More time needed on Airbnb bill

Elias Hazou
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More time needed on Airbnb bill

Cyprus Airbnb bill delayedLAWMAKERS on Tuesday said they needed more time to tweak a bill that proposes to regulate and tax short-term Airbnb-style property rentals.

The legislative proposal – made by Disy’s Averof Neophytou and Edek’s Elias Myrianthous – aims to create a dedicated registry for short-term self-catering accommodation and then taxing their income, bringing cash into state coffers.

Earlier, MPs said there are currently an estimated 40,000 accommodations across the island being used for short-term rentals that are unlicensed and thus not subject to the legislation governing tourist lodgings.

The bill covers villas, residences and apartments used for tourism purposes.

But, as usual, various aspects that need clarification have come up during the discussions in parliament.

One example, said Angelos Votsis, chair of the House commerce committee, is whether the bill will also address apartments located in residential areas.

“It’s a matter that has yet to be cleared up,” he told reporters.

Realising the true scope of the bill, Disy’s Neophytou has since proposed that the bill, if passed, should enter into force no sooner than January 1, 2019.

This is to give time to the newly-established under-secretariat for tourism, which is still understaffed and under-equipped, to cope with the expected influx of applications for the special registry.

Akel deputy Costas Costa said though his party is in favour of regulating these accommodations, they have reservations as to whether the law could be properly enforced.

The bill contains intricate licensing procedures which would be impossible for the under-secretariat for tourism to implement. Moreover, Costa noted, it is doubtful whether self-catering accommodations would be able to comply with the raft of safety and technical specifications.

Costa therefore proposed that the government itself bring its own comprehensive bill.

“We do not under any circumstances wish, in our effort to solve one problem, to rush to decisions which could cause serious problems, perhaps even leading to the closure of self-catering accommodations which are the lifeline for hundreds of families, especially in rural areas.”

Regarding the rental of apartments for tourism purposes, MPs have inserted a clause requiring that their owners must beforehand secure the consent of the other owners and/or tenants in the same building bloc.

A dedicated registry is to be created for these residences, villas and apartments. This will be a different registry to that already in existence for hotels and tourist accommodations.

Each property thus registered would be assigned a number, which will be used in online advertising platforms so that punters may know whether the property in question is registered or not.

Flood of foreclosure letters

Nigel Howarth
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Flood of foreclosure letters

Cyprus foreclosure lettersTHE NUMBER of warning letters sent by banks warning borrowers they intend to foreclosure doubled in the second quarter of 2018, Phileleftheros reported on Monday.

It said banks sent a total of 1496 letters in the second quarter of 2018 compared to 792 in the first quarter and that the number of letters was also is the highest since 2015 when the legislation came into force.

Of the 6,869 properties for which foreclosure notifications have been sent since the third quarter of 2015, only 214 or 3.11% of properties had been sold in the first auction by June 2018.

No primary homes were sold in the second quarter, but 13 houses/apartments ready or under construction, two commercial properties and eight plots of land were sold.

Central Bank figures show that in the second quarter 317 warning letters concerned commercial properties – compared to 143 in the first quarter.

A total of 41 letters were sent for primary homes/apartments, up from 35, and 196 (up from 121) for plots of land. Furthermore 769 letters were sent for rural plots (up from 422) – and a letter was also sent for a hotel.

Money laundering assessment

Editorial
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Money laundering assessment

AFTER negative international media in connection with dirty cash, Cyprus is set to undergo an assessment from a Council of Europe committee set-up to combat money laundering.

Moneyval, a group of experts on combating the legalization of income from illegal activities and financing of terrorism, is to conduct research in cooperation with Cypriots authorities and submit a report to the Council of Europe.

The report under the title “Special Assessment of the Effectiveness of the Customer Due Diligence Measures in the Banking Sector” will examine to what extent money laundering is an issue in Cyprus and what measures need to be taken by banking institutions and authorities.

Moneyval’s assessment, which is to take place in 2019, is expected to be of interest as Cyprus is the target of criticism both in Europe and the United States while, occasionally, various foreign press reports raise allegations of dodgy Russian money in Cyprus.

Its last comprehensive review was conducted in 2011, prior to the events of March 2013 which led to the bail-in and the deposit haircut on a significant number of Russian investors.

There are frequent allegations of Russian capital, allegedly obtained via illegal activities, passing through the island via shell companies.

Cypriot authorities have been accused by various organisations in Europe and the United States of exhibiting tolerance for suspicious flows of Russian capital, arguing that they pose a threat to Europe’s banking system.

The Wall Street Journal, in an article published on Monday, argues that the largest flow of Russian money into the EU comes from Cyprus, which has become the largest source of foreign direct investment in Russia.

Last week, the EU observer reported that Cyprus remains the weakest link in the European banking system due to the easy access for Russian funds to domestic banks.

The supervisory authorities of the country find the accusations to be unfair and believe that all the appropriate measures have been taken to combat money laundering.

A senior Cyprus Central Bank official referred to the very encouraging comments made by the Assistant US Treasury Secretary for Financing of Terrorism Marshall Billingsley, regarding Cypriot authorities and the work they have put into combating money laundering, after his last visit.

Foreign Minister Nicos Christodoulides told news website Stockwatch that the Cypriot authorities have taken very stringent measures to combat money laundering, referring to efforts made by MOKAS, the ‘Unit for Combating Money Laundering’.

He argued that since the beginning of 2017, the Foreign Ministry has set up a special unit made up of experts which is financed by the European Commission.

Meanwhile, the CEO Bank of Cyprus, John Hourican told the Wall Street Journal that Cyprus has found itself stuck in the middle of a financial war between Russia and the USA.

Cypriot Nobel Prize winning economist Christopher Pissarides told the Wall Street Journal that Cyprus cannot be pressured into getting rid of all Russian deposit accounts.

“They say…it must be money laundering because they’re all so rich.”

NPLs pushing down Cyprus property prices

Editorial
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NPLs pushing down Cyprus property prices

NPLs pushing down Cyprus property pricesA EUROPEAN Commission report suggests that the high number of mortgage-backed NPLs is pushing property prices downwards.

According to the EC’s report entitled ‘Housing Market Developments in Cyprus‘ the large mass of NPLs is on the one hand affecting banks’ capacity and willingness to give out housing loans, and on the other is putting pressure on households to sell their property or use it as means of deleveraging in asset-to-debt swaps.

The latter trend is creating an increase in the supply of houses and flats in the property market.

According to the report, there is a direct connection between house prices, the supply and the non-performing loans. However, real estate analysts consider the downward pressure exerted by the mountain of NPLs may also have a positive effect on the market.

Experts see other forces afoot, pushing prices upwards and perceive the effect of the high number of NPLs as a factor which can help keep prices at a healthy level, preventing a new bubble in the real estate sector.

The EC report documents that in Cyprus a large portion of bad loans is backed by real estate. As the value of this collateral has fallen, banks have had to increase their provisions for losses.

The Cyprus property market was hit by the global financial crisis and then by the debt crisis of its banks and its lenders. House sales declined by 60% between 2007 and 2009. Nevertheless, sales to residents remained relatively stable by 2012.

As credit expansion ceased in 2012, house sales declined further. In 2015, house sales amounted to about 20% of their 2007 peak.

The report points out, a significant part of the real estate market is the sale of real estate to foreigners despite the fact that there has been a decline during the crisis.

The crisis affected significantly the sales of real estate to non-residents, which doubled in size between the accession of Cyprus to the EU in 2004 and the peak period of 2007.

With the global financial crisis, sales to foreign residents decreased by more than 80% and 2015 accounted for only 10% of 2007 sales. In 2016, sales of real estate to foreign residents accounted for around 25% of total sales.

The combination of declining sales and excessive stockpiling led to a sharp drop in prices of around 30% between 2008 and 2015.

It is argued that the decline in real estate prices has led to an increase in the number of strategic defaulters, especially those who took out loans with their first home as collateral.

Acknowledging that official indicators record a small increase of 0.8% in house prices and 1.4% in prices of flats in 2017, the EC sees 2017 as a turning point.

However, it said the recovery period is likely to be prolonged due to the number of homes coming on to the market after an asset-to-debt swap deal with the banks or a repossession.

Talking to the Financial Mirror, a Cyprus Central Bank contributor to the report, said that as things stand there is an oversupply of properties in the market and injecting so many properties after a debt-to-asset swap or repossessions could overpopulate the market causing prices to crash.

There is a dynamic which is building up that could see an increase in demand.

“The fact that households are in a better position to save up money as unemployment has dropped and households now have more than one source of income, allows households to feel more secure about buying a property,” said the CCB official on condition of anonymity.

“So yes, there is a serious increase of houses being injected into the market but on the other hand there is a small rise in demand,” he added.

The fact that households are in a better position financially than previous years, is also reflected in an increase of their deposits.

And the official does not expect the banks to unload the portfolios of properties acquired on the market in one go.

“Banks have shown constraint in unloading properties on the market, while not selling below market prices,” he said.

He said while there is concern of what will happen with NPLs packaged and sold-off to investment funds there is no gain in selling them off cheaply.

“However, this is an extreme scenario. It is not in their interest to sell off the assets at extremely reduced prices, which is what will happen if they attempt to unload their portfolio at once”.

The official argued that the fact that the high number of NPLs is holding prices down could turn out to be healthy for the market.

“Of course, if the number of NPLs was not as high as it is today, we would have been talking about an increase of 3%. Keeping prices closer to more reasonable levels can help the market to stay away from the exaggerations of the past which created the bubble which burst in our faces in 2013”.

No threat

Chairman of the Cyprus Property Owners Association George Mouskides, said that the high levels of asset-backed NPLs are currently providing a ceiling on property prices, rather than posing a threat to the market.

“We have yet to see any indication that the high NPLs or even the reintroduction of such properties to the market will drop prices to levels lower than what they are today,” said Mouskides.

He said the “banks have been very reasonable and cautious so as not to cause damage or a crash in the market. The real concern is the sale of mortgage-backed loan packages”.

Mouskides added that it remains to be seen how banking institutions or funds like the Apollo Fund will choose to make good on their investments.

The Bank of Cyprus package sold to the Apollo Fund is linked to some 9,000 properties.

“As the fund is acquiring such a vast portfolio at less than 20% of market value of the linked assets, it remains to be seen how the fund will wish to cash-in on their investment”.

The Bank of Cyprus has sold a portfolio of 14,000 mortgage-backed loans worth €2.8 billion at half the price (€1.4 billion). The loans package is linked with properties worth €5.7 billion, with the vast majority of loans (€2.7 billion) being deemed as non-performing.

Mouskides said that this may also lead people to offload their mortgaged or other properties at lower prices so as to bring in fast cash to pay off the debt.

He said that if he was in the fund managers’ shoes he would ask borrowers to pay back half of the value of their loans, as unloading so many properties in the market at once would be a potential threat for the sector.

Further reading

Housing Market Developments in Cyprus (European Commission Economic Brief 038 September 2018)

UK nationals’ residency rights post-Brexit

Evie Andreou
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UK nationals’ residency rights post-Brexit

THE INTERIOR MINISTRY has published on its website a document explaining how Cyprus intends to implement the Brexit withdrawal agreement covering the residence rights of UK nationals and their family members.

The withdrawal agreement between the EU and the UK on citizens’ rights, ahead of the country leaving the bloc on March 29, 2019, protects those UK nationals and their family members who have already exercised or will exercise their free movement rights in Cyprus before January 1, 2021 when the transition period ends.

During the transition period that starts on March 30, immediately after the UK leaves the EU, and ends on December 31, 2020, the free movement of UK nationals and their family members will continue, the interior ministry said.

In line with the draft Brexit Withdrawal Agreement published in March, the interior ministry said that its implementation will mean that UK nationals and their family members who, by December 31, 2020, have been continuously resident in Cyprus for five years will be eligible for permanent residence.

It added that UK nationals and their family members who already reside in Cyprus or arrive by December 31, 2020, but will not yet have been continuously resident in Cyprus for five years, “will be eligible for residence, enabling them to stay until they have reached the five-year threshold, allowing them to apply for permanent residence”.

UK nationals and their family members who are covered by the withdrawal agreement, it said, “will be able to continue their lives in Cyprus, with the same access to work, study, benefits and public services that they enjoy now, subject to the specific provisions provided for in the Withdrawal Agreement.”

Further reading

Residence rights and residence documents in the Republic of Cyprus

Leptos wins appeal to build next to Coral Bay

Bejay Browne
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Leptos wins appeal to build next to Coral Bay

LEPTOS developers won their appeal to build next to the blue-flagged Coral Bay beach in Paphos months ago, it emerged on Friday, but local councillors were only informed of the move at Thursday night’s council meeting, they said.

The appeal is connected to the development of ‘Plot 1’ which sits above Coral Bay and has commanding views of the beach and Mediterranean Sea and has recently been used as a car park.

The plans include the construction of 22 villas and ‘services’, such as restaurants and cafes.

The popular beach in Paphos attracts thousands of visitors every year.

Although the decision was taken on May 8, the matter was only discussed at Thursday’s meeting, as the mayor, Marinos Lambrou, only recently found out by ‘accident’, councillor Achilleas Achilleous told the Cyprus Mail on Friday.

“The mayor only found out by calling the relevant authority to find out some information and was told the appeal had been approved months ago.”

He added: “I don’t have anything against the developer, but the law has changed since this planning permit application was made and the appeal doesn’t mention the regulations now. We have to stand up to the government for making this wrong decision.”

He said that according to the current land registry laws and regulations, 15 per cent of a plot of land can be developed for villas and 20 per cent if there are villas and services, such as restaurants and cafes. “You must leave a five-metre road to the beach and green areas, with a 40 per cent clear and ’empty’ view to the sea.”

However, the councillor said that drawings shown to the council previously, depicts the view to the sea blocked, no access road and limited access down to the beach.

Peyia coalition councillor, Linda Leblanc explained that the appeal concerns a Leptos planning application made in 2005, to develop Plot 1 at Coral Bay beach, which was rejected by Paphos planning in 2005.  Leptos appealed the planning decision and it went to the ministry of interior for a decision.

“It has been pending ever since and the matter was specifically discussed with Michael Leptos at our July council meeting with the Leptos company,” she said.

Leblanc said that at the meeting, the council made it clear that they were willing to discuss development of the plot, but under the current planning laws and not those of 2005.

The council requested that Leptos withdraw the appeal and the parties involved could then proceed with discussions about what the developers planned to do there. However, it has since emerged that the appeal had already been given the green light before this meeting took place.

Last month the developer sent a draft proposal to the mayor, which the council were shown at Thursday’s meeting. The proposal does not mention the appeal case and includes building in the coastal protection zone, and at a higher density than current legislation, said Leblanc.

Both councillors agreed that Peyia’s main concerns are those of public interest, such as ensuring there is public access to the beach.

“We also need to ensure the cash flow, the municipality makes around €800,000 net income per year from beach beds, umbrellas and the two kiosks,” she said.

Leblanc said that the rights of the owner to develop land are accepted, provided that they are according to the current laws – after the municipality’s failed attempts for compulsory acquisition.

She also noted that following the law – current planning from 2011 – designates Coral Bay beach as a special tourist area, with zoning limits on tourist development on the land next to the beach, at between 15-20 per cent density.

“There should be 60 per cent of the land not built on, with open spaces, not blocking the view and providing public access,” Leblanc said.

She also pointed out that about one third of the plot falls in the coastal protected zone, from the cliff side edge to the high-water mark.

“This is where Leptos would like to have services – such restaurants and play areas.”

Both noted that councillor will grant a request made by the developers, and meet again next week.

The Cyprus Mail was unable to contact a Leptos representative for comment.

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