50,000 housing units in Cyprus unsold

Nigel Howarth
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50,000 housing units in Cyprus unsold

unsold housing units in CyprusTHERE COULD be as many as 50,000 unsold housing units in Cyprus according to the European Commission’s Country Report Cyprus 2016.

This figure of 50,000 is assessed on the difference between the number of authorised building permits and the number of contracts of sale deposited at Land Registry offices.

However, if the number of unsold housing units is estimated on the number of contracts of sale deposited at Land Registry offices minus the number of Title Deeds remaining to be issued, the number of unsold units is at least 18,000, which is still a significant number.

But if we assume that investment in houses each year is determined by the number of units sold in that year and that new houses take two years to go on the market for sale, over-investment can be estimated as sales minus sales two years previously. Adding this gap, between 2018 and 2015, gives about 28,000 unsold properties. (However, this calculation underestimates the stock of unsold houses if there were also houses left unsold before 2018.)

Over the five year period 2011 to 2015 an average of 5,300 contracts of sale have been deposited at Land Registry offices each year. So whichever way you calculate the number of unsold housing units, it will take some years to clear the housing stock overhang.

The report also notes that approximately one third of the housing units built and sold since 2000 are still legally owned by the vendor and, with over 40,000 such cases, this is a major problem.

Typically, the home buyer has paid the developer most of the sales price, or even its entirety, and has become a de facto owner. However, legally, the seller (usually a developer) still owns the property, as the transfer of the title deed has not taken place.

In some cases developers have failed to repay the mortgage loan for building the property, despite having received the proceeds of the sale. As a consequence home buyers who have not received their title deeds may have an incentive to default on their home loans, since the bank that granted the mortgage (or other creditors) cannot foreclose on their property. Instead, it is the bank of a non-performing developer who has the right to seek foreclosure on the property. However, that would lead to evicting the home buyer, who would be left with only a junior claim to the foreclosure proceeds.

Foreclosing on such de facto sold, but not transferred, property, though legal, would seriously undermine the attractiveness of Cyprus property market to foreign investors and would be politically and socially unacceptable.

The report highlights the significant problems with the issuance of title deeds, stemming from slow administrative processes and notes that although progress has been made on speeding up title deed issuance, the procedures are still lengthy and uncertain.

Since 2013, roughly half of the backlog in title deed issuance has been cleared. However, the still complex title deeds issuance procedures are not supporting a swift cleaning of the backlog, which still remains substantial, despite significant administrative efforts undertaken.

The Commission considers that the difficulties in issuing and transferring title deeds hamper competitiveness and deter international investors. The Cypriot property market has been very dependent on foreign investors, particularly as regards the most distressed assets (middle-class coastal holiday homes).

Foreign investment in the property market has dwindled with the crisis, and given the title deeds situation, has not returned to Cyprus. A return of foreign investment would support the recovery of the housing market, and thus would help improve banks’ balance sheets.

Further reading

European Commission ‘Country Report Cyprus 2016’ (pages 32 – 35)

EC report highlights non-performing loans

Cyprus News Agency
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EC report highlights non-performing loans

non-performing loansTHE EUROPEAN COMMISSION has sent a warning regarding the course of debt restructuring in the Cypriot banking system, saying that “efforts to restructure non-performing exposures have not yet shown tangible results.”

Financial institutions have stepped up their debt restructuring efforts, but the results have been mixed so far, the Commission report said, adding that the share of restructured loans increased during 2015.

“However, the ratio of non-performing restructured loans to total loans increased as well, suggesting that many restructuring operations are not sustainable and are non-performing,” the Commission underlined.

In absolute terms, the rise in restructured loans was almost fully matched by that of non-performing restructured loans.

By September 2015, the restructured loans to companies stood at 24.6%, while performing loans were at 6.8% of the total loans.

In the same month, non-performing loans to households were at 17.5% and restructured loans at 7.7%.

In addition, the Commission stressed that the enhanced restructuring efforts are still falling short of the restructuring targets set in agreement with the Central Bank of Cyprus.

“On the other hand, banks’ performance is in line with targets set for early arrears and new non-performing loans. This suggests that banks have become more pro-active in preventing early arrears from turning into bad loans” it noted.

The Commission said that “existing backlogs and inefficiency in the justice system are likely to slow down the resolution of the non-performing loans”.

To bring non-performing loans down to sustainable levels, the infrastructure (auction rooms) and institutions (number of auctioneers and insolvency practitioners, insolvency service) have yet to be adequate and become operational, the report said.

“Despite the updated directive on loan provisions and the increased focus on the debt servicing capability of borrowers rather than on collateral, a large share of loans still end up non-performing” according to the report.

Between 20% and 40% of loans granted in the course of 2013 and 2014 were non-performing by the end of the year in which they were granted, it said.

“This highlights the challenges that exist in identifying viable borrowers and investment projects in the context of excessive private sector indebtedness”.

The Commission said that the creation of a credit register in 2015 might help banks avoid lending to already troubled borrowers, although it would not help assess their repayment capacity, as it only collects data on liabilities.

However, it stressed that “there are now increasing pressures for banks to increase lending, potentially under-pricing risk, as ample and still rising liquidity is penalised by the negative rates on the ECB deposit facility”.

According to the Commission, full implementation of the foreclosure legislation has been delayed by slow progress in selecting locations for auctions, but the first auctions are expected to be held from the second quarter of 2016.

As regards personal insolvency, by end-February 2016 490 Debt Relief Order applications had been made, and there were only 8 requests for Personal Insolvency Arrangements.

“There has been a commitment by the Cypriot authorities, in the context of the economic adjustment programme, to conduct an assessment of the functioning and of the first experiences of the private sector debt restructuring and foreclosure frameworks, with the aim of defining an action plan of modifications to those frameworks to correct any deficiencies, but as of mid-March 2016 such an assessment had not been initiated,” it said.

Further reading

European Commission ‘Country Report Cyprus 2016’

Building permits fall in January

Nigel Howarth
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Building permits fall in January

Cyprus Building Permits: January 2016THE NUMBER of building permits issued in January 2016 stood at 356 compared with the 404 issued in January last year; a fall of 12 per cent, according to official figures released by the Cyprus Statistical Service.

Compared with January 2015, the total area of these permits fell by 14% to 69.3 thousand square metres from 80.4 thousand square metres, while their value fell 3% to €73.0 million from €75.5 million.

During January, building permits were issued for:

  • Residential buildings – 240 permits
  • Non-residential buildings – 60 permits
  • Civil engineering projects – 16 permits
  • Division of plots of land – 30 permits
  • Road construction – 10 permits

Building permits for new homes

The 270 residential building permits approved in January provided for the construction of 243 new homes comprising 154 single houses and 89 multiple housing units (such as apartments, semis, townhouses and other residential complexes).

This is an increase of 19% compared with January 2015 when building permits were issued for the construction of 204 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%
Total 204  243 39  19.1%

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

Alpha Bank Cyprus in callous court action (Update)

Nigel Howarth
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Alpha Bank Cyprus in callous court action (Update)
Alpha Bank Protest
Protest held in 2012 outside the Alpha Bank in London

WE HAVE received news that a number of notices have been issued to home buyers living on the the Anarita Sunrise 1 development in Paphos and another home buyer living close whose properties were built by bankrupt property developer Yiannis Liasides.

The plaintiff in the case is Alpha Bank Cyprus that granted loans amounting to somewhere in the region of €3.7 million to Liasides, which were never repaid.

Some weeks ago we heard that Alpha Bank Cyprus had been granted an interim court order blocking the transfer of properties on the Anarita Sunrise 1. It now appears that the Paphos District Court has ruled that that Alpha Bank Cyprus has a valid case and it will be heard at the Paphos District Court on 31st March.

We understand that the bank is asking the court to overturn the Land Registry’s decision to transfer the properties to their purchasers. It also contesting that the ‘trapped buyers’ law is unconstitutional and that the Land Registry is acting illegally. Title Deeds for the properties have been issued in the name of the liquidator and we believe that Liasides Anarita Sunrise 1 development is the only one that has been fully completed.

Although the bank is not asking the court to allow it to repossess the properties, such a request may follow if the court rules in the bank’s favour.

The court’s decision to issue notices makes a complete mockery of ‘trapped buyers’/’hidden mortgage’ law that is supposed to enable the transfer of properties regardless of whether the developer was insolvent, but it seems that the Alpha Bank Cyprus’ legal team may have found a loophole in the law?

Furthermore, the properties at Anarita Sunrise are ‘primary residences’ (not secondary of holiday homes) and a number of banks have given assurances that they would not repossess primary residences. One of the purchasers I spoke with earlier who received a notice confirmed that she had paid Liasides in full for her property and owes the company no money.

The Liasides ‘saga’ will be familiar to regular readers of Cyprus Property News.

In 2007 it emerged that that Yiannis Liasides had mortgages on the land on which his company was building and was in serious financial straits and the company ceased trading without repaying his debts leaving in his wake some 250 purchasers in 14 plots who bought properties from his company without their Title Deeds.

In 2011 Alpha Bank Cyprus filed applications at the Land Registry to auction eight of the fourteen plots of land that were owned by the company at Anarita, Pegeia, Mesa Chorio and Armou. At that time it was reported that Liasides made no mortgage payments since 2002 on a plot at Anarita – and since then the amount owed to the bank probably exceeded the value of both land and properties that he had built and sold to unsuspecting purchasers.

The Cyprus Property Action Group (CPAG) assisted a number of Liasides clients lodge cases at the European Court of Human Rights against the Cyprus Government for not protecting their property rights and a question were raised in the European Commission.

In December 2011 an on-line petition was launched to stop the Alpha Bank’s applications. Over the next few weeks, the petition garnered 1,179 signatures and I was interviewed by Rosie Charalambous for the CyBC radio programme ‘Round and About’ about the problems surrounding Title Deeds and unpaid developers’ debts.

This callous act by Alpha Bank Cyprus, which is due to its own mismanagement, negligence and incompetence, is most probably motivated by money. Court cases against the bank are pending alleging that it mis-sold Swiss franc loans to many home buyers.

I suggest that anyone with an account at Alpha Bank Cyprus should take their business elsewhere.

Update 31st March

The case has been adjourned until 20th April.

Leptos Group loans restructured

Editorial
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Leptos Group loans restructured

Leptos Estates CyprusRESTRUCTURING of Bank of Cyprus’ loans to Leptos Group, one of Cyprus’ biggest building developers, has been completed successfully, the lender announced on Tuesday.

In a statement, the bank announced coming to an agreement with Armonia Estates Ltd, Pandora Investments Public Ltd, Leptos Calypso Hotels Public Ltd, and “certain of their respective subsidiaries”, all part of the Leptos Group, for the restructuring of the group’s loans.

“The agreement ushers in a new era in the business relationship between the two organisations that dates back to the early 1960s, and safeguards a strong and stable financial foundation for the Leptos Group, with benefits to both parties and the Cypriot economy,” the BoC said.

According to the statement, the key elements of the agreement include the restructuring of the terms of the group’s loans, through “the extension of their maturities, the strengthening of underlying collateral, and a modest release of certain security”.

Further, €100 million of existing loans of various companies of the Leptos Group were converted into €100 million of “long-term convertible loan notes issued by the Neapolis Smart Eco City holding company, with Bank of Cyprus being the noteholder”.

The restructuring agreement also includes a corporate and financial reorganisation of the Leptos Group that “aims to maximise its operational capabilities and enhance the financial strength of various entities within the Leptos Group”, the bank said.

As part of the deal, Pandora acquired equity in two land-owning subsidiaries of Calypso for €30 million, in the form of Pandora assuming an equal amount of Calypso’s loans with BoC, and the ownership structure of certain joint ventures owned by Armonia and Pandora was streamlined through the exchange of ownership stakes between them.

“The success of the Leptos Group, one of our largest clients, is important for us and through this agreement the bank demonstrates its willingness to continue to provide its support,” BoC CEO John Hourican said.

“The Leptos Group has demonstrated its agility, resilience and value creation during its long history, and especially in the recent challenging years, and we look forward to a closer, value-creating collaboration between the two Groups with the goal of capturing the upside potential arising from the Cyprus economy gaining further strength in 2016 and beyond.”

“Bank of Cyprus has been a strong supporter of the Leptos Group since its very beginning and has contributed to its evolution into one of the largest organisations in Cyprus,” executive chairman of the Leptos Group Michael Leptos said of the deal.

“This agreement demonstrates our joint willingness and commitment for the continuation and enhancement of this business relationship, with benefits for both parties and the overall Cyprus economy for many more years to come.”

Leasing alternative to mortgages

Editorial
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Leasing alternative to mortgages

Leasing alternative to mortgagesMPs on Monday wrapped up discussion of government bills introducing leasing as an alternative method of borrowing, hoping to take the legislation to the plenum by April 7.

Speaking to reporters, the committee’s acting chair Angelos Votsis (DIKO) said efforts to introduce leasing go back a number of years.

A person wishing to acquire a house would indicate the property to the bank. The lender would buy the property and lease it, he said.

The lessee or tenant would pay the agreed instalments and from there on would have the possibility of buying the property.

It was important, however, that the Central Bank of Cyprus issues guidance explicitly informing the public of their rights and obligations under a leasing agreement.

“Whoever enters into such an agreement needs to know that it is not a mortgage, and should be made aware of the advantages and risks,” the MP said.

Introducing leasing, Votsis added, should help the banks tackle the issue of non-performing loans.

Non-performing loans (NPLs) on owner-occupied housing account for less than 15 per cent of all NPLs, according to earlier Central Bank of Cyprus data.

By contrast, the ratio of NPLs as a percentage of banks’ total loan portfolio was 45.8 per cent in December 2015.

Total NPLs in the Cypriot banking system stand at €26.7 billion.

During previous discussions of the leasing bills, the banks called for tax and other incentives, as well as fast-track procedures facilitating both lessors and lessees.

One proposal floated was that the two parties to a leasing agreement should be exempt from capital gains tax. In addition, as part of a leasing arrangement, the parties to it would be exempt from paying the special defence contribution.

A point of contention during earlier discussions concerned the length of time when an owner of a property – a bank or lessor – can take back the asset which is being leased if the user is not being consistent with payments.

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