Abstract
In general, investing is a decision that people do not make very often in their lives, but it has a profound impact on their financial well-being. However, some factors influence the investment decisions of buyers. The purpose of this study is to examine the influence of specific factors on investors’ decisions to purchase a home. These factors were determined within the framework of location, neighborhood, structural characteristics, and price. This is because these factors are often the key influencers of customer decisions.
This research will also explain which elements are essential and which are not crucial for an investor to consider when buying a home. In this study, the proposed method of data obtainment is a semi-structured interview, and the data were obtained from a total of twenty interviews to generate the analysis.
Problem Statement
In recent years, the real estate market has become an important segment of national economies worldwide. Real estate’s social and economic role in the market economy can explain its significance. Real estate performs two essential functions. Namely, it serves as both a place of residence and an investment. However, in recent years, several changes have occurred in this segment, including the pandemic and the suspension of citizenship issuance for acquisition purposes.
Purpose
Identify the factors influencing the intention of global investors to purchase real estate in Cyprus.
Research Questions
- How do location factors influence customers’ behavior when buying property in Cyprus?
- How do neighborhood factors influence the buying patterns of property customers in Cyprus?
- How do the structural features of housing affect the customers’ behavior when buying real estate in Cyprus?
- How do price factors influence customers’ behavior when buying property in Cyprus?
Hypothesis
- H1: Location factors influence the behavior of customers when purchasing property in Cyprus.
- H2: The neighborhood factor influences the client’s behavior when buying a property in Cyprus.
- H3: The decision-making process for clients buying property in Cyprus is influenced by structural determinants.
- H4: Price plays a role in shaping how a client decides to buy property in Cyprus.
Objective
To study the factors influencing investment in the real estate market in Cyprus.
Real Estate Market in Cyprus
Cyprus is a popular tourist destination, attracting over two million visitors. The Cyprus real estate sector has long had a positive impact on the country’s economy. In 2018 alone, this sector accounted for 38.5% of the country’s annual growth rate and 16% of the gross value added to the Cypriot economy (PWC, 2022). Although the COVID-19 pandemic has severely impacted the Cypriot real estate market, there are positive signs that it is slowly but steadily recovering. The global outbreak of COVID-19 and related restrictive measures caused severe damage to Cyprus’s economy in 2020, resulting in a 5.1% decrease in real GDP.
Real GDP is projected to grow by 5.6% in 2022, decline to 1% in 2023, and increase slightly by 1.9% in 2024 (KPMG, 2022). Considerable uncertainty and risks of deterioration of growth prospects remain, as the tourism and other export-oriented service sectors are particularly vulnerable to external shocks. According to experts, the real estate market in Cyprus is expected to grow at a rate of 3.5% annually until 2022 (Kabil et al., 2022). This is due to an increase in the number of tourists and investments in the real estate sector. There is an increase in sales, housing prices, and new construction projects.
The Cyprus real estate sector has proven to be highly resilient to adverse shocks and is one of the most stable areas in the country’s economy. Experts predict that the Cyprus real estate market will grow by 3.5% annually until 2022 (Gopy-Ramdhany et al., 2022). Several factors contributed to this growth, including the influx of tourists, emigrants seeking to relocate, and the development of new construction projects (Michail & Thucydides, 2019). Cyprus is developing an elite that has attracted the interest of European and Israeli promoters and expatriates who want to enjoy duty-free wealth worldwide.
In recent years, market forecasts have indicated steady growth in the Cypriot real estate market. Housing prices and sales are continually increasing, and new dwelling projects, particularly multi-story constructions, have further accelerated the market’s growth. The real estate market has significantly benefited from the influx of tourists and foreigners relocating to Cyprus to purchase real estate (Zenios, 2013).
The government has taken numerous initiatives to restore and strengthen the property sector, and these measures have yielded significant results. The development of new commercial, residential, and corporate projects, along with modern infrastructure, laid the groundwork for a stable and prosperous economy (Siomin, 2015). While Cyprus is one of the smallest European countries, its housing market has thrived for many years due to high demand and low interest rates.
Despite reports of price increases, the Real Estate Agents Registration Board stated that there is currently no bubble in the Cyprus real estate market. According to the Central Bank of Cyprus, in the fourth quarter of 2021, prices for residential real estate, according to real estate indices, increased by 1% compared to the previous year, and for apartments, by 6.3% per annum (CBC, 2023). Worldwide, the market saw a 2.6% increase in growth rates during the year, which is lower than Cyprus’ gross domestic product growth over the same period (Gopy-Ramdhany et al., 2022). The housing market has proven highly resilient during the pandemic and in this new period of ambiguity.
The Cyprus real estate market has experienced significant growth over the past decade, largely driven by tourism in Cyprus. The government has made it easier for foreigners to purchase real estate in Cyprus by adopting new legislation that allows non-residents to buy real estate without going through the lengthy and expensive process of obtaining a Cyprus residence permit (Sivitanides, 2015). There are several benefits for foreign buyers in Cyprus, including tax advantages and the opportunity to purchase real estate from a foreign company.
Studying the market prospects helps real estate investors get an idea of the land before lowering commissions and bringing the market to its knees. Cyprus draws its economic strength from the dynamically growing tourism sector, and in recent years, the island has emerged in the European property market like never before (Pashardes & Savva, 2009). The country is experiencing unprecedented and sustained growth thanks to infrastructure and real estate development projects that have revitalized its economy and housing market.
Investment Opportunity for Different Countries
European Union
The most favorable conditions for buying real estate as an investment are for members of the European Union. There are several reasons why investors decided to add Cyprus to their portfolios. The island offers a variety of real estate: from houses on the seashore to luxury penthouses with magnificent views of the sea or mountains, from studio apartments in a busy city center to detached houses with 3, 4, 5, and 6 bedrooms in suburban or rural areas (Șipoș & Buglea, 2015). There are some attractive investment opportunities, as the income from real estate in Cyprus is among the highest and most stable in Europe.
The island’s strategic location has made it a popular destination for international tourists and an ideal regional business hub. Cyprus is highly attractive to wealthy individuals, offering a great combination of lifestyle, a healthy business environment, and a luxurious lifestyle. At the same time, the British influence on the legal system and the widespread use of the English language make it easier for investors to do business in Cyprus.
The Republic of Cyprus is a member State of the European Union and a member of the Eurozone. An independent, sovereign republic with a presidential government system and a written constitution that guarantees the rule of law, political stability, human rights, and property. The legislation fully complies with European Union legislation and has been fully incorporated into local legislation (Zavyalova et al., 2019). Additionally, the rules of the European Union have a direct effect and are fully applicable in Cyprus.
Investors are wisely expanding their business operations and diversifying their portfolios by entering the economic sphere of Cyprus and creating permanent foreign representative offices. Moreover, this has led to good economic prospects for Cyprus and foreign investors who have wisely purchased property in Cyprus this year (Ivanova, 2015). According to the latest data released by the Central Bank, this surge in investment has impacted housing demand.
Cyprus remains in close contact with European markets, making it an ideal entry point into the European market. Procedures have been simplified, eliminating unnecessary costs and delays, and facilitating investment. The Government of Cyprus has introduced incentives for individuals who wish to invest in real estate in Cyprus, aiming to contribute to the country’s economic growth (EU, 2023). Upgraded transport networks, along with two seaports and two world-class international airports, enable Cyprus’s investors to access the rest of the world. Cyprus has more than 65 tax agreements providing a zero or reduced withholding tax rate on dividends, interest, royalties, and pensions from abroad (Alola, 2020). Therefore, Cyprus is a highly profitable destination for real estate investments for EU citizens.
Other Countries
In 2021, Brexit came into force, classifying countries not part of the European Union as third-world countries. These countries have some restrictions on investment, but these conditions are relaxed and much more profitable than investments in other countries. There are also reasonable offers for other countries, including the US, China, Russia, and Ukraine. The low corporate tax rate is one of the most attractive features that create investment opportunities in Cyprus. The corporate tax rate is 12.5%, one of the lowest rates in the European Union, and fully complies with EU and OECD rules (Dykusova et al., 2021).
The benefits go beyond the low tax rate. Income in the form of dividends from the sale of shares, bonds, and other financial instruments, as well as dividends in foreign currency and income from permanent foreign representative offices, will not be taxed. According to the latest interest rate survey, housing loan statistics have dropped to 2.10% (Dykusova et al., 2021). This is a significant decrease compared to the peak values of 5.33% in 2012 and 6.05% in 2009 (Deloitte Cyprus, 2021). Unlike some other EU countries, UK travelers and tourists can drive a car in Cyprus using their UK driving license.
Chinese investors are showing increased interest in Cyprus, as they see promising business opportunities. In recent years, the Cypriot economy has experienced significant growth, and Cyprus has emerged as a regional business hub, attracting investors and foreign workers. Those who move to Cyprus to work can see the positive impact of buying real estate and spending on the economy.
In 2019, steady growth was projected at 3.1%; in 2020, growth is expected to remain at 2.7% (Kabil et al., 2022). Economic growth and an increase in job opportunities sharply reduced the unemployment rate from 8.4% in 2018 to 6.7% in 2019, with a projected unemployment rate of 5.9% in 2020 (KPMG, 2022). It is not surprising that many people from Asia prefer to invest in Cyprus, capitalizing on the island’s thriving business environment.
Another factor attracting investment is the favorable tax regime of Cyprus. Many are taking advantage of preferential taxation, a strongly growing economy, and an increasingly diverse and international workforce on the island. The increase in the number of individuals moving to the island to benefit from investments or employment is reflected in the figures for real estate sales. All transactions from January to May totaled 1.45 billion euros, representing a 7.6% increase from the 1.35 billion euros recorded in the same period last year (Müller, 2022).
Asian investors not only prefer to invest in Cyprus but also benefit from the island’s thriving business environment. Investors from the Middle East account for nearly a third of the total sales of €100 million (approximately $106 million) in a new luxury residential complex in Cyprus (Deloitte Cyprus, 2021). Furthermore, it could be concluded that real estate investments in Cyprus have favorable conditions for all countries
Customer Behavior
The benefits of purchasing real estate must also be assessed in terms of purchasing power and consumer behavior when buying a home. Since the yield from real estate mainly comes from renting or selling (Santandreu & Shurden, 2017). From the perspective of real estate, it is essential to understand what is necessary for consumers and not rely solely on information from potential investors at open house screenings and events.
Only by truly understanding consumers’ perceptions can the real estate market move on to providing real estate that precisely meets the customer’s needs (Newell et al., 2011). It also contributes to sustainable development since the more desirable real estate objects are, the less waste and undesirable things will be planned, built, or developed. From the consumer’s point of view, the proposed property should meet their wishes, and consumer dissonance will decrease.
Consumer behavior refers to the process of deciding to purchase a particular service or product. The purchase decision is a complex process influenced by various interrelated economic and behavioral factors (Wisniewski & Brzezicka, 2020; Dunlap et al., 1988). The consumer is a living human being. The things inherent in him, such as expectations, attitudes, and desires, are very subjective. Based on this innate situation, he receives and assimilates experience from the external environment. Then, having reformed the first base, he tries to perceive the components of the domain. The internal and external characteristics of the macro environment influence consumer behavior (Salzman & Zwinkels, 2017).
Factors Affecting Purchasing Power
Consequently, affective factors must be identified correctly to understand consumer behavior, in which consumer behavioral models will be applied (Al-Nahdi et al., 2015).
Location Factor
In real estate, moderate agents have a significant impact on the creation of a bubble. They are often the central unit that approaches houses and theories when prices increase. This problem has been cited as the cause of the housing bubble (Repousis et al., 2019; Baraklianos et al., 2020).]
Another extremely intriguing area to explore when studying the market is the role of geographic information systems (GIS) in contributing to the understanding of the importance of shopping malls to one another and in relation to central business districts, roads, and public transportation.
Neighborhood Factor
The average number of crimes in the zone indicates the level of safety in this area. A place where signs of vandalism and suspicious sites are visible inside neighboring areas is considered unsafe. Every individual tends to live in safe areas, avoiding dangerous neighborhoods (Koklic & Vids, 2009). This reduces the demand for houses on such sites, negatively affecting housing costs. On the other hand, demand for real estate in safe locations is expected to be higher.
Structural Factor
Structural factors take into account each physical condition and, in addition, the standard of the house. The number of bedrooms or bathrooms in a place is an essential factor to consider when deciding to purchase a home, especially in some Western countries (All et al., 2020).
Therefore, it is believed that the purchase of real estate for personal use and the purchase of real estate for hedging have specific criteria. Most real estate investors tend towards smaller properties, especially apartments and penthouses, because these residential premises have always been more popular among residents.
Price Factor
Price is a fundamental consideration for homebuyers when making decisions. Since real estate is a highly valued commodity, real estate agents must consider the current economy when adjusting prices. For example, the price during a bubble is typically higher than the average price over a longer period (PWC, 2022). The fewer buyers pay for a house, the lower quality they hope to get.
The excellent quality of a place or apartment is determined by its superb location, placement, and other related components, such as shops, schools, roads, and shopping malls (Preko et al., 2014). Moreover, due to the procurement structure, housing activity is being built in rural areas, where buyers can purchase a good house at a reasonable price.
Methodology
This study will examine the impact of critical factors on investors’ buying decisions in the real estate market, aiming to understand how specific factors influence their decisions and what considerations they take before investing in residential premises. During the research, information will be collected from investors or buyers who are interested in purchasing residential premises. Some researchers have conducted similar studies, but most use the questionnaire method to collect data, whereas this study employs a semi-structured interview. It is known that a semi-structured interview provides accurate data from the interviewees because it gives them more space to explain and share their perspective on the subject, unlike the standard questions they have to answer.
For this study, semi-structured interviews were selected, the purpose of which is to determine how location, neighborhood, price, and structural characteristics influence investors’ decisions to purchase. This study is qualitative. This research approach to theoretical formulation is a link between the inductive and deductive approaches, and thus, it is an abductive approach. The research also took the form of intelligence. The research aimed to determine the “how” of the topic in question, and it was for this reason that the study employed a specific research design.
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