Debt-to-asset swaps distort property sales

Nigel Howarth
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1
Debt-to-asset swaps distort property sales

EACH month the Department of Lands and Surveys (DLO) publishes the number of sale documents deposited at District Land Offices across the island, which during the first five months of 2016 have risen by 25 per cent.

However, the debt-to-asset swaps for bank customers who are no longer able to service their loans are included in the published number of sale documents. This results in an overly optimistic picture of a recovery in the island’s property market.

Debt-to-asset swaps

Borrowers who are unable to service their loans have been encouraged to benefit from the debt-to-asset swaps as the law passed on 1st January, which exempts them from paying Property Transfer Fees. It also helps them to repay their debts and avoids insolvency.

The debt-to-asset swaps also helps the banks reduce their non-performing loans (NPLs) and improves their balance sheets.

Although the number of debt-to-asset swaps isn’t published, some indication of their extent can be found in the quarterly accounts of the Bank of Cyprus. As the bank is the island’s largest lender it is likely that it has agreed more debt-to-asset swaps than other banks and financial institutions.

BoC debt-to-asset swaps

During the first quarter of 2016 the bank’s Real Estate Management Unit (REMU) acquired €284 million of assets in Cyprus in debt-to-asset swaps and disposed of assets amounting to €48 million. At 31st March 2016 the value of the assets held in Cyprus by the REMU stood at €540 million, comprising:

  • Residential properties – €42.5 million
  • Offices and other commercial properties – €150.4 million
  • Manufacturing and industrial – €24.2 million
  • Hotels  – €73.2 million
  • Land (fields and plots) – €249.3 million
  • Properties under construction – €0.4 million

(See Bank of Cyprus Interim Condensed Consolidated Financial Statements for the three months ended 31 March 2016.)

Summary

  • Debt-to-asset swaps are clouding the true picture of property sales.
  • The recovery in the island’s property market is smaller than the raw numbers from the Department of Lands and Surveys would lead us to believe.

March building permits up 5 per cent

Nigel Howarth
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1
March building permits up 5 per cent

March building permitsTHE NUMBER of building permits authorised in March 2016 stood at 485 compared with the 460 authorised in March last year; an increase of 5.4 per cent according to official figures released by the Cyprus Statistical Service.

Compared with March 2015, the total area of these permits rose 23.7% to 88.2 thousand square metres from 71.3 thousand square metres and their value rose 30.6% to €91.4 million from €70.0 million.

During March, building permits were issued for:

  • Residential buildings – 330 permits
  • Non-residential buildings – 82 permits
  • Civil engineering projects – 19 permits
  • Division of plots of land – 37 permits
  • Road construction – 17 permits

Building permits for new homes

The 330 residential building permits approved in March provided for the construction of 306 new homes comprising 144 single houses and 162 multiple housing units (such as apartments, semis, townhouses and other residential complexes).

This is an increase of 3.0% compared with March 2015 when building permits were issued for the construction of 297 new homes.

Building Permits Issued for the Construction of
New Homes (Number of Dwellings)

Month 2015
(Dwellings)		 2016
(Dwellings)		 Increase/
Decrease		 %age
Change
January 204 243 39 19.1%
February 384 312 -72 3.0%
March 297 306 9 3.0%
Total 885 861 -24 -2.7%

Year to date

During the first quarter of 2016 the number of building permits authorised for both residential and non-residential projects has risen by 1.1% to 1,279 compared with the 1,265 authorised in the first quarter of 2015. The total value of these permits has fallen by 3.8% to €244.6 million and their total area has fallen by 7.2% to 231.4 thousand square metres, while the number of housing units has fallen 2.7%.

According to the Cyprus Statistical Service, building permits constitute a leading indicator of future activity in the construction sector.

More help for trapped buyers

Nigel Howarth
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29
More help for trapped buyers
Further help for trapped buyers
Cyprus Interior Minister Socrates Hasikos

A FURTHER bottleneck preventing the issuance of Title Deeds has been removed by a decree issued by the Interior Minister on 3rd June that allows planning irregularities to be excused enabling Certificates of Approval to be issued.

The decree applies to residential developments and related projects that were substantially completed by 31st December 2014 and whose individual residential units can be enjoyed. The decree will enable Title Deeds to be issued for the properties concerned; a prerequisite for applications under the provisions of the ‘trapped buyers‘ law to be processed.

The 41 page Memorandum of Understanding (MoU) agreed between Cyprus and its troika of international lenders in January this year called for:

“the Minister of Interior will issue ministerial decree by mid-December 2015 that defines an exhaustive list of what constitutes unauthorized works, with retroactive effect covering also all past pending cases, ensuring that the rest of deviations will not prevent the certification process”

The decree enables the relevant authorities to issue certificates of unauthorised works for such things as failure to complete the construction of roads, pavements, green areas.

The full text of the ministerial decree (in Greek) is available at ???????? ????????? ??????????. (The decree may be translated using Google translate.)

I expect that in cases where a certificate for unauthorised works has been issued, a Title Deed with notes will be issued preventing the property’s sale or voluntary transfer.

Cyprus property sales continue to rise

Nigel Howarth
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0
Cyprus property sales continue to rise

Cyprus property salesTHE NUMBER of property sales in Cyprus during May 2016 increased by 17 per cent compared with May 2015 according to the latest official figures published by the Department of Lands & Surveys.

The 17% increase in May follows a 35% increase in April and a 19% increase in March. Increased numbers of sales have been recorded for the last nine months.

May saw a total of 474 property sale contracts deposited at Land Registry offices across the island.

Although sales in Nicosia (the capital city) fell by 5%, compared to May 2015 they rose in all the other districts.

Sales in Larnaca rose by 51% to reach 103 compared to 68 in May 2015. Larnaca was followed by Paphos where sales increased by 26%, while sales in Famagusta and Limassol rose by 14% and 7% respectively.

Total Property Sale Transactions – 2015/2016 Comparison

District Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Nicosia 2015 46 45 83 88 86 61 60 37 65 64 60 54
2016 54
 79
 82
 79 82
Famagusta 2015 16 27 17 17 21 33 45 14 30 29 33 42
2016 22
 35 33
 35
  24              
Larnaca 2015 90 71 98 67 68 111 95 75 85 87 111 114
2016 78
 108 121
 127
  103              
Limassol 2015 95 97 160 115 135 135 156 87 114 166 137 169
2016 92
 179 197
 166
  145              
Paphos 2015 74 85 94 94 95 124 140 88 91 117 105 134
2016 81
 100 106
 107
  120              
Totals
 2015 321 325 452 381 405 464 496 301 385 463 446 513
2016 327
 501 539
 514
  474              

During the five months of 2016 sales have risen 25% to reach 2,355 compared with 1,844 during the first five months of 2015.

Property transfers

Efforts to reduce the Title Deed backlog continue, with the number of transfers during the first five months of 2016 reaching 5,454 compared with 4,605 during the first five months of 2015; an increase of 18%.

The declared price of the 5,454 transfers was €1.20 billion and the accepted price €1.33 billion, where the declared price is the sales price entered on the contract of sale and the accepted price is the Land Registry’s assessment of the market value of a property at its date of purchase.

In addition to transfers resulting from sales, the figures also include transfers to beneficiaries of Wills and gifts.

Immovable Property Tax slashed

Cyprus News Agency
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9
Immovable Property Tax slashed

Immovable Property Tax slashedCYPRUS Council of Ministers approved on Wednesday the reduction of the Immovable Property Tax rate by 50% and abolished the Immovable Property Tax collected by municipalities and communities.

“Today we made another important step towards tax reform and reducing the tax burden for households and corporations,” the Minister of Finance Harris Georgiades said following a Council of Ministers meeting.

He said the government approved a reduction of the Immovable Property Tax (IPT) by 50% to 0.5 ‰ (per mille) offsetting the obligation by the EU to charge VAT rate of 19% on transactions of property in the context of commercial transactions of buildable land.

Georgiades said the estimated revenue from the 19 VAT is €24 million whereas the revenue loss from the reduction of Immovable Property Tax is estimated to be €45 million.

This reduces tax revenue from immovable tax from €103 million to €45 million, he said adding the tax break amounts to at least €58 million.

Furthermore, Georgiades said the Council of Ministers decided to maintain the 20% discount on citizens who timely repay their immovable tax via the internet or through credit institutions and the 17.5% discount for citizens who pay their Immovable Property Tax on time at the Tax Department counters.

Immovable tax up to €25 will not be collected, the Finance Minister said.

Georgiades also said the government reduced the transfer fees by 50% for all immovable property sales.

“With this proposal, that will be submitted to the parliament the soonest possible, I believe we are taking another step towards reducing those burdens that have been rendered necessary in the previous years,” Georgiades said.

The proposal’s total fiscal impact is estimated at 0.2% GDP, he added.

Georgiades explained the 19 VAT is imposed on plot sales by land developing companies and not on transactions by natural persons.

Source: Cyprus News Agency

Lawyers’ price-fixing challenged in EC

Nigel Howarth
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2
Lawyers’ price-fixing challenged in EC

Lawyers price-fixing challenged in EC‘FAIRNESS IN FEES’ a London-based organisation founded by Greek Cypriot George Lambis has submitted a formal complaint to the European Commission concerning alleged price-fixing by the Cyprus Bar Association (CBA).

The complaint, which was submitted on behalf of Fairness in Fees by Hugh Barrett of BPE Solicitors LLP and by high level Counsel specialising in EU Competition Law Robert O’Donoghue and Tom Pascoe of Brick Court Chambers, has been accepted by the Commission; we anticipate a ruling on the matter in a few months.

The CBA mandates the minimum fees for out of court work, which includes powers of attorney, property transactions and the administration of estates. Membership of the CBA is mandatory for all lawyers practicing in Cyprus – and if a lawyer fails to comply with the Advocate’s Law they may be stuck off, suspended, or fined.

(It is also worth noting that if the lawyer and client are married or close relatives – or if the lawyer’s client is another lawyer, the lawyer is exempted from charging the ‘minimum fees’.)

In Counsel’s opinion the fee regulations clearly breach European law, and in particular the provisions of Article 101 of the European Treaty, which specifically prohibits “directly or indirectly fix purchase or selling prices or any other trading conditions”.

In response to the price-fixing complaint, the European Union has the power to:

  1. declare excessive fees calculated under the fee regulations to be unlawful,
  2. fine the Cyprus Bar Association up to 10% of its annual income and require it to cease any future action to fix or control fees charged by lawyers.
  3. provide the basis for private recovery actions in the Courts by overcharged clients.

Legal precedents

Commission condemns Belgian architects’ fee system

The scale of lawyers’ minimum fees in Italy constitutes a restriction on the freedom to provide service

Further reading

Legal fees and the free market by Jonathan Goldsmith former Secretary General of the Council of Bars and Law Societies of the European Union 2001-2014

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