Cyprus is bursting, like a fat guy out of his leotard

Cyprus’ changing demographics are causing havoc to the real estate market, accentuating socio-economic imbalances and creating polarised communities. A bit dramatic? Let’s see.

The population in the government-controlled areas of Cyprus rose to 918,100 in 2021, up 9.2% from 840,000 ten years ago according to the preliminary results of the latest census. Anecdotal evidence suggests that the increase is higher, as many failed to complete the various submissions due to Covid restrictions. Since January 2022 more than 20,000 Ukrainian, Belarussians, and Russians moved to Cyprus because of the Russia-Ukraine war. The Minister of Interior recently announced that up to August 2022, 4,524 families applied to be relocated in Cyprus as part of the “headquartering initiative”, i.e. encouraging overseas companies to set up operations on the island. Assuming, an average size of 4 persons per family that’s an additional 18,000 persons. In sum, since 2011 the population has increased by circa 150,000 persons, i.e. equivalent to the population of Larnaca district.

Cyprus current fertility rate is 1.31 births per woman, well below replacement level and lower than the EU average of 1.55. As a result, the average household size has decreased from 2.8 persons in 2011 to 2.6 persons in 2021. Furthermore, those over the age of 65 have increased as a proportion of total population from 13.3% in 2011 to 16.7% in 2021. In a recent speech during an event of the association for large families, President Nicos Anastasiades recognised that Cyprus is faced with a “demographic problem” to which he added a patriotic element “the protection of Hellenism”, he said, is “an obligation, which is becoming necessary today, unlike those countries that take advantage of refugees and migrants to boost their populations”. Hilarious? Worrying? Dangerous? All the above.

Let’s summarise what has been happening. For the past three decades the country has encouraged foreigners to holiday, buy real estate, and do business in Cyprus. This was and is viewed as being positive, with considerable sums of money moving into the economy, know-how being transferred to locals, and local businesses benefiting from having more and wealthier clients. The pace of investment and immigration have increased since Cyprus’ accession to the EU in 2004, which, combined with changes in the ownership structure of some key companies across the island (e.g. banks, telecommunication companies, both airports, both ports, etc), have resulted in a much different socioeconomic landscape to what locals were accustomed to up to a decade ago.

The recent increase in population has pushed residential rents considerably higher to what locals can afford, many finding themselves priced-out of various submarkets especially in Limassol. Furthermore, several restaurants, shops, and other leisure destinations now exclusively target foreigners and the upper class being out of reach for the majority of the population. The influx in population has also caused an increase in traffic (more rental cars) and growing waiting lists for private schools (overflowing), in addition to putting a strain on medical services and the education system (which is not geared to assimilating non-Greek speakers).

The country is increasingly bursting at the seams with younger, richer foreigners moving to the island. This segmentation is likely to increase further, as a series of new developments planned across the island, especially in West Limassol and Larnaca city centre, are targeting overseas buyers and inhabitants, i.e. more immigration. Indeed, some companies are acquiring and developing real estate to accommodate their own staff, potentially creating small, organised communities under a corporate identity. That’s a bit too Orwellian for my liking.

With interest rates rising, high construction costs, and inflation affecting the disposable income of local households, it is logical to expect that demand will slow down. Indeed, this is also evidenced by the recent reports by banks on demand for loans (it being a lot lower than before). At the same time, we are seeing high levels of demand coming from overseas, mainly due to companies bringing staff/ hiring staff from overseas and investors looking to capitalise on rising rents/prices more recently from Lebanon and Israel. Past experience has shown that this is short lived and doesn't end well for anyone.

If the island manages to become and maintain its appeal as a place for companies to have a physical presence and do business in, then demand will continue unabated (albeit prices, due to an upcoming increase in supply over the next 2-5 years, will adjust accordingly). Either way, locals are unlikely to benefit from this over the near term unless they already have/ own real estate assets. Over the longer term, it’s a matter for the government to change the education system, improve assimilation, provide opportunities to locals, and upgrade the provision of services to all its people. To be clear, the actions of the government in terms of attracting businesses and knowhow from overseas are broadly speaking in the right direction. However, these appear to be ad-hoc rather than part of a wider plan, have put local businesses at a disadvantage, and, to date, have failed to be matched with decisive actions to reform the modus operandi of government, improve accountability and transparency, and provide assistance to households and businesses to protect them from the damaging effects of soaring prices.

In Cyprus there is an expression used to describe those who are lucky: “he/she has the bone of a hoopoe” (έχει κοκκαλούιν του πουπούξιου). It was believed that the one who kept the bone of a hoopoe could get the girl he loved, be acquitted in court (!), and much more. Very often reporters and market commentators use this expression to describe how Cyprus, given its troubled history, has a way of always getting out of trouble. However, in order for the bone of this bird to be so effective, the hoopoe would have to be killed personally by the person who posses it, but without a weapon; he would then have to bury the bird in the ground for 40 days, then dig it up, take the wishbone out of the bird’s skeleton and then wash it in 40 fountains that were all supposed to face the east. Lovely.

No birds were harmed in the writing of this article.