Affordable housing scheme starts next month

George Psyllides
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Affordable housing scheme starts next month

AN 80 SQM two-bedroom flat would cost around €70,000 as part of the government’s newly-introduced affordable housing scheme, which kicks in next month, it emerged on Friday.

The land development organisation (Koag), which will oversee the scheme, announced on Friday that it will be accepting applications from eligible people between July and December this year for the acquisition of affordable housing, as the government seeks to assist vulnerable groups and gradually resolve the structural problems in the housing market.

Koag chairman Marios Pelekanos told a news conference that housing units will be constructed in central locations like Strovolos, Aglandjia, and Lakatamia in Nicosia by developers who will be afforded zoning incentives and tools to produce affordable housing.

Pelekanos said an 80 sqm two-bedroom flat “in a nice area” would cost around €70,000.

Cypriot citizens as well as other EU nationals residing in Cyprus for the past five years will be eligible to apply provided, they did not own a house in the five years before the application.

The units will be priced taking into account the average construction cost published by the statistical service. Currently, the cost for a flat is around €870 per sqm whereas that of a house is €1,050.

Applications will be processed on a first come first served basis provided they meet certain income criteria.

Gross household income should not exceed €22,000 for a single person, €40,000 for a couple, €44,000 for a couple with one child, €48,000 for two children, €58,000 for three children, €68,000 for four, €70,000 for five, and €76,000 for six children.

The owners cannot sell the unit before 10 years had elapsed from the day it was acquired and it must be used for at least 10 years for permanent residency. Eligible individuals can only benefit from the housing scheme once.

Pelekanos stressed that applicants must be able to prove they can afford the house even if they meet the criteria, or else they will be rejected.

Delay vote on foreclosure law changes MPs urged

Staff Reporter
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Delay vote on foreclosure law changes MPs urged

Delay vote on the Cyprus foreclosure law changes MPs urgedFINANCE minister Harris Georgiades as well as the banking industry urged lawmakers on Thursday to delay voting on proposed amendments to the foreclosure law, changes that could weaken lenders’ ability to recover loans and trigger a chain reaction of adverse side-effects.

“It is the government’s clear recommendation that we not rush now into changing the law,” Georgiades told MPs.

Moreover, he added, the timing was all wrong.

It was best to wait until the Estia debt relief scheme for homeowners kicked in, and allow some time to assess the programme’s efficacy before tinkering with the law on foreclosures.

“We should not fiddle with the legislation until we at least have a picture [on whether Estia delivers],” the minister pleaded.

The law on foreclosures was amended in the summer of 2018 to make it more effective, some four years after it was passed by parliament with changes that essentially rendered it toothless and unable to help banks reduce non-performing loans.

Up until then, the IMF, the European Commission and the European Central Bank (ECB), the troika of international creditors which supervised Cyprus’ 2013 bailout, had been calling for an amendment to the law to make it more effective.

Now, opposition parties have drafted five amendments which banks fear would defang the law by enabling strategic defaulters to drag out the foreclosure process.

The thrust of the amendments is to provide vulnerable debtors – essentially homeowners with mortgages they can’t service – extra safeguards. But critics say the law as it stands already provides adequate protections.

The government and the banks say the amendments, if passed, will both delay and complicate foreclosure proceedings, preventing lenders from reducing their stock of non-performing loans.

A Central Bank official noted that currently in Cyprus NPLs account for 30 per cent of all loans, compared to the eurozone average of 3 per cent.

Making it harder for banks to recover loans would in turn disincentivize them from issuing new loans, starving the economy of fresh capital, but also force them to increase their provisions on the books – set aside more capital for contingencies.

Banks’ inability to divest of NPLs would additionally force them to raise interest rates.

MPs’ concerns that debtors could be thrown out of their homes appear unfounded. For example, to date Bank of Cyprus has restructured some 28,700 loans. Over the past 12 months, only 921 of these restructurings related to home loans.

In the same time period, the bank foreclosed on 242 properties. Not one of the foreclosed properties was a primary home.

Fifty percent of the foreclosures related to undeveloped parcels of land, and the rest were villas and commercial properties.

Weighing in, the Association of Cyprus Banks (ACB) warned that hampering the ability to recover loans would also result in a downgrading of Cypriot banks’ credit ratings.

In a memo, the association cited one proposed amendment which, in their view, would wreak havoc on the recovery of NPLs tied to properties.

Under this amendment, the debtor would be able to set aside a notice to foreclose by simply filing for a procedural injunction with a district court.

Previously, foreclosure proceedings could be stopped in their tracks only if the court found in favour of the debtor and issued the injunction. Now, merely the seeking of an injunction would be enough.

What’s more, under the amendments a debtor can set aside a foreclosure notice if he or she so much as applies for the Estia debt relief scheme. Previously, the notice could be set aside only if the applicant had been accepted for Estia.

The ACB also recalled that Cyprus had undertaken to clean up its act with regard to the massive NPLs in return for the European Commission green-lighting the sale of the Cooperative Bank.

It cited a European Commission document dated June 19, 2018 titled “State Aid SA.35334 (2018/N-2) – Cyprus – Liquidation aid for the orderly market exit of Cyprus Cooperative Bank Ltd.”

The document reads: “In order to eliminate the major impediments to the workout of NPLs in the country, Cyprus commits to enact far-reaching reforms that will allow an effective workout of NPLs by banks, asset managers and asset servicers, while continuing to protect the most vulnerable borrowers.

“The scope of these reforms will include, among other things, the legislation covering foreclosure to allow for the effective enforcement of claims, the setup of an electronic auction system for properties subject to foreclosure proceedings, a better access to the financial information of borrowers by financial institutions and a reform of the judicial process, in order to greatly increase the efficiency of handling of NPL cases by the judicial system.”

Estia scheme for vulnerable homeowners approved

George Psyllides
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Estia scheme for vulnerable homeowners approved

THE LONG-AWAITED debt relief scheme (Estia) for vulnerable homeowners was approved by the cabinet on Wednesday and is expected to be fully implemented by the end of the year, Finance Minister Harris Georgiades said.

The stated purpose of Estia is to assist, support and protect vulnerable households who have mortgaged their primary residences houses for their loans and at the same time reduce the high number of bad debts.

“We consider Estia a scheme that adds to the toolbox for tackling this old residue, the serious problem of non-performing loans by focusing on what is perhaps the most sensitive category of borrowers, those who have their primary residence as collateral,” the minister said.

“We will monitor how it will be implemented, remaining optimistic that it will be a scheme that will substantively help households first and foremost, borrowers who found themselves in difficult position, and management of the problem.”

Parliament has already approved the budget, and banks and other asset management entities will enter the Estia scheme next month. Eligible borrowers will apply in September and the first payments are expected to be made in December, the minister said.

It applies to loans (mortgages) that were classed as non-performing at 30th September 2017. Loans designated as non-performing after that date are not eligible. The primary residence which is mortgaged must have a maximum market value of up to €350,000.

The Estia scheme applies to the first mortgage on a residence, and covers loans or credit facilities regardless of currency.

Total household income of the applicant must not exceed the following: €60,000 for a family with at least four dependents; €55,000 for a family with three dependents; €50,000 for a family with two dependents; €45,000 with one dependent; €35,000 for a couple with no children, and €20,000 for a single-member household.

The Estia criteria will also apply to single-parent families.

An applicant’s other net assets in 2016, 2017, and 2018, must not exceed 80 per cent of the market value of the main residence after its evaluation. In any case they should not exceed €250,000.

Any cash or deposits exceeding €10,000, or 20 per cent of the rest of the applicant’s net assets, whichever is higher, and which are not used to secure any other loans, must be paid towards the non-performing facility before the restructuring procedure.

Other terms and conditions also apply.

The loans will be written down to the market value of the primary residence and then the borrower will have to pay two-thirds of the rescheduled loan every month and the taxpayer (the state) is going to subsidise one-third of the monthly instalments on that rescheduled loan.

Cyprus amongst worst offenders in corruption report

Editorial
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Cyprus amongst worst offenders in corruption report

CYPRUS was among those countries with the highest number and percentage of non-implemented or partially implemented recommendations by the Council of Europe’s anti-corruption body GRECO.

In its 2018 report, Turkey topped the list of countries with the highest number of non-implemented or only partially implemented recommendations, (33), followed by Bosnia and Herzegovina (23), Greece (19), Armenia (17), Belgium (17), North Macedonia (17), Serbia (17), Cyprus (14), Portugal (14) and Romania (12).

Bosnia and Herzegovina, Serbia and Spain (100%) had the highest percentage of only partially or non-implemented recommendations, followed by Portugal (93%), Belgium (89%), Turkey (89%), Cyprus (88%), Denmark (83%), Lithuania (77%) and Greece (76%).

Cyprus was among the countries with the highest number of non-implemented recommendations in respect of parliamentarians.

Romania was the country with the highest number of non-implemented recommendations (6), followed by Poland (5), Cyprus (4), Serbia (4), Turkey (4), Belgium (3), Latvia (3) and North Macedonia (3).

Moreover, Cyprus was among the 16 countries (Azerbaijan, Belgium, Bosnia and Herzegovina, Croatia, Cyprus, Denmark, Germany, Lithuania, Malta, Portugal, Romania, Serbia, Slovakia, Slovenia, Spain and Turkey) which had not yet fully complied with any of GRECO´s recommendations in respect to MPs.

In addition, Cyprus was among the countries with the highest proportion of non-implemented recommendations when it came to MPs.

Poland had the highest proportion of non-implemented recommendations in respect of MPs (83%), followed by Serbia (80%), Croatia (67), Cyprus (57%) and Turkey (57%).

Cyprus was also among the 10 countries (Albania, Bosnia and Herzegovina, Cyprus, Denmark, Greece, Iceland, Ireland, Portugal, Serbia and Spain) which had not yet fully complied with any of GRECO´s recommendations in respect of judges.

In its annual report, GRECO reviews action taken by its 49 member states against corruption in 2018, notably MPs, judges and prosecutors, as well as its most recent evaluation round focused on preventing corruption in central governments and law enforcement agencies.

GRECO’s President, Marin Mr?ela, said: “No country is immune to corruption. All countries, irrespective of their position in perception indexes, are required to take concrete measures to prevent and counter corruption. Relying on perceptions and underestimating the strength of preventive measures leaves the door open to behaviours which may very quickly turn into corruption.”

Overall, the implementation of GRECO recommendations slowed in 2018: only 34% of recommendations had been fully implemented by the end of the year.

The lowest level of compliance concerned recommendations with respect to parliamentarians (23%), whilst it was higher for those concerning judges (36%) and prosecutors (45%).

GRECO warned that public perceptions of low levels of corruption in certain countries may lead to underestimating the need for measures to combat corrupt practices.

GRECO also expressed concern about the overall slow progress in implementing its recommendations and called on states to address them without delay.

Council of Europe Secretary General, Thorbjørn Jagland, said: “Corruption has devastating consequences for human rights, democracy and the rule of law. Overall our member states have made progress to put in place measures to prevent and combat corruption, but much more needs to be done.

“GRECO’s recommendations are not optional. Governments, parliamentarians and other national authorities should show their commitment to fighting corruption by fully implementing GRECO´s recommendations.”

GRECO reports

GRECO’s 19th Annual General Activity Report (June 2019)

GRECO’s fourth evaluation compliance report for Cyprus – Corruption prevention in respect of members of parliament, judges and prosecutors. (September 2018)

Possible foreclosures law changes worry banks

George Psyllides
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Possible foreclosures law changes worry banks

Possible foreclosures law changes worry banksBANKING sources have expressed concern over the intention of several parties to amend the law on foreclosures, slowing down the process and possibly hindering lenders’ efforts to reduce their stock of non-performing loans, which is one of the highest in the EU.

The law on foreclosures was amended in the summer of 2018 to make it more effective, some four years after it was passed by parliament with changes that essentially rendered it ineffective and unable to help banks reduce non-performing loans.

Up until then, the IMF, the European Commission and the European Central Bank (ECB), the troika of international creditors which supervised Cyprus’ 2013 bailout, had been calling for an amendment to the law to make it more effective.

However, on Thursday, the House finance committee is scheduled to discuss five amendments to the foreclosures framework submitted or supported by Edek, Diko, the Green party, the Citizens’ Alliance and Solidarity.

In essence, the amendments would weaken the banks’ ability to collect their dues, banking sources said, at a time when supervisors are piling on the pressure for a reduction in bad debts.

Banking sources suggest the amendments would essentially afford protection to strategic defaulters and possibly increase their numbers since foreclosure procedures would slow down or be weakened.

They fear that fresh capital would be needed since there will be changes in the valuation of collateral, as well as possible bank downgrades by ratings agencies.

A bank source described the parties’ move as “haphazard.” One of the amendments makes it easier for borrowers to seek legal recourse, and although there is nothing wrong with that in principle, banks fear cases would be stuck in the island’s notoriously slow courts for years.

It was not yet clear whether parties would push for the amendments to be voted on before the summer recess.

Residential property values based on rents today

Angelos Georgiou FRICS FCIArb
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Residential property values based on rents today

CYPRUS has had an increase in property rental prices (an issue which is largely discussed throughout media these days) during the last few months. During the same period, there are quite a few properties available in the market with more expected (due to obvious crisis reasons the last few years which may be discussed in another post) which are usually available for sale by the various institutions, agents, owners etc.

OK, so people were having difficulties buying houses/flats so they had to rent so there was an upward demand for rents so the rents increased etc. (simple demand/supply trends)….. So anyway, the rents are up… for now!

Using the rental income to value a property will take the yearly market rent (NOI) and capitalise it by the appropriate rate to come up with the market value of the property. By the way, I see a lot of adverts/marketing by some so called “property consultants” who market properties stating the ‘return on investment’ based on the yearly ‘gross rent’ divided by the ‘asking price’.…… Sorry guys… it’s the “net operating income” divided by the “market value/selling price” of the property to come up with the actual return percentage….. as Bon Jovi once said… “you give love a bad name”….. I understand this may be a lower percentage compared to your advert/marketing you state but I believe it is only fair that your clients know the actual return they will be receiving on their investment…. So please stop giving us a bad name!!

Back to rents and the property value…. If rents are currently considered to be at high levels, obviously valuing a property based on the rent will show an increase in the market value of the property (although supply of properties for sale is expected to increase).

Example: Say we have a property with an annual NOI of €10,000 and a market value/selling price of €100,000 the return is calculated at 10%. (i.e. €10,000/€100,000 = 10% Return).

So how safe is your €10,000 at this point? Will the investor/owner continue to receive €10,000 of rental income in the next few months/years? As mentioned above, rents are already considered to be at high levels. Is 10% considered a high return on investment for a relatively low risk 1-bedroom apartment, say, in a city centre (yields are much lower in the city centre by the way). So anyway….. quite unreasonable for a low-risk investment to receive a 10% return. If an investor expects a 10% on a 1-bedroom apartment in the city centre then what return would he expect on a hotel investment based on the high risk taken?

Let’s take it at an even simpler level…. what will happen to the return once the market values are increased? Well…it decreases! Or, what would happen to the return once the rents are decreased, say… hmm at normal equilibrium market rental levels…Well, once your NOI goes down to market rent (e.g. say €5,000 per year) you automatically have a return decreased to 5% (…explain that to your client mr. salesperson).

So you got your €10,000 rent, you got your 10% return….. enough info to get a market value of €100,000 (i.e. 10,000* cap rate of 10% = €100,000). But we already know the rent is very high…. so you probably won’t be receiving it for too long once the rents decrease, right?…. So let’s do some forecasting…. €10,000 will probably decrease…. and if the rent is decreased and the investor is aiming for a 10% return then his solution would probably be to negotiate the “asking price” marketed by that same salesperson or so called “property consultant” who is still insisting to market the property as a “great investment”!!

Point being….. Rents are high at the moment….. this drives market values up…during this same period supply of “for sale properties” is increasing…. Do the forecast!!

About the author

Angelos Georgiou FRICS, FCIArb
Chartered Valuation Surveyor
Fellow of the Royal Institution of Chartered Surveyors (RICS)
Fellow of the Chartered Institute of Arbitrators (CIArb)

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