spiraling out of reach. The good news for them is that a slowdown is expected by analysts in 2008, of which December's figures may therefore be an indicator. Speaking to Reuters, Yiannis Telonis of Hellenic Bank commented: "It seems we have a slowdown in the market but not to such a significant extent."

"Personally, I believe we will have a cooling effect this year", he added.

One factor which may prevent an overheating of the market is that now Cyprus has adopted the euro, it will be subject to the stabilising force of the system. In particular, there is the possibility of the European Central Bank (ECB) raising interest rates. At its last meeting the ECB held rates but warned it may soon raise them to curb inflationary pressures

Costas Apostolides of EMS Economic Management Services told Reuters this factor may be an in helping to slow the boom. So too, from the point of view of how much finance overseas investor could afford, was the credit crunch, he suggested.

Stabilisation part of ‘the bigger picture’

Yet the stabilisation of the housing market this year after a hot 2007 may just be part of a bigger picture. Quite apart from its new European political and now economic relationships, Cyprus was listed this week in the Heritage Foundation / Wall Street Journal Index of Economic Freedom as the freest economy in south-Eastern Europe.

This may also be a wider consideration investors wish to pay attention to, putting the island ahead of many of the new property markets in the Balkans. Even if the house price inflation rate is cooling, Cyprus has been moving fast in many ways.