Cyprus has made limited progress

Nigel Howarth
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Cyprus has made limited progress

Cyprus has made limited progress says European CommissionA DOWNBEAT report from the European Commission notes that Cyprus has made “limited progress with implementing the 2016 country-specific recommendations” and continues to face “excessive imbalances in the form of a weak financial sector and large stocks of private, public, and external debt.”

“Despite a major restructuring of the banking sector and improved capital positions, the ratio of non-performing loans as a share of GDP remains at very high levels and does not show a clear downward trend” the European Commission has said.

Reporting on a number of property-related matters, the European Commission’s report notes that:

“The tax-benefit system in Cyprus is among the least effective in the EU in reducing inequality and its effectiveness may deteriorate even further following the abolition of the property tax in 2017.”

“NPLs are to large extent concentrated in construction and real estate sectors and banks are increasingly resorting to debt-to-asset swaps in loan restructuring transactions. This leads to an accumulation of real estate assets in their balance sheets, which in turn increases their vulnerability to property price developments.”

“The depressed housing market has deterred the selling of assets, thereby slowing down debt reduction and incentivising strategic defaults. A large proportion of loans have real estate property as collateral. However, asset disposals, namely asset sales, remain unattractive due to declining housing prices. In addition, the difficulties in issuing and transferring title deeds have deterred demand for housing and weighed on the liquidity of property markets.”

In its conclusions, the European Commission points out that “Measures have been taken to increase loan restructuring, implement foreclosure and insolvency frameworks, make the judiciary more efficient, and allow for the sale of loans. However, efforts are still needed to remove bottlenecks in the foreclosure and insolvency frameworks, improve contract enforcement, ensure well-defined property rights, and help banks resume a healthy flow of credit to the economy. Ensuring fiscal discipline is also crucial for debt-reduction.”

Further reading

Country Report Cyprus 2017 Including an In-Depth Review and the prevention and correction of macroeconomic imbalances.

Banks would benefit from property price recovery

Cyprus News Agency
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Banks would benefit from property price recovery

Cypriot banks would benefit from property price recoveryCYPRIOT banks would benefit from a sustainable recovery in the Cyprus property market, rating agency Moody’s said as the Cyprus Property Index posted its first rise in seven years.

The index, compiled by the Central Bank of Cyprus, recorded a quarterly increase in the third quarter of 2016, for the first time since in 2010.

Although Cypriot banks continue to face significant asset quality challenges, a sustained reversal in the prices for apartments and houses would improve asset quality, a credit positive, Moody’s said in its Credit Outlook bulletin, issued on Monday.

As the agency notes, recovering property prices would support the construction industry, incentivise mortgage repayments from strategic defaulters who have the capacity but are unwilling to repay and allow banks to offload real estate taken on their balance sheet through debt-to-asset swaps.

“We expect property prices to broadly stabilise over the coming quarters, and the demand for property to increase gradually from low levels. Real estate sales totalled 7,063 in 2016, versus 21,245 in 2007,” Moody’s said, adding although the improving economy will support domestic demand, households’ large debt loads (loans to households were 116% of GDP as of December 2016) will continue to constrain demand growth.

An improved real estate market would mostly benefit Bank of Cyprus and the Cooperative Central Bank (CCB), the agency added.

Recalling that through debt-to-asset swaps, BOC acquired €1.3 billion of properties on its balance sheet, which constitute 6% of its total assets, the largest share of any Cypriot bank, the agency said that a gradually recovering property market would facilitate its sale of these assets and reduce the likelihood of the bank recording losses.

Furthermore, the CCB will also benefit because residential mortgages amount to 37% of its gross loans, with 50% of these loans classified as nonperforming exposures as per the European Banking Authority’s broad definition.

However, the agency pointed out that notwithstanding the improving real estate market, “Cypriot banks’ balance-sheet rehabilitation will be long because of the long cure periods for restructured loans before they are reclassified as performing and substantial distressed debt that has not been restructured yet.”

Additionally, it has been difficult to change Cypriot households’ poor borrowing culture, as indicated by relatively high percentage of restructured retail loans that have fallen back into arrears, the agency stressed.

Property tax dodgers discovered

Nigel Howarth
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Property tax dodgers discovered

Cyprus property tax evasion uncoveredTHOUSANDS of cases of property tax evasion have been brought to light following the island-wide property revaluation exercise carried out by the Department of Lands and Surveys.

The general assessment of immovable property valuations formed part of the Memorandum of Understanding between Cyprus and the troika of international lenders.

In a letter to MPs, Interior Minister Socrates Hasikos revealed that “The recent revaluation has brought to light thousands of cases or properties that were not declared to the tax authorities resulting in the owners only paying for land tax.”

The minister noted that land and buildings registered at 1 January 2013 had been valued according to their current market and zoning prices. However, the same could not be said of property valuations at 1 January 1980, where some of their owners had only been paying property tax on the land although they had erected buildings.

The tax evasion cases will be passed to the Cyprus Tax Department.

Construction and housing statistics 2014

Nigel Howarth
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Construction and housing statistics 2014

Cyprus construction and housing statisticsTHE STATISTICAL Service of Cyprus (CYSTAT) has published the annual report “Construction and Housing Statistics, 2014”.

The annual report, which was first published in 1966, provides basic information on the structure and developments in the construction and housing sectors including information on output, investment, prices, new dwellings completed and authorised building permits.

The main developments in 2014 reported by CYSTAT were:

(a) The growth rate in the construction sector in real terms was negative in 2014 for the seventh year in a row, reflecting the deep recession in construction activity. The rate of growth in 2014 showed a decline of 11.6% (over 2013), following a decline of 23.0% in 2013. The sector’s contribution to the island’s Gross Domestic Product (GDP) fell to 3.6% in 2014 from 12.3% in 2008.

(b) The gross output of the construction sector at current market prices, dropped by 9.4% in to reach €1,716.1 million compared to €1,893.5 million in 2013.

 (c) During 2014, the share of new construction in residential buildings is estimated at 42.2% of the total output and non-residential buildings at 23.7%, while civil engineering projects accounted for 34.1%.

(d) The number of persons employed full time in the sector fell from 20,242 in 2013 to 18,447 in 2014.

(e) The number of persons registered as unemployed decreased from 7,263 in 2013 to 6,510 in 2014.

(f) Labour costs fell by 5.3% following a fall of 8.5% in 2013.

(g) The number of new dwellings completed amounted to 2,718 units; a fall of 29.1% compared to the 3,833 completed in the previous year.

(h) The cost of construction per square metre (excluding the value of land) increased to €989.4 from €975.8 in 2013 for houses, while the cost of construction from apartments fell to €893.3 in 2014 from €900.1 the previous year.

(i) The dwelling stock at the end of 2014 rose 0.6% to reach 443,829 units compared to 441,251 the previous year, of which 61.0% were in the urban areas.

Further reading

Cyprus Construction and Housing Statistics, 2014

Marginal rise in property prices

Nigel Howarth
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Marginal rise in property prices

Cyprus property prices riseTHE CYPRUS Central Bank reported that home prices rose marginally in the third quarter of 2016 compared with the previous quarter, with its Residential Property Price Index rising for the first time since late 2009 to stand at 73.3.

The index for house and apartment prices over the third quarter of 2016 rose 0.1 per cent compared to the previous quarter. The very slight increase in the index suggests that house prices are continuing to stabilise at around the level as last seen in 2006.

Although home prices recorded quarterly rises in Limassol (0.3%), Paphos (0.3%) and Larnaca (0.2%), they fell in Nicosia and Famagusta by 0.2% and 1.1% respectively.

On an annual basis the general index for apartment and house prices fell 1.0 per cent and 1.3 per cent respectively compared with the corresponding quarter of 2015.

Further reading

Cyprus Residential Property Price Index 2016 Q3

How can Cyprus banks justify their action?

Nigel Howarth
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How can Cyprus banks justify their action?

Cyprus banks justify actionDURING the property boom in Spain, in the region of 100,000 British buyers invested an estimated £2 billion in off-plan properties that were never finished and when (like Cyprus) the property market collapsed in 2008, many property developers went bust.

For the past eight years many of the investors have been fighting through the Spanish courts to recover their money.

In a landmark ruling by the Spanish Supreme Court in 2015 financial institutions such as banks and building societies were held liable, together with builders and property developers, to refund money to property buyers whose properties were not completed.

Following the landmark ruling, in December 2016 a court in Malaga ruled that the Banco Popular must repay a British couple the €227,000 they invested in a two-bedroom flat in Los Lagos de Santa Maria Elviria, near Marbella.

Meanwhile in Cyprus

Similar problems exist in Cyprus, due to the banks reckless lending practices as highlighted in the Independent Due Diligence of the Banking System of Cyprus produced by PIMCO in 2013. However, rather than repaying money people invested in property whose developers subsequently went bust, the banks are trying to liquidate those properties to recover the debt.

In 2015 parliament enacted the ‘trapped buyers’ law, which enabled people who had been duped into buying property built on land that the developer had earlier mortgaged to the bank, to apply for their deeds. At that time it was estimated that 78,000 ‘trapped buyers’ might benefit from the new legislation.

According to a report by the European Commission, by the end of August 2016 The Land Registry had received 11,000 Title Deed applications, nearly 4,000 Title Deeds had been issued which led to approximately 800 transfers.

But the banks challenged the ‘trapped buyers’ law in court claiming that it was unconstitutional. District courts upheld their challenge and the situation remains unchanged until further notice; trapped buyers remain trapped.

The banks, whose reckless lending practices helped precipitate the collapse of the island’s economy that resulted in the haircut on uninsured bank deposits and the death of Laiki bank, are now pursuing the victims of their own mistakes; trapped buyers.

How can the Cyprus banks possibly justify their despicable action – how many more innocent lives do they want to wreck?

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