Squeeze on banks to offload property portfolios

Kyriacos Kiliaris
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Squeeze on banks to offload property portfolios

Cyprus estate agents fear that house prices could be pushed downwards from pressure on banks by the European Central Bank to sell-off property they have acquired through debt to asset swaps or foreclosures.

Taking on properties in exchange for debt has helped the Cyprus banking system reduce toxic loans from €28 billion in 2014 to under €8 billion in March 2020, just before the coronavirus outbreak.

The once praised method of debt-to-real estate exchange helped Cyprus banks bring down their Non-Performing Exposure.

It could now have a “boomerang” effect as banks are forced to pay penalties and make higher provisions.

Directives from the European Banking Union state that banks cannot hold on to a property they acquire through foreclosures or debt-to-asset agreements for more than three years.

In the event banks fail to sell the property acquired, they can apply for an extension for no longer than 1-2 years, or penalties will be imposed.

Looking at Bank of Cyprus’ results for 1H 2020, the bank has included provisions of €21 million for properties that were not sold within the timeframe foreseen by the regulations.

Other banks that invested in the “debt-to-asset” swaps are expected to follow the same path.

Real estate experts are worried that pressure from monetary authorities will force banks to offload their properties either by directly selling them to the market through asset management companies or packaging more asset-backed loans to investment funds.

In comments to the Financial Mirror, Panos Danos CEO of Danos/BNPRE Group said he expects to see banks trying to offload properties on the market, exerting pressure on already flat prices.

“On the one hand you have the pressure exerted on Cyprus banks by the ECB, and on the other, following the coronavirus crisis, banks are back on a money-losing path.

“Combined, these two elements will push banks to try and get rid of assets that will cause them more loses and provisions,” said Danos.

He argued that with the threat of sanctions from the ECB hanging over their heads like the sword of Damocles, banks will have to dump properties.

Danos said real estate agents understand the banks’ side, noting that they are not charitable organisations and people taking out loans should be more committed when it came to paying them off.

“Now, it is only natural that when these properties are essentially forced to find their way on the market, supply will go up with downward pressure on prices increasing.”

Property overload

As banks already have a considerable property portfolio building up, NPLs are expected to increase as wages are forced down in the aftermath of coronavirus.

The Central Bank of Cyprus in its latest Financial Report said it expects to see an increase in NPLs once a freeze on loan repayments introduced by the government expires.

“Once the freeze on foreclosures is lifted in October and loan payments reinstated from next year, it is expected that banks will want to make use of their artillery in bringing down their NPEs,” Danos said.

This could see banks acquiring more properties, possibly increasing supply even further.

“Just the damage Cyprus has suffered from international reports on our Citizenship for Investment scheme is enough to push prices downwards. Let alone, the increase in unemployment, tensions in the region.”

Chairman of the Cyprus Property Owners Association George Mouskides told the Financial Mirror that he too is worried about falling prices.

Mouskides is not so much concerned over growing repossessed property portfolios of the banks, as he is about the sale of asset-backed bad loans to investment funds.

“Banks have been very reasonable and cautious so as not to cause damage or crash the market,” said Mouskides.

He said it is not clear how investment funds will behave, but he believes the scenario of funds wanting to sell off their portfolios at values much lower than the market rate is not a plausible one.

“Prices will definitely be pushed down in any case, but at the same time construction costs are increasing, which will probably level things out.”

A banking sector source noted that banks have been careful in the way they managed their property portfolios, not wanting to bring down prices, inflicting further damage to the sector.

“We do understand real estate concerns, and they do have valid arguments. However, even if banks wanted to offload their properties it would bring about further damage for the banking system,” argued the source.

He said a sudden drop in property prices would also mean that the value of properties under their management, or those tied to a loan agreement, would also lose value.

“This would lead monetary institutions to force banks to increase provisions.

“If the whole sector is deemed to be risky, then international bodies like the ECB would come down hard on the banks, forcing them to further increase provisions as the value of properties in their portfolio could well go up in smoke.”

“Banks intend to put pressure on strategic defaulters, concentrating on cases that are old, some dating from decades back, which are not the result of the coronavirus pandemic”.

The source said that representatives from the ECB will be visiting Cyprus as part of the Troika of international lenders.

“We cannot have them find that we are not making use of tools like foreclosures in our struggle to bring own our NPL portfolios.”

Overseas property sales in decline

Nigel Howarth
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Overseas property sales in decline

Property sales to the overseas (non-Cypriot) market continued to fall in August with numbers down 18% compared to the numbers sold in August 2019 and down by 41% over the first eight months of 2020 compared to the same period last year according to official statistics.

Sales to the overseas market have been falling month-on-month since June 2019 (with the exception of a small rise in December 2019.)

Sales to the overseas market in August accounted for 35% of the total sold during the month.

Total overseas property sales

The total number of property sales to the overseas market during August stood at 199; a fall of 18% compared to the 244 sales achieved in the same month last year.

But it was not all bad news. Sales rose in Famagusta by 30%, while those in Nicosia rose by 8% compared to sales in August last year.

However, these rises were more than wiped out by falls 39% in Paphos, 18% in Limassol and 10% in Larnaca.

Despite the 39% fall in Paphos, it still remains the most popular destination for foreigners buying property in Cyprus.

Total Overseas Property Sale Contracts – 2019/2020 Comparison

District Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Nicosia 2019 34 30 16 32 45 24 21 13 23 20 21 26
2020 19 23 15 9 17 11 21 14
Famagusta 2019 21 29 29 38 42 18 47 17 24 17 35 38
2020 40 29 25 4 20 13 31 30
Larnaca 2019 60 43 71 67 90 60 67 40 35 79 53 74
2020 71 54 50 11 31 38 59 36
Limassol 2019 85 104 95 137 217 81 109 62 64 84 86 72
2020 82 89 67 49 39 52 87 51
Paphos 2019 157 180 157 155 229 136 176 112 139 126 169 151
2020 113 142 55 51 89 83 87 68
Totals 2019 357 386 368 429 623 319 420 244 285 326 364 361
2020 325 337 212 124 196 197 269 199

During the first eight months of 2020 the sales to the overseas market have fallen 41% compared to the same period last year.

Sales to EU nationals

Sales to the EU segment of the overseas property market in August accounted for 14% of total sales – and the number of sales fell by 24% compared to August 2019.

Although sales in Nicosia (the capital) and Larnaca were up 120% and 31% respectively, they fell in the remaining three districts.

Sales in Paphos fell 45%, Sales in Famagusta fell by 36% and sales in Limassol were down 29% compared to August 2019.

Foreign (EU) Property Sale Contracts – 2019/2020 Comparison

District Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Nicosia 2019 14 14 9 19 20 16 13 5 8 10 15 14
2020 9 12 9 3 10 7 16 11
Famagusta 2019 9 6 14 17 10 8 17 14 10 5 9 23
2020 6 14 10 3 4 9 28 9
Larnaca 2019 12 12 21 18 20 11 16 13 6 23 14 23
2020 21 13 11 0 3 6 19 17
Limassol 2019 16 25 20 21 28 26 27 17 25 30 26 25
2020 28 30 11 12 14 15 28 12
Paphos 2019 56 72 61 48 69 59 73 58 61 95 61 72
2020 40 60 25 24 21 18 44 32
Totals 2019 107 129 125 123 147 120 146 107 110 133 125 157
2020 104 129 66 42 52 55 135 81

During the first eight months of 2020 the sales to the EU segment of the overseas market have fallen 34% compared to the same period last year.

Sales to non-EU nationals

Sales to the non-EU segment of the overseas property market in August accounted for 21% of total sales – and the number of sales fell by 14% compared to August 2019.

Although sales in Famagusta rose by 600% (from a very low base), they fell in the remaining four districts.

Nicosia saw the number of sales fall by 63% and Paphos saw a fall of 33%. Meanwhile, sales in Larnaca and Limassol were down 30% and 13% respectively.

Foreign (Non-EU) Property Sale Contracts – 2019/2020 Comparison

District Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Nicosia 2019 20 17 7 13 25 8 8 8 15 10 6 12
2020 10 11 6 6 7 4 5 3
Famagusta 2019 12 23 15 21 32 10 30 3 14 12 26 15
2020 34 15 15 1 16 4 3 21
Larnaca 2019 48 31 50 49 70 49 51 27 29 56 39 51
2020 50 41 39 11 28 32 40 19
Limassol 2019 69 79 75 116 189 55 82 45 39 54 60 47
2020 54 59 56 37 25 37 43 39
Paphos 2019 101 108 96 107 160 77 103 54 78 61 108 79
2020 73 82 30 27 68 65 43 36
Totals 2019 250 257 243 306 476 199 274 137 175 193 239 204
2020 221 208 146 82 144 142 134 118

During the first eight months of 2020 the sales to the non-EU segment of the overseas market have fallen 44% compared to the same period last year.

Property sales to the domestic (Cypriot) market

Encouraged by the introduction of an interest rate subsidy for new housing loans granted from 1st March 2020 covering loans up to a value of €300,000, sales to the domestic market rose by 5% in August compared to the same month last year.

Although sales in Paphos, Famagusta and Larnaca fell by 69%, 31% and 4% respectively, these were outweighed by a 59% rise in sales in Nicosia and a 6% rise in Limassol. (Nicosia and Limassol are the island’s main business centres.)

Domestic Property Sale Contracts – 2019/2020 Comparison

District Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Nicosia 2019 127 164 115 137 168 121 153 90 114 163 187 154
2020 178 155 124 29 83 167 230 143
Famagusta 2019 32 19 16 58 45 25 2 13 16 33 13 26
2020 10 18 16 6 8 43 29 9
Larnaca 2019 54 82 47 73 83 42 90 53 67 81 69 88
2020 76 64 56 13 28 71 72 51
Limassol 2019 166 152 192 291 329 138 177 134 176 144 210 212
2020 98 136 76 23 73 150 183 142
Paphos 2019 30 31 28 69 175 69 54 54 34 66 64 69
2020 55 29 26 21 31 18 42 17
Totals 2019 409 448 398 628 800 395 476 344 407 487 543 549
2020 417 402 298 92 223 449 556 362

During the first eight months of 2020 the number of sales to the domestic market  has fallen by 28% compared to the same period last year.

Analysis of property sales since 2000

Cyprus Property Sale Contracts 2000 – 2020

Year Overseas Sales Domestic Sales Percentage
Overseas Sales		 Total
Sales
2000 450 12,214 3.6% 12,664
2001 1,207 12,849 8.6% 14,056
2002 2,548 14,111 15.3% 16,659
2003 3,981 15,294 20.7% 19,275
2004 5,384 11,947 31.1% 17,331
2005 6,485 10,106 39.1% 16,591
2006 8,355 8,598 49.3% 16,953
2007 11,281 9,964 53.1% 21,245
2008 6,636 8,031 45.2% 14,667
2009 1,761 6,409 21.6% 8,170
2010 2,030 6,568 23.6% 8,598
2011 1,652 5,366 23.5% 7,018
2012 1,476 4,793 23.5% 6,269
2013 1,017 2,750 27.0% 3,767
2014 1,193 3,334 26.4% 4,527
2015 1,349 3,603 27.2% 4,952
2016
 1,813 5,250 25.7% 7,063
2017
 2,406 6,328 27.5% 8,734
20181 4,367 4,875 47.3% 9,242
2019
 4,482 5,884 43.2% 10,366
2020 (Aug)
 1,859 2,799 39.9% 4,658
Totals
 71,732 161,073 30.8% 232,805

1 The Department of Lands & Surveys has advised that overseas sales in 2018 and subsequent year should not be compared to sales in previous years due to changes in the methodology used to classify ‘Aliens’ (foreigners).

Moves to strip seven people of citizenship

George Psyllides
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Moves to strip seven people of citizenship

Cyprus will begin taking steps to remove citizenship from seven people who violated the terms of obtaining a passport under the citizenship by investment scheme, it was reported on Friday.

French news agency AFP quoted President Nicos Anastasiades in its report.

In the past “there were some deficiencies or loopholes in the programme. And that’s why we have adopted so many steps … to introduce more effective control mechanisms,” Anastasiades said in an AFP interview.

The president told the news agency that even before news outlet Al Jazeera recently published a report critical of the scheme, around 30 people were under investigation to see if there were “any violations of our criteria”, Anastasiades told AFP.

“It seems that seven out of the 30, they should be deprived of the Cyprus citizenship,” he was quoted as saying. The seven will now have a process launched to have the passports rescinded. AFP said the seven were of various nationalities.

Anastasiades also said some 4,000 cases would now be examined, approximately everyone who obtained citizenship since 2008. He said he expected the number of violators to be low overall.

The government on Thursday announced the pending appointment of an investigative committee to look into the entire period during which passports were granted to foreign nationals under the citizenship-by-investment programme – 2008 up to July 31, 2020.

On why the probe would be covering all naturalisations under the citizenship-by-investment scheme, government spokesman Kyriacos Kousios said it was precisely so that no stone would be left unturned.

“There must be a full and complete investigation, providing answers by the committee to be appointed by the attorney-general, we hope, so that no questions remain unanswered.”

Auditor-general Odysseas Michaelides has also announced a probe into the programme to ensure the state did not lose any money. That investigation is currently being blocked by the interior ministry which has asked the AG to give his legal opinion whether handing over personal data was legal.

Meanwhile a three-member committee led by the chairwoman of the Securities and Exchange Commission has completed its own investigation into certain citizenships granted from 2012 to 2018. The panel examined 12 files involving 42 individuals considered “high risk.”

Kalogirou said Friday 10 files involving 35 individuals met the formal criteria while two, concerning seven individuals, did not but were still granted citizenship.

She said seven individuals – four separate cases – had secured citizenship under false pretences or by withholding important information.

Kalogirou said these should be referred to the attorney-general to decide whether there was a crime while the state should launch the process of rescinding the passports.

The committee also recommended rescinding the citizenships of 12 other people – three files – who are wanted by the authorities in their countries.

The remaining five files were high-risk, and the individuals involved should be monitored continuously, she said.

Meanwhile, main opposition Akel leader Andros Kyprianou accused the president on Friday of trying to blackmail him to keep his mouth shut by threatening to publish documents relating to citizenships granted by the Demetris Christofias administration between 2008 and 2013.

Speaking on state radio in the morning, Kyprianou said in a meeting with the president regarding the citizenship by investment programme, Anastasiades “waved this papers and told me ‘you know, I have these papers, stop talking.'”

This was a few weeks ago, before Qatar-based Al Jazeera reported, using confidential government documents, that Cyprus had granted citizenship to various dubious individuals.

Kyprianou said Akel will not remain silent and challenged the government to publish the documents.

“The biggest names on this list who have been granted citizenship are clients of the Nicos Anstasiades law firm,” Kyprianou said. “Did Demetris Christofias conspire with Nicos Anastasiades to grant citizenships to the people in question?”

On Thursday, it emerged that Anastasiades had sent a confidential letter to party leaders with the details of citizenships granted by the Christofias administration.

Kousios challenged Kyprianou to make it public with the Akel leader replying that the Presidential Palace can go ahead and publish it if they wanted.

Kyprianou said he would not be the one publishing a confidential document.

On Friday the spokesman said the letter was sent to the leaders for information purposes and it was not the government’s intention to blackmail anyone.

August property sales weaken

Nigel Howarth
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August property sales weaken

Following successive monthly falls of 80% in April, 71% in May, 10% in June and 8% in July, Cyprus property sales in August fell by 5% according to official figures published by the Department of Lands and Surveys.

During August a total of 561 property sales contracts were deposited at Land Registry offices across the island compared to the 588 deposited in August last year.

But on a positive, the rate of decline is slowing and the number of property sales in Nicosia and Famagusta rose by 52% and 30% respectively.

However, on the negative side, sales in Paphos (the most popular area for foreign buyers) fell 49%, while sales in Larnaca and Limassol fell by 6% and 2% respectively.

Total Property Sale Contracts – 2019/2020 Comparison

District Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Nicosia 2019 161 194 131 169 213 145 174 103 137 183 208 180
2020 197 178 139 38 100 178 251 157
Famagusta 2019 53 48 45 96 87 43 49 30 40 50 48 64
2020 50 47 41 10 28 56 60 39
Larnaca 2019 114 125 118 140 173 102 157 93 102 160 122 162
2020 147 118 106 24 59 109 131 87
Limassol 2019 251 256 287 428 546 219 286 196 240 228 296 284
2020 180 225 143 72 112 202 254 193
Paphos 2019 187 211 185 224 404 205 230 166 173 192 233 220
2020 168 171 81 72 120 101 129 85
Totals 2019 766 834 766 1057 1423 714 896 588 662 813 907 910
2020 742 739 510 216 419 646 825 561

Total property sales – year to date

In the first eight months of 2020 property sales are down by 34% compared to the same period in 2019, with sales falling in all districts.

Paphos has been hardest hit with sales down 47%, closely followed by Limassol where sales are down 44%. Meanwhile sales in Famagusta and Larnaca are down 27% and 24% respectively – and Nicosia appears to be staging a recovery with year-to-date sales down by just 4%.

In terms of the absolute numbers of property sales, Limassol leads the way with 1,381 sales followed by Nicosia with 1,238, Paphos (927), Larnaca (781) and finally Famagusta with 331.

The Department of Lands and Surveys has yet to publish a breakdown of the figures showing domestic and foreign sales. We’ll bring you the figures as soon as they’re published.

President wants probe into ‘golden passport’ scheme

Editorial
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President wants probe into ‘golden passport’ scheme

Cyprus President Nicos Anastasiades said he will ask the Attorney-General to appoint an investigating committee to conduct a probe into the citizenship by investment programme following damning allegations.

In a written statement on Wednesday, Anastasiades expressed regret over the turn of events as a result of recent reports by Al Jazeera that Cyprus had granted citizenships to a number of suspect foreign investors through its CIS program.

A week-long series of Al Jazeera’s reports, dubbed Cyprus Papers, portraying the Mediterranean island as selling passports to criminals for cash, has rekindled a war of words between the government and the Opposition.

In the statement, the presidency said Anastasiades will ask the competent Minister to request the attorney-general, on Thursday, appoint a three-member panel to investigate the programme’s operation, between 2007 and July 31, 2020, when parliament approved the latest changes to its legal framework.

“The decision does not affect the Auditor General’s powers, granted by the constitution, to carry out an audit of the tax department to determine whether the investments had been handled properly,” the statement said.

Ministry refuses to hand over passport files

Meanwhile, a row erupted between the Auditor General Odysseas Michaelides’ office and the Interior Ministry, after the latter refused to hand over additional information sought by the audit office as part of an investigation into the citizenship by investment program, following Al Jazeera’s claims.

In a statement, the Audit Office said that auditors had collected five files relating to recent claims by Al Jazeera that Cyprus had granted citizenships to dubious investors, but sought 15 more files, which the ministry refused to hand over.

The Interior Ministry said it would provide no more information pending the opinion sought from the Attorney-General on the matter.

The ministry cited personal data legislation governing such information being released.

Following the ministry’s response, the Audit Office warned that if the government’s refusal were based on the legal opinion of the Attorney General then it would take the case before the Supreme Court.

Cyprus Bar Association board has failed

George Psyllides
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Cyprus Bar Association board has failed

The Cyprus Bar Association’s disciplinary board has failed in its mission, chairman Doros Ioannides conceded on Wednesday, as he urged parliament to look into changing the way it operated.

“The disciplinary board and ethics are also for the benefit of the citizens and not just us lawyers,” Ioannides told the House legal affairs committee. “I am the president for 15 years and I preside over the disciplinary board and I am telling you we have failed.”

Ioannides said the board has 2,000 cases pending before it.

His comments before the committee were made during discussion of an amendment to the law on lawyers, which modernises provisions and regulates the general meetings of district bar associations and the Pancyprian Bar Association.

Ioannides urged MPs to examine the issue of the disciplinary board which “for many reasons and because of the many cases could not operate as you and we would like.”

The outgoing bar association chairman said the board should not be elected by lawyers.

“A lawyer cannot go around asking for a vote to be elected to the disciplinary board,” he said.

Ioannides said he agreed with a proposal to have a board that is appointed by the attorney-general and the Bar Association’s board.

He also suggested increasing the board’s members.

The association’s disciplinary board is made up of seven members and is headed by the attorney-general. The bar association chairman is also a member.

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