Cyprus must reconsider policies that link foreign investment and permanent residency to property purchases if it wants to address its housing problems and build a more productive economy, according to University of Cyprus economist Andros Kourtellos.
In an interview with EconomyToday, Kourtellos, professor and chair of the university’s Department of Economics, argued that attracting capital through property purchases can increase demand for housing without necessarily delivering lasting economic benefits.
He called for permanent residency to be separated from property purchases and for investment incentives to focus instead on businesses, research, technology and activities that create jobs and export opportunities.
“The fact that someone buys an expensive house does not tell us enough about their contribution to the economy,” he said.
How investment incentives affected Cyprus property prices
Kourtellos said there were serious indications that some government policies had distorted Cyprus’s property market by encouraging investment decisions that were not necessarily the most productive for the economy.
He stressed that rising property prices alone do not prove a market distortion. Prices can also increase because of stronger demand, insufficient housing supply or higher construction costs.
However, Cyprus’s former citizenship-by-investment programme created an additional incentive to purchase property because doing so could help investors obtain citizenship.
Developers consequently had a reason to construct properties aimed at those buyers, potentially directing land, labour and capital away from other activities that could have generated greater economic benefits.
According to Ministry of Finance estimates cited by Kourtellos, the citizenship programme’s share of property transaction values rose from approximately 19.5% in 2015 to 37.5% in 2019.
The International Monetary Fund had already warned in 2017 about the risks of excessive economic concentration in property development and an oversupply of luxury real estate.
Kourtellos also referred to a 2025 cross-country study by Clerides and colleagues, which found evidence that residency- and citizenship-by-investment programmes contribute to rising inflation-adjusted house prices, particularly when property purchases are permitted.
The study did not find equally clear evidence that these programmes increase overall investment as a share of GDP.
However, Kourtellos cautioned that this does not conclusively establish inefficient resource allocation or quantify its economic cost in Cyprus.
Property investment helped recovery after 2013
Kourtellos acknowledged that property-related investment played an important role in Cyprus’s recovery following the 2013 financial crisis.
At the time, property prices had fallen, unemployment was high and construction activity had contracted sharply. Capital inflows supported businesses and provided employment when resources were underused.
He argued, however, that the economic justification for those incentives should have been reconsidered as conditions improved.
The Ministry of Finance estimated that construction investment associated with the citizenship programme contributed approximately 1.7 percentage points to economic growth over 2016–2019.
Kourtellos said that estimate relied on correlations and assumptions rather than isolating the programme’s direct causal impact.
More rigorous analysis would be needed to establish what would have happened without the scheme and whether the resources involved could have produced greater benefits elsewhere.
“It is not enough to build more or for property prices to rise,” he said, stressing that sustained improvements in living standards depend on productivity, skills and technology.
Why income inequality figures miss the housing divide
One of Kourtellos’s central concerns is that conventional measures of inequality do not fully capture the growing differences between homeowners and renters.
He pointed to the Gini coefficient, which measures how unequally income is distributed across a population.
On the scale he cited, zero represents complete income equality, while 100 represents maximum inequality.
Cyprus’s disposable-income Gini coefficient rose from 30.1 in 2010 to 34.8 in 2014, compared with an EU figure of 30.9 that year.
It subsequently declined to 29.0 in 2022, slightly below the EU level, before increasing again to 31.2 in 2025, compared with 29.2 across the EU.
Kourtellos noted that these figures generally relate to income earned in the year preceding each survey.
Separate figures from the World Inequality Database showed that Cyprus’s highest-earning 1% received approximately 8.9% of pre-tax income in 2020, compared with 12.2% across the EU.
These measures, however, do not reveal the full effect of property ownership on household finances.
When house prices rise, homeowners gain wealth through the increased value of their property. Renters, meanwhile, may have less disposable income if their housing costs increase.
Two households earning identical salaries can therefore have very different living standards if one owns its home outright and the other pays substantial rent.
“The Gini is one measure of inequality, not the whole picture,” Kourtellos explained.
He argued that policymakers should also examine wealth distribution, household debt and the income remaining after housing expenses.
How family property wealth shapes children’s opportunities
The economist highlighted the longer-term consequences of housing inequality, particularly its effect on opportunities between generations.
Parents who own property may be able to provide their children with a home, help with a mortgage deposit or contribute towards university expenses.
Family wealth can also influence where children grow up, which schools they attend and the social and professional networks available to them.
Kourtellos distinguished between differences in outcomes arising from individual choices and effort, and inequalities caused by circumstances beyond a person’s control, such as the family into which they are born.
He argued that a fairer society should seek to prevent parental wealth and childhood circumstances from determining a person’s future prospects.
Better public schools across neighbourhoods, improved access to housing and reliable public transport could help reduce these disadvantages.
Not all foreign investment delivers the same benefits
Kourtellos also challenged the tendency to treat all foreign investment as economically equivalent.
Buying an existing property transfers ownership from one person to another but does not, by itself, add a new building or productive asset to the economy.
Financing a new development, by contrast, increases the country’s stock of buildings and can provide housing or business premises.
Establishing a company can bring additional benefits, including technology, specialist skills, employment and access to international markets.
He said the wider economic value of these investments depends on whether they create lasting connections with local workers, suppliers, universities and research institutions.
As examples of environments where businesses and research organisations can exchange knowledge, he cited Cambridge Science Park in Britain and Stanford Research Park and Research Triangle in the United States.
For Cyprus, he argued, foreign investment should help existing businesses develop expertise, innovate and expand their exports, rather than primarily increasing property values.
Housing and infrastructure must be planned together
The economist said Cyprus’s various investment policies had affected housing demand in different ways.
Citizenship and residency programmes encouraged property purchases, while tax incentives and efforts to attract international companies brought workers needing accommodation and businesses requiring office space.
These developments influenced the types of buildings constructed and contributed to pressure on prices and rents where supply could not keep pace.
However, Kourtellos said it was not possible to establish precisely how much each policy contributed to the increases.
Although the government conducted assessments of the citizenship programme in 2019 and 2020 and introduced housing measures, he believes Cyprus lacked a coordinated long-term strategy linking investment, housing and infrastructure.
Such planning should have included estimates of additional housing demand, the potential use of vacant or older homes, and the cost of roads, schools, parks and public transport.
He also called for a review of unjustified planning and permit delays that may prevent new housing from being built where it is needed.
Public transport, including better bus services and potentially trams where justified, should be considered alongside new developments rather than after roads become congested and schools reach capacity.
Call to separate permanent residency from property purchases
Kourtellos’s clearest policy recommendation is to end the connection between permanent residency and buying property.
“I believe we must separate permanent residency from property purchases,” he said.
He noted that Cyprus’s existing residency investment framework already provides alternative investment options, but argued that the important question is what those investments actually finance.
Incentives should encourage new businesses, research, technology and export-oriented activities, particularly where they generate additional benefits through knowledge-sharing and skills development.
He cautioned against subsidising investments that would have taken place without government support.
Asked whether Cyprus’s possible accession to the Schengen Area could generate another wave of investment demand, Kourtellos said an increase was possible but should not be assumed to be substantial.
As an island, Cyprus would remain dependent on air travel and its associated costs, unlike countries where Schengen membership removes checks at land borders.
Regardless of future demand, he argued that investment incentives must be accompanied by adequate housing supply and infrastructure planning.
Otherwise, attracting more capital and residents without expanding the capacity of communities to accommodate them risks driving up rents and property prices while placing additional pressure on everyday life.
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