There is a general feeling in the Cyprus realty market that prices in the last three years have skyrocketed without any apparent justification. Some people are even referring to a «bubble» that may burst at some point. The factors fueling this surge are not expected to abate in the foreseeable future. Big international realty firms have shown investment interest in Cyprus, while others are trying to tap the island’s geographical position and the prospect of its accession to the European Union. Cyprus offers a stable macroeconomic environment, has a high income per capita and significant growth prospects. Big projects such as the relocation of Larnaca airport and the development of the city’s marina, as well as the introduction of financial tools like sale and leaseback, leasing and realty mutual funds are bound to further augment the interest of foreign investors. Demand for office and shop space is projected to rise this year and in 2005. Cyprus’s property sector has greatly grown in significance during the island’s rapid industrialization and urbanization in recent decades. Besides, land and property has always been considered as the most important social measure of wealth and power in Cyprus. Cypriot investors do not restrict themselves to just one home. Demand for country houses or apartments in sea and mountain resorts is strong and spreading. Until recently the purchase of such items was restricted to areas of Famagusta province (Ayia Napa and Protara). As prices rose, interest shifted to Larnaca, Limassol and Paphos. Prices are also showing an upward trend in Nicosia, largely due to road infrastructure improvement projects. The establishment of new companies, both local and foreign, is fueling commercial and housing development schemes. In the wider Nicosia area, rates of return to shop and office investment vary between 6.5 and 8.5 percent of the purchase price. As regards off-center shops, buying prices are actually falling, but along several roads they are approaching the levels of the city’s main commercial arteries, depending on population movements. Rents Rents are also rising for good residential and commercial properties. In Nicosia and Limassol, for instance, luxury office space in upmarket areas is rented for 12.75 euros/square meter, while three-bedroom apartments in good areas in Nicosia go for up to 1,190 euros per month. High goodwill sums are asked for commercial rentals on central thoroughfares, but not for new properties, where payable rents are equal to market values. Investing with a view to realizing gains from the rising capital value of real estate is very popular in Cyprus due to the limited supply and continuously rising demand. Historically, such gains have been observed to average about 9 percent annually. The most popular items for such investment are unbuilt plots of land, particularly in farming areas. To sum up, the purchase of shopping facilities in Cyprus is one of the most popular forms of investment, offering stable income in the form of rent and protection against inflation. Office space is also popular and gaining recently. At the same time, the capital gains realized in suitable land plots and the income security offered by attractive residential realty remain in the purview of prospecting investors. (1) Panos Danos is managing director of Danos & Partners.