Assetz® News - New investment tactics for Cyprus?

New investment tactics for Cyprus?

2nd December 2008 |

Those who have been investing in Cyprus in recent years have been enjoying a number of advantageous circumstances. The long-term attractions of sunshine and sea, the frequent speaking of English and a rich cultural heritage are all perennials. The development of new facilities for visitors, the growth of the economy and latterly the accession of the country to the European Union and then the eurozone have all boosted the industry.

Right now, however, the economy has inevitably taken something of a hit, due to the economic suffering of the country's trading partners inside the eurozone and beyond.

Speaking this week, Central Bank governor Athanasios Orphanides said that while this year's economic growth rate will be around 3.7 per cent, it will be down to two per cent next year. While this is the sort of figure most countries would be delighted with right now, the fall will have a significant effect on the country, Mr Orphanides noted. In particular, he suggested, the worst impact would be on the tourism and construction sectors.

But does this mean investors should suddenly give up on Cyprus? The answer may only be yes if some are seeing the island as a last bastion of the quick buck before the downturn sets in. While a fall in tourism numbers may do no favours for the buy-to-let tourism industry in the near future and a lack of construction may betray a wider property downturn, the fact that the economy as a whole is still projected to grow may suggest a rather different situation. So too may the comments by Mr Orphanides that the banking sector in the country remains healthy.

In these circumstances, a possible scenario is this: that Cyprus does see a substantial property downturn in the near term, but the greater strength of its financial sector and wider economy will mean that it is in a stronger position to recover. Those who can invest during this time may find lower prices available, with these bargains picking up in value when economies full of would-be tourists to Cyprus see better times and their consumers have more money in their pocket to pay for a Cypriot holiday.

Of course, such a scenario may depend on many factors. The length and depth of the recessions suffered by large economies, the speed at which Cyprus reasserts itself when people start looking around for places to go on holiday again and the economic circumstances of non-western buyers on the island may all influence events.

However, in the meantime Cyprus could benefit significantly from another interest rate cut. Having joined the eurozone at the start of this year, the country is tied into a banking system where the current rate is 3.25 per cent. However analysts are predicting that this week will see at least a 0.5 per cent cut. Such a move could help bolster mortgages and the wider economy, improving the prospects for Cyprus to be one of the stronger markets emerging when the current crisis is over.

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