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Cyprus is the Only EU Country with No Losses in Property Sales

Posted by chris on February 15, 2024

Cyprus is the Only EU Country with No Losses in Property Sales

The only country in Europe that has shown resilience in property sales is Cyprus, as transactions in the sector continued to increase in 2023 despite uncertainty and high inflation, while significant decreases in sales were recorded in other countries.

The European Systemic Risk Board (ESRB), in its report titled “Follow-up report on vulnerabilities in the residential real estate sectors of the EEA countries,” regarding risks in EU countries related to housing finance, notes that “almost in all countries for which data on housing transactions are available, the number of sales decreased in the second quarter of 2023 on an annual basis (Austria, Belgium, Bulgaria, Croatia, Denmark, Finland, France, Hungary, Ireland, Luxembourg, Netherlands, Norway, Portugal, Slovenia, and Spain), and significantly so in the overwhelming majority of cases.”

The only exception was Cyprus, where housing transactions continued to increase. Similarly, in most EU countries, there was a significant decrease in the volume of new housing loans.

In some countries where the volume of new housing loans decreased significantly in 2022, the annual growth rate rebounded in 2023, as the comparison was made from a low base.”

The ESRB considers that housing finance growth continued in Cyprus, although growth rates slowed on a quarterly basis from February 2023, partly due to companies relocating their headquarters to Cyprus, increasing demand for housing.

The latest analysis of the European Systemic Risk Board differs from the previous one conducted in 2021 when Cyprus was identified to have vulnerabilities, mainly because household debt to GDP ratio was one of the highest in the EU, resulting in Cyprus being considered high risk concerning debt servicing indicators.

The impact of interest rates is even more pronounced due to the very high share of loans with variable interest rates. Household debt remains high but has decreased somewhat since mid-2021.

“According to the European Central Bank’s bank lending survey, demand for loans from households decreased in recent quarters due to higher interest rates, lower consumer confidence, and worsening prospects for the housing market,” the report states.

Borrower behavior

The European Systemic Risk Board also notes in its report that the use of fixed-rate mortgages instead of variable-rate mortgages has changed in some countries in response to tightening monetary policy.

Several countries recorded a significant increase in the share of new loans with variable interest rates or short-term fixed interest rates (up to one year) in September 2022 compared to September 2021 (Italy, Sweden, and Denmark). More recently, some countries have seen a significant decrease of 10-30 percentage points in the share of new loans with variable interest rates (Cyprus, Greece, Italy, Luxembourg, Malta, Poland, and Portugal).

The reasons behind these changes may be households’ expectations regarding future interest rates or new products offered to borrowers mainly for loan refinancing.

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