Better days for the Cyprus property market lie ahead

Dr. Charalambos Pitros
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Better days for the Cyprus property market lie ahead

In our article in January, we have proclaimed that on average Cyprus real estate market will remain relatively stable in 2021 while in the first quarter of 2021; both the number of sales and values might see a slight reduction before re-entering a period of steady recovery through the remaining year.

By taking into consideration as a guide the positive outlook in other property markets such as EU, UK or even USA, and by relying on the prevailing market conditions of the Cyprus property market it seems safe to consider that 2021 will be a year of stabilization.

Here are some reasons that supports the stable-positive outlook of the Cyprus Property Market:

  • Pent up demand from the pandemic shutdown.
  • Travelling restrictions are reduced and foreign buyers gradually return back to markets.
  • Lack of attractive alternative investments. Stock market is highly volatile and interest rates on deposits are negative.
  • Rents are and will remain relatively resilient in the coming months and years. Hence, supporting even further the motivation of buying.
  • The number of properties listed for sale are down compared to last year.
  • Currently there is excess buyer demand over supply.
  • New construction projects are delaying to commence.
  • Property-owners are sceptical whether to sell. They anticipate a more favourable sale price if they wait.
  • The stock of properties for sale from Banks has been also declined over the last years considerably. NPLs have decreased from nearly 50% to just under 20%.
  • Unemployment is projected to fall by the end of this year.
  • Despite the economic contraction, EU, UK and USA property markets in both number of sales and prices have seen an increase of about 1% – 4% (quarterly, monthly & in annual basis).
  • By considering the existing trend on Cyprus property sales (seasonally adjusted): The total number of sales for 2021 are estimated to reach 8,000 – 8,500 which forecasts an increase by around 3%.
  • Furthermore, according to our in-house website statistics; By comparing the January-February-March 2021 with October-November-December 2020, the results reveal that the asking price of our statistical standardized house coming to market increased by 1% while the standardized apartment increased by circa 0.6%. Although, this statistic is subject to several limitations; it at least shows a basic indication of the asking prices.

There is a great consensus among the leading property research companies worldwide, that the global property market is and will remain at least stable for 2021. Moreover, according to European Commission’s latest report on February 2021; the real GDP of Cyprus is forecast to grow by 3.1% and catch-up to its 2019 levels by 2022.

The property market isn’t known for being simple to predict. Values are also difficult to assessed let alone in this uneven market conditions. Available properties for sale are getting fewer and competition harder to beat out. We only recommend top-notch Chartered Surveyors who can help you to qualify whether a property is overall worthwhile or suitable for your goals; before making any offer or any commitment of buying. To the potential sellers, since supply is low at this time and the choices of buyers are limited, there is much less competition that seen in typical real estate periods making this era an efficient time to sell.

About the author

Charalambos Pitros is a PhD holder in Real Estate Economics and Member of the Royal Institution of Chartered Surveyors (MRICS) and of the European Real Estate Society (ERES). He is a Real Estate Investment Consultant and Valuer at Zyprus | Property Valuers & Estate Agents.

 

MPs pass unconstitutional Cyprus property law

Nigel Howarth
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5
MPs pass unconstitutional Cyprus property law

The Cyprus parliament passed an unconstitutional law that could have resulted in problematic and even dangerous properties being sold to unsuspecting buyers.

The law ‘The Immovable Property (Tenure, Registration and Valuation) Law (Amendment), (No 2)’, which was published 26 March, lifted the ban on the sale of properties that suffered from serious planning and construction infringements.

Such properties are issued with a ‘Certificate of Unauthorized Works’ by the Planning Department. This results in the Land Registry placing a note on the property’s Title Deed that prevents the owner selling or mortgaging the property.

President Nicos Anastasiades has referred the law back to parliament. The law in its present state would have allowed those who breached planning and construction regulations to obtain a ‘clean’ Title Deed but would have prevented those with ‘dirty’ Title Deeds from obtaining ‘clean’ title.

In 2011 there were approximately 100,000 buildings that could not be issued with Title Deeds as they breached planning regulations. In efforts to clear the backlog a ‘Town Planning Amnesty‘ was introduced that enabled such properties to be issued with Title Deeds.

Properties with ‘minor’ irregularities can be sold and issued with ‘clean’ Title Deeds once any minor infringements had been corrected. Minor infringements included changes to the internal layout of the building, changes to the doors and windows and other architectural features.

Properties with ‘major’ irregularities cannot be sold until the irregularities have been corrected and a ‘clean’ Title Deed issued. Major planning infringements include health and/or safety issues with the building, fire safety hazards, significant impact on the amenities and rights of others, significant increase in the area of the building permitted in the planning zone, encroachment on a neighbouring property, beach protection zone or road network and refusal to hand over the road network to the public.

New property law needed urgently

The Cyprus parliament should have passed a law requiring the person/company that caused a ‘Certificate of Unauthorized Works’ to be issued to pay for any remedial work necessary and compensate the purchasers were appropriate.

As the law currently stands people who bought these properties have to pay for the remedial work out of their own pockets. I.e. The victim (the purchaser) has to pay for the indiscretions of the cowboy builder (developer) in order to make the property saleable.

700 borrowers unviable for Estia relief scheme

Cyprus News Agency
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700 borrowers unviable for Estia relief scheme

A total of 700 borrowers with non-performing loans (NPLs) amounting to about €173 million were deemed non-viable for loan subsidisation under the Estia scheme, sources told the Cyprus News Agency on Friday.

Excluding the NPLs held by the state-owned Cyprus Asset Management Company (Kedipes), the non-viable loans held by the Cyprus banking system amount to about €100 million.

Non-viable accounts were classified according to specific reasons so that they will be managed by the state in a uniform way according to their individual characteristics.

The same sources told CNA that 708 borrowers have been approved for the Estia subsidy with loans amounting to €165 million, of which 40 per cent are held by Kedipes.

Under the Estia scheme, eligible borrowers with loans using primary residence as collateral valued at up to €350,000 in value will receive a state subsidy amounting to one third of their monthly instalment of the restructured loan facility. The scheme was approved by the European Commission’s Directorate for Competition.

– Cyprus News Agency

Corruption is the number one problem in Cyprus

George Psyllides
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5
Corruption is the number one problem in Cyprus

Cypriots consider corruption as the biggest problem currently faced by the country with the coronavirus pandemic a close second, according to a survey published by state broadcaster CyBC.

The poll, presented on Thursday night, also gave ruling Disy the lead in the upcoming parliamentary elections while President Nicos Anastasiades received a high rate of disapproval.

The survey found 28 per cent of the sample of 1,400 people thought corruption was the number one problem. The pandemic was in second place with 26 per cent.

It was followed by the economy with 18 per cent and the Cyprus problem, 17 per cent. Eight per cent of those canvassed said they were all equally important.

Most people interviewed, or 52 per cent, also believe that Cyprus is a country where corruption will always be present though 39 per cent think it could get rid of corruption. Nine per cent did not give a view.

Sixty-eight per cent said the country was headed in the wrong direction with 13 per cent disagreeing. Nineteen per cent said neither right not wrong.

Of those asked, 19 per cent said they had enough income to live comfortably, 43 per cent replied that they could not make ends meet, and 38 per cent were either finding it difficult or very difficult.

Disy topped preferences ahead of May’s parliamentary election, chalking a 19 per cent vote with main opposition Akel in second place with 17 per cent.

Voters gave Diko 10.5 per cent, the Greens 6 per cent, and the melange of hunters and independents, 5 per cent.

Extreme right Elam garnered 4.5 per cent, Edek, 4 per cent, former Diko chairman Marios Garoyian’s Democratic Group, 3 per cent, and Solidarity, 1.5 per cent.

Around 2.5 per cent said they were voting something else, 2 per cent would cast a blank ballot, 7.5 per cent were undecided, and 15.5 per cent would abstain.

Green party leader Charalambos Theopemptou emerged the most popular with 57 per cent approval, followed by Solidarity’s Eleni Theocharous with 47 per cent. Disy chief Averof Neophytou received 32 while Diko chairman Nicolas Papadopoulos got 29 per cent along with Garoyian. Edek’s Marinos Sizopoulos was two percentage points behind them, Akel’s Andros Kyprianou, 26 per cent, and Elam’s Christos Christou, 19 per cent.

Sixty-six per cent said they were dissatisfied with the way Anastasiades was performing his duties.

 

Buying properties from banks or investment funds

Niki Tsivitanou
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Buying properties from banks or investment funds

After 2015, many properties passed into bank ownership, mainly through debt-to-asset swaps or foreclosures.

Subsequently, some were acquired by credit acquiring companies, and, in the near future, more are expected to follow the same path.

These properties are referred to as “REO”, meaning Real Estate Owned.

Today, banks and credit acquiring companies have placed more than 6,000 properties on the market, valued approximately at €2.5 bln.

In other words, based on the number of properties these organizations own, they have become significant to the real estate market since they will inevitably attract interest from prospective buyers.

From the buyer’s perspective, it’s crucial to know that these organizations emphasize more on the time it takes to dispose of a property than its sale price.

The process of buying an REO is quite similar to buying any other property but with a few key exceptions to keep in mind.

To begin with, the first step involves getting an authorization letter from the property owner (the bank or the credit acquiring company) that gives permission to the prospective buyer to request and review documents that relate to the property from various authorities, like the Land Registry or Municipalities.

Also known as “power of attorney,” this step mainly applies to large projects and developments.

The next step is to arrange a meeting where the prospective buyer will inspect the property.

As long as there is still interest in the property, the prospective buyer must fill out a tender form, which applies to every property these organizations have available for sale.

Where the seller answers positively, the contract preparation process commences.

With the seller being a regulated entity, the buyer must successfully pass the “Know Your Client” (KYC) process.

This is how the seller gets to know the buyer and ensures there is nothing to be alarmed about.

The “Anti-Money Laundering” (AML) process follows, where the prospective buyer must prove the funds that will be used to buy the property come from a clean source or sources.

It is called “Proof of Funds.”

While all these might sound excessive, the rise in regulatory requirements in the last few years has forced banks to follow these procedures to the letter in order to avoid other issues further down the line.

Upon completion of the KYC/AML process, the contract is signed, and an advance of 20-30% is paid.

The next step for the seller is to get the tax clearance.

Completing the transaction moves to the final stage, where the counter-parties visit the Land Registry to transfer ownership of the property.

As we mentioned before, for these companies, the speed of completing the transaction is of the essence since each day, these properties remain on their balance sheets means additional costs.

These organizations usually set a specific time-frame in which the process must be completed.

Therefore, the prospective buyer must be ready in all aspects before submitting their offer.

Having the relevant approvals ready beforehand is even more important in cases where they plan to borrow part of the offer amount to complete the purchase.

They should also have all the required documents for the KYC/AML process ready.

About the author

Niki Tsivitanou is Director WiRE FS

Tears of joy when viewing her ideal apartment

Nigel Howarth
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Tears of joy when viewing her ideal apartment

Anyone who watched a Place in the Sun on Wednesday will have seen a woman who was viewing a holiday apartment in Cyprus break down in tears of joy.

The one-bedroom apartment had a sea view, with a communal pool and a balcony, close to amenities and a beach; everything that she and her husband had been looking for.

After some negotiation, the couple had their offer accepted and purchased the apartment.

But I expect, like so many others who have bought an apartment in Cyprus, she and her husband didn’t realise the problems they may face.

Communal fees

Apartments and other residential complexes with shared facilities comprising more than four units are required by law to have a Management Committee that regulates and manages all relevant affairs.

The owners of all units in these complexes must contribute to the costs of insuring, maintaining, repairing, restoring and managing the jointly-owned building. These contributions are known colloquially as communal fees.

On the face of it this is a very good idea and works well in other countries. Communal fees are used ensure that the building and its shared facilities such as swimming pools, gardens and tennis courts are maintained in good order thereby helping to maintain their look, value and the saleability of the units.

However, the law in Cyprus is unworkable. All too often problems arise as owners refuse to pay their communal fees. This problem is likely to get worse due to the pandemic as many people will have lost their jobs or are experiencing a severe drop in their income.

In cases where owners refuse to pay, the Management Committee has to cover the shortfall by raising the fees of the good payers to cover the shortfall. This causes resentment and often leads to a domino effect as more owners refuse to pay. Eventually the Management Committee resigns en masse and the buildings fall into disrepair and decay.

The only option open to the Management Committee is to sue the non-payers. This will cost in the region of €1,500 for legal fees and court costs – another expense that has to be covered by raising the fees of the good payers. In normal circumstances it takes 2, 3 or 4 years to get a court ruling against the non-payer.

The non-payer can claim they have no money and agree a long-term payment arrangement. This may delay payment for a further 2 or 3 years and if non-payer fails to comply with the payment arrangement, it’s back to the court with another €1,500 in legal fees and court costs, with no resolution of the problem.

The court may also rule against the non-payer by enabling the Management Committee to lodge a memorandum (memo) against properties owned by the non-payer for the debt. (This assumes that the debtor has title to the property – unacceptable delays issuing Title Deeds is another long-standing problem that has yet to be resolved.)

The memo prevents the non-payer selling, mortgaging and transferring the property until the debt has been repaid.

In these circumstances a memo is as much use as a third eyebrow as the debt will not be repaid in the foreseeable future.

Furthermore, a memo only remains in force for six years from the date that the judgement was registered with the Land Registry. It may be extended by two years each time by further court orders (and their associated costs.)

The law must be changed to protect the good owner who continue to pay and the Management Committee. Why should who are paying be forced to pay for those who refuse?

Apartment swimming pools

Under the laws of Cyprus, swimming pools in apartment and other residential complexes are considered to be “public swimming pools” and their operation is governed by the stringent laws and regulations governing their licensing and use. (The law dates to 1992 and is well past its sell by date.)

This has significant legal and financial implications for the Management Committees and the owners of these complexes.

Regardless of the size of the pool or the number of units on the complex, a lifeguard must be on hand when the pool is in use. To achieve this level of cover, it’s likely that two lifeguards would be needed at a cost in the region of €30,000/annum. Some larger complexes have two and occasionally three pools, each needing two lifeguards and their cost would be astronomical. (In reality there are not enough trained lifeguards in Cyprus to service the demand.)

To operate these pools an annual operating licence is required, which costs around €85 – and the pool equipment needs to be checked to ensure it meets safety requirements – another cost.

Anyone operating a pool without a licence or who acts contrary to the regulations, which includes lifeguarding, is guilty of a criminal offence. The offender faces a fine of up to €450 and, if the offence continues after conviction, they face an additional fine of €50/day for each day the offence continues.

In the past, authorities have turned a blind eye to the problem, which resulted in many pools being operated without a licence. But a couple of years ago the authorities in Paphos cracked-down; the municipality’s health inspectors discovered more than 170 swimming pools operating without a licence and served owners and tenants of these apartments with notices stating they were operating public swimming pools without licenses.

Management Committees had no option but to close their pools or face the consequences.

Together with Denis O’Hare and Linda Leblanc I brought this issue up at a meeting we had with the Interior Ministry in 2007. In 2011 MEP Arlene McCarthy raised the problem with the European Commission. And although new law was proposed in 2015, no progress has been made.

In 2008 a European Standards for swimming pools was introduced (EN 15288-1 and EN 15288-2) that classifies communal pools, such as those for in apartment complexes, according to their size and usage.

Complexes that share a pool for the use of the property owners, their families and guests are classed as Type 3 swimming pools, making it subject to different standards than a public swimming pool and would therefore not require lifeguards, etc.

However, for reasons best known to themselves, the Cyprus government has not implemented these EU regulations that would remove the need for lifeguards at a stroke.

I hope the couple who featured in A Place in the Sun and bought the one-bed apartment manage to avoid the problems with the inadequate and archaic laws and regulations governing communal fees and swimming pools. They’ll soon find out for themselves.

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