Cyprus Economy: Strong Growth Ahead Despite Structural Challenges

by THEFUTURE.TEAM

January 17, 2025

Cyprus is poised to sustain strong economic growth in the coming years, according to a recent report from the Canadian rating agency Morningstar DBRS. The agency also predicts a steady decline in unemployment, which is expected to bolster the nation’s fiscal performance.

Despite these positive projections, the report highlights persistent hurdles facing the Cypriot economy. As a small, service-driven market, Cyprus remains highly susceptible to external shocks. Additionally, while strides have been made to reduce non-performing loans (NPLs), their levels still exceed the Eurozone average. Challenges in labour market productivity further restrict the nation’s economic potential.

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On a brighter note, progress in addressing NPLs has been significant. Data from the Central Bank of Cyprus show that NPL ratios in approved credit institutions dropped to 6.8% in August 2024, a dramatic reduction from 43.7% at the end of 2017. This improvement represents an €18.9 billion decrease in absolute terms.

Morningstar DBRS anticipates this downward trajectory to persist but acknowledges that eliminating the remaining NPLs will require time. By mid-2024, credit acquisition companies managed exposures of approximately €21 billion, with 94% classified as non-performing.

The report also notes delays faced by KEDIPES, the state-owned asset management company. Challenges such as foreclosure moratoriums, the COVID-19 pandemic, and geopolitical tensions have pushed the company’s operational deadline to 2030.

Housing prices, meanwhile, have shown sustained growth. As of Q2 2024, property prices in Cyprus rose by an annual rate of 8.0%, with house prices increasing by 6.2% and apartment prices surging by 12.0%. Most of the real estate collateral tied to NPLs consists of residential properties, with Nicosia and Limassol identified as the most stable markets on the island.

While structural vulnerabilities persist, Morningstar DBRS’s analysis underscores Cyprus’ resilience and ability to adapt. Continued efforts to address NPLs, coupled with a robust housing market and improved employment metrics, suggest the nation is on a steady path toward economic stability and growth.

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Extended Measures Secure 5% Vat Incentives For Residential Developments

by THEFUTURE.TEAM

April 20, 2026

New Legislative Extension Addresses Permit Delays

Cyprus authorities have extended the transitional framework allowing a reduced 5% VAT rate on the purchase or construction of a primary residence. The measure enables homeowners and developers to continue benefiting from the lower rate, subject to approval by the Tax Office, until the end of 2026.

Parliament Acts To Mitigate Administrative Setbacks

The decision was approved on Thursday, with Parliament granting a 6.5-month extension in response to delays by local planning authorities in issuing building permits. The vote passed with 24 in favor and 15 against, with opposition coming from the AKEL faction.

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Originally introduced three years ago, the transitional scheme applied to applications submitted between June 2023 and October 31, regardless of project completion timelines. The previous deadline had been set for late June 2026, making the extension critical for pending cases.

Extended Application Period And Key Provisions

Under the revised framework, the Tax Office now has until December 31, 2026, to process applications. This adjustment reflects administrative bottlenecks that slowed earlier reviews. Eligible applicants retain access to the 5% VAT rate on the first 200 square meters of a primary residence, regardless of the total property size.

Earlier rules applied stricter thresholds. The reduced VAT covered only the first 130 square meters for properties valued up to €350,000. For homes between 131 and 190 square meters with a value cap of €475,000, a mixed rate is applied, combining 5% and 19% VAT.

Reactions From Political Leaders

Christiana Erotokritou, Chair of the Economic Committee and DIKO member, stated that delays in permit issuance made the extension necessary. According to her, the measure prevents additional costs from being passed on to buyers.

Stavros Papadouris from the Ecologists faction noted that the European Union had already approved the transitional framework in 2023. He highlighted that many applications were submitted on time but remained unprocessed due to administrative delays.

George Loukaidis, representing AKEL, acknowledged the rationale behind the extension while reiterating concerns about potential misuse. His position reflects broader opposition to allowing low-quality developments to benefit from favorable tax treatment.

Outlook

The extension addresses regulatory delays while preserving access to reduced VAT rates for eligible applicants. This outcome provides temporary relief to both developers and homebuyers as authorities work through existing backlogs.

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