Escalating Middle East conflict casts uncertainty over Cyprus property outlook

Rising costs and worker shortages test resilience of Cyprus builders Cyprus’ construction sector maintained strong growth momentum in the first half of 2026, supported by a robust pipeline of new projects, rising property demand and continued investment activity, according to a report by Eurobank Research. The report said that first quarter data confirmed the sector’s resilience, with building permits, construction output, mortgage lending and business confidence all pointing to sustained expansion. However, it also cautioned that the latest building permit figures covered the period from January to March 2026, before the recent escalation of tensions in the Middle East. As a result, the analysis explained that future data releases will provide a clearer picture of whether developers’ investment intentions remain as strong following the regional conflict. The research showed that the construction pipeline strengthened considerably during the first quarter of the year. The number of building permits increased by 44 per cent year-on-year to 2,276, while the number of approved dwellings climbed 58 per cent to 5,403. At the same time, the total permitted floor area expanded by 40 per cent to 1 million square metres, while the value of approved construction projects rose 41 per cent to €1.3 billion. According to the report, these figures indicate not only continued investor appetite but also an increasing concentration of larger and higher-value developments. The analysis also found that mortgage lending increased by 19.5 per cent year-on-year during the first five months of 2026, reflecting strong underlying housing demand and suggesting that residential construction activity is likely to remain well supported in the coming quarters. Current construction activity also continued to strengthen. National accounts data showed that gross value added in the construction sector increased by 4.9 per cent year-on-year in the first quarter of 2026, compared with 3.9 per cent during the corresponding period of 2025. The report said this confirmed that the strong pipeline of approved projects continues to translate into real economic activity. Meanwhile, the construction production index increased to 120.7 in the first quarter of 2026, extending the sector’s upward trend. Construction output prices also continued to rise, increasing by 4.7 per cent year-on-year to an index level of 129.5, indicating that developers have largely maintained their pricing power despite moderating growth in production volumes. The report also highlighted the continued strength of Cyprus’ property market. Property sales contracts reached 10,007 during the first half of 2026, representing an increase of 15 per cent compared with the same period of 2025. This follows another strong performance in 2025, when transactions also increased by 15 per cent to 18,114. The analysis found that demand remained broad-based across both domestic and international buyers. Transactions involving Cypriot residents increased by 10 per cent year-on-year during the first six months of 2026. Purchases by foreign buyers grew even faster, rising 23 per cent, reflecting Cyprus’ continued appeal among international investors and homebuyers. Growth proved especially strong among EU nationals, whose purchases increased by 29 per cent, while acquisitions by non-EU nationals rose by 20 per cent. Eurobank Research also pointed out that property sales have remained resilient despite the escalation of tensions in the Middle East, suggesting that regional uncertainty has so far had little impact on investment decisions or housing demand. The report added that the continued strength of foreign demand indicates that Cyprus continues to be widely regarded as a safe and attractive destination for property investment. Despite the positive outlook, the analysis warned that several challenges are becoming increasingly significant. Labour shortages have emerged as the construction sector’s most important production constraint. According to the report, 38 per cent of construction firms identified labour availability as their main limiting factor, compared with 11 per cent in 2022. The analysis added that labour shortages are substantially more severe in construction than in either the services or manufacturing sectors. Businesses are also increasingly pointing to uncertainty as a constraint on production. The report said responses highlighting uncertainty have been gradually increasing in a pattern similar to that observed during the Covid-19 period. It also found that expectations for construction prices have risen noticeably in recent months. “Cyprus’ construction sector enters the second half of 2026 from a position of considerable strength, supported by a robust project pipeline, expanding activity and continued growth in construction value added,” Eurobank Research said. “While labour shortages and heightened regional uncertainty have become more prominent challenges, current indicators suggest that the sector remains well placed to sustain its expansion,” the research team added.