KPMG Cyprus Economy Report 2018

After reaching its nine-year high in 2017, the Cyprus economy continued it's positive growth in 2018. According to the Ministry of Finance, the GDP growth reached 3.9%, which is almost twice higher than the EU average of 2.2%. The IMF predicts that the growth will continue to 4.2% in 2019, and then a steady slowdown to 2.4% in the next 5 years (but still higher than the EU average). Such impressive growth has been made possible by strong domestic demand and export increase.

Since the economic crisis in 2013, the country has made significant progress. For the first time since 2012, the rating agencies S & P, Fitch and DBRS have raised the sovereign credit rating of Cyprus to an investment grade with a stable outlook.

The inflation rate as of Q3 2018 in Cyprus fell to 0.5%, which is significantly lower than the average inflation rate in the Eurozone at 2.1%. The unemployment rate also dropped significantly and, according to Eurostat, amounted to 7.5% in August 2018, which was even lower than the average for the Eurozone. The IMF predicts that unemployment in Cyprus will fall to 6.1% by 2023.
Economic success is closely linked to such key benefits of Cyprus as the tax regime, the legal system, safety and quality of life. Attractive tax treatment, clear schemes and low rates have long been a visiting card of Cyprus. The corporate tax on the island is one of the lowest in Europe - only 12.5%. Cyprus has double taxation treaties with more than 60 countries. The excellent legal system, which was strongly influenced by the English common law, guarantees the protection of investments and intellectual property. In addition, Cyprus is in the top 5 safest countries in the world (Value Penguin 2015) and has the best economy among the islands in 2017–2018 in terms of lifestyle and human capital (fDi magazine).

Cyprus real estate market has also shown traditional growth in the past year. Real estate sales increased by 21% over the period to Q3 2018 compared with the same period in 2017. Limassol occupied the largest market share, it accounted for 37% of real estate transactions, followed by Paphos with 24%.

Real estate sales to foreigners illustrate this growth more clearly - it reached 103% for the period up to the 3rd quarter of 2018 compared to the same period of the previous year. Property purchases by non-Cypriots accounted for 48% of the total number of transactions. The most popular among foreigners are properties in Paphos (39%) and Limassol (30%), followed by Larnaca (16%). The number of transactions made by non- Cypriots in Nicosia, by contrast, was the lowest and amounted to 5% of the total volume.

It is important to note that the cumulative average annual growth rate (CAGR) with respect to expensive properties (> 1 million euros) increased by 88% over the years 2013 - 2017. Limassol plays a key role in the high-value real estate market, accounting for more than half of all transactions made from 2016 to 2018. The cost of about 60% of such properties amounted to € 1-2 million, 27% of the objects were sold for € 2-3 million and 8% - more than € 3 million. It is noteworthy that among all the properties sold in the expensive segment, the overwhelming majority were apartments in Limassol, whereas in Paphos houses were in great demand.

The Cyprus tourism sector has been breaking records in the past few years. In terms of the number of tourists arriving, 2017 was the most successful year in the history of Cyprus, but 2018 was equally impressive. According to official statistics, the influx of tourists for the period up to September 2018 increased by 7.9% compared to the corresponding period of 2017. The net occupancy rate of Cyprus hotels increased by 15% from 2014 to 2017 and is 76.4%. This result allows Cyprus to lead confidently in occupancy of hotels among such Mediterranean competitors as Malta (66.4%), Spain (62.6%), Greece (52.8%), Italy (46.1%). Bookings through AirBnB also increased by 49% in the first nine months of 2018.

According to KPMG, the student housing market is growing significantly. The number of available rooms increased by 97% from 2017 to 2018, and an increase of 16% in 2019 is also projected. The number of university and college students in the past year increased significantly by 8.4%, which is reflected in the growing demand for student housing. Predictably, Nicosia dominates in student accommodation, as most major universities and colleges are located in the capital.

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