By Pavlos Loizou, CEO Ask Wire
Cyprus and Greece have a common point of reference in real estate and services, but their balance reveals two different development models. Cyprus is still "building" its economy. Greece, on the contrary, lives mainly by making use of what it already has.
In recent years, in Cyprus, real estate-related activities represent approximately 15–16% of the country's GDP and are among the highest percentages in Europe. About two-thirds comes from rental income and property management, with the rest from construction. In cities such as Limassol or Larnaca, one in three new apartments are bought by foreigners (if not more), while large projects such as marinas, tourist complexes and energy facilities, change entire areas. This dependency has two sides since on the one hand, construction creates jobs and attracts capital, but on the other hand, it makes the economy more vulnerable.
House prices (houses and flats) have risen by over 25% since 2020 and both the Central Bank and the IMF are warning of a loss of affordability and rising inequalities. A large project that freezes or a reduction in foreign markets can be directly reflected in the GDP as Cyprus develops by "building" and its development depends on external cycles.
Greece follows a different path. Real estate activities contribute around 11–13% to GDP, while construction only 2–3%, with small increases due to European Recovery Fund projects. Growth comes mainly from the tourism, shipping and consumption sectors, rather than from new construction.
In recent years, however, the inflow of Foreign Direct Investment (FDI) in the Greek real estate market has increased spectacularly, reaching 40–45% of all FDI. The greater part concerns the purchase of houses through the Golden Visa program, especially in Athens and Thessaloniki. While this has supported the market and rekindled interest in renovations, it has not translated into widespread production of new properties. Most purchases concern existing apartments and are often made to capitalize on short-term rentals.
Small capital renewal remains a problem. Investments amount to 12%–13% of GDP and are almost half of pre-crisis levels. Building permits correspond to a third of those of 2007, while the average building is more than 30 years old. Profits from tourism and shipping are often channeled into imports or loan repayments rather than new infrastructure or productive projects.
All this has a direct impact on society, both in Cyprus and in Greece. In Cyprus, construction gives jobs but increases accuracy, while in Greece stability limits risk but also opportunities for new projects and employment. Thus, the model followed becomes income and not investment.
What does this mean for the markets in Cyprus and Greece?
• Estate agents: In Cyprus, activity will remain strong, but buyers are pressured by prices. In Greece, the market is mainly driven by foreign investors and Golden Visa purchases, with fewer new developments.
• Investors: Cyprus offers higher returns but also greater volatility. Greece more stable yields, especially in rental and tourist properties, with lower risk.
• Valuers: In Cyprus an understanding of rapidly changing values due to foreign inflows is required, while in Greece, accuracy in the valuation of old properties and limited transactions.
• Builders and development agencies: Cyprus has scope for more affordable and energy efficient projects, while Greece for renovations and reuse of existing properties, with support from European funds.
Therefore, we observe that Cyprus is building to grow and Greece is leveraging its existing real estate stock to maintain its growth trajectory. Both economies have held up after the crisis and the next bet is balance. Cyprus is called upon to diversify its development by connecting it with sectors beyond real estate and Greece to turn foreign interest into real investment renewal.
