High construction costs, borrowing rates and tighter VAT rules on primary residences have pushed buyers in Cyprus toward smaller properties. Here is what changed, what the numbers show, and what it now costs to build.
What changed in 2023
Until 2023, Cyprus applied a reduced 5% VAT rate to the first 200 square metres of any primary residence, regardless of the property’s total size or value. That allowed owners of multimillion-euro villas to benefit from the reduced rate — a practice the European Commission found incompatible with EU rules, which require such measures to serve social purposes.
The 2023 law tightened the rules significantly. The 5% rate now applies only to the first 130 sq metres of a primary residence or apartment, and only where the property’s value does not exceed €350,000. A tiered reduced VAT system also applies to properties between 131 and 190 sq metres valued at up to €475,000, with 19% VAT applying beyond those thresholds.
The transitional period — and who still benefits from the old rules
To cushion the market, parliament included transitional provisions in the 2023 law, which have been extended to run until the end of 2026. This means both regimes are currently operating in parallel.
Under those provisions, anyone who submitted a planning application between early June and 31 October 2023 continues to benefit from the old, more generous regime — paying 5% VAT on the first 200 sq metres — regardless of when construction is completed.
What the numbers show
Data obtained by Phileleftheros shows that since June 2023, around 9,000 taxpayers have benefited from the old VAT regime under the transitional provisions. Of those, 650 involved properties of up to 200 sq metres valued at more than €500,000, and a further 300 involved properties larger than 200 sq metres with values well above €500,000.
In the period covering last year and the first four months of 2026, 4,555 taxpayers paid VAT under the old framework, while 3,902 were taxed under the new one.
Had the state applied the standard 19% VAT rate to all of these transactions, it would have collected €360 million, according to the data.
Since the new law took effect, the average floor area of primary residences and apartments that obtained planning permission and benefited from the 5% rate has been 100 sq metres, Phileleftheros data shows.
What it costs to build
Construction costs have risen sharply alongside the VAT changes. Official figures show the average cost of building a home stood at €1,145 per sq metre in 2023 — €1,214 per sq metre for houses and €1,075 for apartments. By 2024, the overall average had risen to €1,204 per sq metre, with houses reaching €1,328 and apartments €1,082.
For 2025, industry professionals put the average construction cost at €1,700 per sq metre, with figures potentially reaching €2,500 depending on materials used.