These rumours allegedly emanate from opposition political parties who seem intent on spreading fear, uncertainty and doubt amongst those who can no longer afford their home loan repayments in efforts to gain support/votes.
But looking at the situation logically the banks have little, if anything to gain, from seizing people’s homes and mass repossessions are unlikely for a number of reasons:
- Banks need capital (not property) and they are much more likely to restructure the loans of those unable to maintain their loan repayments rather than repossess their homes.
- Anyone with property in Cyprus will know that homes need constant maintenance to preserve their value. If banks repossess homes en masse, the cost of maintaining them in a marketable condition will be significant and deplete the bank’s capital reserves until a buyer is eventually found – and the banks will also be liable for Immovable Property Tax and other related taxes on those properties.
- Mass repossessions will flood the market that already has a serious stock overhang. This will drive property prices down even further, erode collateral values, and place more borrowers in negative equity. This, in turn, will put the banks in a position where they will need further injections of capital to stay afloat.
No-one seems to have considered who is going to buy these repossessed homes. Today, the property market is a shadow of its former self and it is going to take many, many years for the banks to sell ‘mass repossessions’.
But that is not say that the banks will not repossess properties, but in my opinion the banks will focus their attentions the ‘low hanging fruit’ first. This will include property development companies with non-performing loans that have completed/part completed but unsold developments – and I suspect there are large investors waiting for these assets to be seized and sold at a discount by the banks.
The change in the law also will help the banks put pressure on ‘strategic defaulters’ – i.e. those who can afford to repay their debts but are refusing to do so due to inadequacies in the law that enable them to delay their property being repossessed – sometimes for decades.
Of course I may be wrong – but if the banks do go ahead with mass repossessions it will probably lead to civil unrest and the annihilation of the island’s property sector.