Swiss Franc loan solution sought

Editorial
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13
Swiss Franc loan solution sought

Swiss-Franc-500THE CENTRAL BANK is going to examine the extent of damage for banks in case they convert Swiss Franc – denominated mortgages to Euro.

Mortgage loans made in Cyprus in Swiss Franc stood at € 1bn. Since January 2015 the Franc sharply appreciated against the Euro, leaving those who have loans in Franc, but incomes in Euro, with larger debts.

Total mortgage and non-mortgage loans in Swiss Francs amount to € 2.6 bn at the end of July 2015.

A spokesperson of the Central Bank speaking before the Parliamentary Committee of Finance which examines the issue, said that it cannot regulate loans given in foreign currency with a directive, stressing that the interest rate is variable and it cannot be imposed retroactively. He also said that according to the Memorandum it cannot interfere with lending rates.

The representative of the Association of Cyprus Banks said that some financial institutions have started providing conversion plans of loans in Swiss Franc in Euro, not at the current price, but at a price to mitigate damage.

He noted that during the period of 2006, following the CB’s circular, banks informed consumers about the currency risk.

He also said that there are documents analysing the risks which bear the signatures of clients.

Affected borrowers speak of a scandal and deception from banks which, as they argued, did not inform them of the currency risks of such loans.

On behalf of the Ministry of Finance Andreas Charalambous said that in the period of 2006 – 2009 lending in foreign currency was granted, adding that there was a low interest rate, but the borrower had the currency risk which could increase the repayment of loans.

He said that these products are not suitable for ordinary citizens, noting that there was a huge appreciation of the Swiss Franc as while during the period of borrowing the EURCHF rate was 1.60 now it is 1.10.

He noted that there are a host of court rulings abroad which received favourable decisions for borrowers who did not receive proper information on currency risk.

He also stressed that in Cyprus there is a CB circular which gives direction to commercial banks as to how to treat such cases.

He said that there are laws qualifying individual handling, adding that if no solution is found to the problem through the financial commissioner, people should go to court.

“We will examine the issue,” he said, “so that consumer protection becomes stronger as regard matters of information.”

The representative of CB, said that during 2006 – 2009 there was a good rate for the Euro and Swiss Franc so many people made low interest loans, stressing that there was no legislation on foreign borrowing at the time, so CB issued a circular to banks.

He stressed that the Croatian government has decided to pay for converting loans from Franc to Euro.

He added that “the CB was watching lending in foreign currency,” adding that “banks held a high level of liquidity, when they granted loans.”

Members of the Finance Committee asked to be informed about the cost to banks in case of a conversion of loans to Euro, calling CB to solve the issue with a circular.

Editor’s comment

In Greece, a recent landmark case in the Athens court ordered the borrowers to repay Swiss Franc loans at the EURCHF exchange rate that applied when the loan was started, rather than the current rate.

Further reading at Greek court decision for foreign currency loans

Further progress anticipated

Nigel Howarth
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Further progress anticipated

Memorandum of Understanding (Cyprus)OVER the past year or so the Cyprus government has introduced more changes that any previous government to improve the fortunes of those who have bought property on the island.

Previous governments made numerous vacuous announcements to resolve the property issues including “an arsenal of weapons against unscrupulous property developers”, “providing greater security to homebuyers by enabling their Contracts of Sale to take precedence over the developers’ mortgages”, “penalties and a ‘name and shame’ policy for developers that delay Title Deed applications”, and of course a promise to untie/cut the Gordian knot.

In 2009 a previous Interior Minister vilified foreign media for presenting the Republic of Cyprus as an unreliable place for investment in the property market due to a problem of issuing title deeds and foolishly claimed that “the property market in Cyprus is stable and secure, and property buyers must be absolutely certain that their investments are safe here; indeed, property investment is much safer in Cyprus than anywhere else.”

The collapse of the island’s economy during the presidency of Demetris Catastrophias necessitated Cyprus to seek a bailout loan from the troika of international lenders, which resulted in a savage haircut on bank deposits and hardship for many. But as they say ‘every cloud has a silver lining’.

The loan negotiations resulted in a Memorandum of Understanding on Specific Economic Policy Conditionality (MoU); a programme of reforms agreed by the government and the troika to address the financial, fiscal and structural challenges facing Cyprus in return for the bailout loan.

The latest MoU revision, which followed the 7th review, includes some positive changes that will affect those who have bought or who are planning to buy property in Cyprus:

Legal framework for private debt restructuring

1.11. All legal, administrative or other hurdles currently constraining the seizure and sale of loan collateral will be removed so that the assets pledged as collateral can be recovered within a reasonable period deemed to be a maximum time-span of 1.5 years from the initiation of the relevant proceedings. In the case of primary residences, this time-span could be extended to 2.5 years. The authorities commit not to introduce any further impediments to the seizure of assets pledged as collateral.

1.12. Prior to the granting of the eighth disbursement of financial assistance the House of Representatives will adopt the legislation on solving the backlog of title deed transfers, which was submitted by the Council of Ministers in June 2015.

Moreover, by end-September, the authorities will present to programme partners draft legislation for non-legacy cases that:

  • ensure that property buyers who have paid the purchase price in full, will have their title deeds transferred without delay and if possible in one month after the application for transfer or after the issuance of the title;
  • put obligations on all parties involved to ensure that the procedures releasing encumbrances and transferring the title can operate without delay and as automatically as possible; and
  • provide safeguards against abuse, inter-alia by introducing a mandatory escrow account system that will ensure that all payments related to a property transaction are processed in a safe manner, at low operational cost and without delay.

By end-October, the legislative proposals on non-legacy cases will be adopted by the Council of Ministers.

The authorities will propose further legislative and administrative measures necessary to incentivise the swift transfer of title deeds, including legal or contractual standards for property sales contracts and connected loan and mortgage arrangements by end-October.

Immovable property tax reform

3.8. The Cypriot authorities will reform the immovable property tax with the objective to improve the fairness of the tax burden and to increase the efficiency of the tax administration. To this end, the authorities will:

  • By end-October 2015, adopt the legislation on the reformed recurrent immovable property tax with effect from January 2016, based on the most updated General Valuation for all immovable properties. The new immovable property tax should be based on the recommendations of the study on the consolidation of property taxes, should ensure a broad tax base and should be fiscally neutral, taking also into account the reduction of the transfer fee. The amendments to the IPT legislation will be submitted for timely consultation with programme partners.
  • adopt by mid-October 2015, legislation specifying the frequency of the mandatory update of the cadastral values to three years maximum from 2018 onwards,;
  • continue the assessment of the relevance of the parameters used in the Computer Assisted Mass Appraisal (CAMA) model for the General Valuation, on a quarterly basis.

Housing market and immovable property regulation

5.3. Action is required to ensure property market clearing, efficient seizure of collateral, and swift transfer of property rights. A particular risk arises from legal disputes, which may be due to incomplete documentation of ownership and property rights and the slow pace of judicial procedures.

The Cypriot authorities will ensure that:

  • the title deed issuance backlog of immovable property units from development projects pending3 for more than six months drops to less than 3,500 units by Q4-2015 To that end, the Cypriot authorities will continue to provide to programme partners analytical data on the stock of backlogs of permits, deeds, certificates, and mortgages associated with the underlying properties and continue publishing the quarterly progress reviews. From January 2016 onwards, at least 3,000 pending titles will be issued per month to reduce the backlog on remaining projects.
  • by end-September 2015, the House of Representatives will adopt amendments to the Street and Building Permit Law to ensure the enforcement of the deadlines for issuance of certificates of completion by the supervisor engineers;
  • the working group on title deeds issuance will continue their review of all procedures from the planning permit application to the issuance of title deeds. By end-September 2015, the Cypriot authorities will submit for consultation with programme partners a report detailing the main obstacles for the issuance of title deeds and required certificates. The report with recommendations on ways how to speed up issuance in 2015, will include any necessary draft legislation or other administrative measures, including a catalogue of non-tolerated deviations from permits, in order not to impede title deed transfer. Moreover, the report will assess the scope for self-certification and provide recommendations on further comprehensive streamlining of building, planning and title deed procedures from 2016.

3Development projects refer to original titles with at least three contracts of sales deposited at DLS; pending refers to (i) applications for title deeds issuance, (ii) units that are eligible for the “ex-officio” issuance of title deeds, required certificates and permits.

Although these are positive changes, Cyprus still has a long way to go to regain the trust and confidence of both local and foreign investors, specifically:

  • Title Deeds must be available for transfer on delivery of a property to its purchaser free of all encumbrances and notes preventing its sale.
  • Every habitable dwelling must have a Title Deed.

Reforms that bring about the above critical changes will bring the safety and security afforded to those buying property in Cyprus into line with other European Union member states.

Further reading

Memorandum of Understanding on Specific Economic Policy Conditionality (7th review – final official draft)

A thousand trapped buyers apply for deeds

Editorial
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15
A thousand trapped buyers apply for deeds

SOME 1,000 applications have been filed in nine days and thousands more were expected from people who paid for their property but did not have title deeds either because it was mortgaged by the developer, or the state could not go ahead with the transfer because of outstanding taxes.

The law aiming to resolve the problem faced by thousands of buyers, foreign and local, was passed on Thursday, September 3, and came into force the next day after its publication in the Government Gazette.

“Around 1,000 applications had been submitted by Thursday, September 17 (nine working days),” Land Registry Director Andreas Socratous said.

Officials expected an increased flow of applications and requests for information, he added.

“Many thousands of people have contacted the department, either through telephone, or email, or they came in person, to ask for information,” he said.

The matter concerns some 78,000 cases of buyers who either do not have a title deed – 48,000 — for various reasons or the property has not been transferred to their name.

The law aims to sort out the mess created by the failure to issue title deeds to people who paid for the property, either because the property was mortgaged by the developer, or the state could not go ahead with the transfer because of outstanding taxes.

Since developers’ land and buildings are counted as assets that need to be offset against their debt to banks, this gives lenders a claim on people’s properties that had been mortgaged by developers.

The law grants the head of the land registry department the authority to exempt, eliminate, transfer and cancel mortgages and or other encumbrances, depending on the case and under certain conditions.

It covers transactions up until December 31, 2014.

To be able to apply, buyers must prove they have either paid the seller in full or only a small amount remained outstanding. Also, the sales contract must have been submitted to the land registry.

Socratous said the procedure of transferring a property and issuing a title would take at least six to seven months in the best of cases, where titles exist and no serious objections would be raised.

IPT payment deadline & discount

Editorial
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8
IPT payment deadline & discount

THE HOUSE on Thursday passed a law extending the deadline for payment of Immovable Property Tax (IPT) to the end of December, with a significant discount for those paying their tax earlier, by the end of November.

For early payments by end-November, a discount of 17.5 per cent will be given, unless payments are made online or through a bank, in which case the markdown is 20 per cent.

The final legislation passed was as amended by the parties. Initially, the government bill entailed extending the payment deadline to the end of November and in addition offered an early-settlement discount of 15 per cent, 17.5 per cent if paid via a bank or online.

The new, November 30 deadline for early payment discounts was an amendment tabled by main opposition AKEL. It was approved unanimously.

But another AKEL amendment, providing for different discounts for different IPT rates, was defeated, as was also a proposal for exempting from IPT farming land worth up to €60,000.

The Greens proposed payment of IPT for 2015 in three interest-free instalments, the first of which would be paid this year. Socialists EDEK proposed exempting from IPT properties valued up to €30,000. Both proposals, intended to alleviate the tax burden of low-income persons, failed to garner the necessary backing in parliament.

The idea of increasing the discount came from DIKO, which argued that this would incentivise more people to pay their IPT and on time, thus also helping the state’s cash flow.

But during a discussion earlier in the week, the finance minister did not appear to be on board, as the fiscal impact of the greater discount had not been calculated.

According to data cited in parliament, last year the state collected €104m from IPT, local administration authorities a further €14m, while property transfer fees came to €53m, for a total of €171m.

In 2014, 79.9 per cent of eligible people paid their IPT.

Data showed that the lower the IPT rate, the higher the percentage of collection. For the 0.006 tax rate, the collection percentage was 92.21, 91.15 per cent for the 0.008 rate, 90.49 per cent for the 0.009 rate, 86.53 per cent for the 0.011 rate, and 82.08 per cent for the 0.013 rate.

The collection percentage dropped to 72.43 per cent when it came to the 0.015 rate, 65.85 per cent for the 0.017 rate, and only 63.11 per cent of those charged with the highest rate, 0.019, paid their IPT.

Call for higher IPT discounts

Elias Hazou
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Call for higher IPT discounts

DIKO and DISY parties yesterday called for a greater discount on Immovable Property Tax (IPT) for people paying before the 2015 deadline.

Last week the cabinet approved a bill extending the deadline for payment of IPT to the end of November. The current deadline is September 30.

Additionally, an increased discount would be given this year to those paying by October 31.

The bill provides raising the discount from 10 per cent to 15 per cent. If the IPT is paid online or through a bank, the discount will be 17.5 per cent.

The legislation is coming up for a vote at the House plenum this Thursday.

But during a discussion in parliament on Monday, DIKO proposed increasing the early-payment discount to 20 per cent, across the board.

DIKO MP Nicholas Papadopoulos said this would incentivise more people to pay their IPT and on time, thus also helping the state’s cash flow.

It was a temporary fix for 2015, Papadopoulos said, as his party’s real demand is for a greater discount to be implemented on a permanent basis.

Inevitably the discussion turned broadly to the new method of calculating IPT.

This year is the last that IPT will be paid based on 1980 prices.

As part of its bailout agreement, Cyprus was required to update its property values. Although the government proceeded with revising the property prices, and intended to levy IPT accordingly starting this year, this has now been pushed back to 2016.

The opposition argues that as a result of the updated values the state stands to generate far more revenues – about €120m more – than even suggested by Cyprus’ international lenders.

“We need to bring this amount down to €100m because the tax, as it has been shaped, is an unbearable toll on small and medium-sized businesses and households,” Papadopoulos said.

Ruling DISY said it would back DIKO’s proposal for extending the discount to 20 per cent. And main opposition AKEL, though grumbling about the government’s tax policy, intimated that it would likely support it as well.

But finance minister Harris Georgiades did not appear to be on board.

The impact on state finances should be calculated before such a proposal could be considered, he countered.

“It is the government’s intention to gradually and sensibly alleviate the tax burden for properties”, Georgiades said.

“There is no room for populism here, we shouldn’t be competing on who gets to offer the bigger discount.”

The minister also dismissed calls for recalibrating the discount based on the staggered IPT rates, which parties argued would make this year’s markdown more targeted and fair.

It was too late to tamper with these details, the minister said, as the IPT forms are already being sent out to people.

According to data Georgiades furnished MPs, in 2014 the state collected €104m from IPT, local administration authorities a further €14m, while property transfer fees came to €53m, for a total of €171m.

In 2014, 79.9 per cent of eligible people paid their IPT.

Data showed that the lower the IPT rate, the higher the percentage of collection. For the 0.006 tax rate, the collection percentage was 92.21, 91.15 per cent for the 0.008 rate, 90.49 per cent for the 0.009 rate, 86.53 per cent for the 0.011 rate, and 82.08 per cent for the 0.013 rate.

The collection percentage dropped to 72.43 per cent when it came to the 0.015 rate, 65.85 per cent for the 0.017 rate, and only 63.11 per cent of those charged with the highest rate, 0.019, paid their IPT.

Georgiades pledged, however, that an overhaul of IPT system was in the pipeline.

“If we decide early on the taxation for 2016, we may even be able to afford people the ability to pay the tax in two or three instalments throughout the year,” he said.

IMF review could release €125 million

Editorial
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0
IMF review could release €125 million

IMF buildingTHE IMF’s Executive Board will discuss the eighth review of Cyprus’ adjustment program on September 23.

The completion of the review would allow the disbursement of about €125 million for Cyprus, according to Vincenzo Guzzo, the Fund’s resident representative in Cyprus.

“The 9th review mission is expected to take place during the first half of November. It is scheduled to be the penultimate review of the program” Guzzo said.

He said that the mission will focus on addressing the high level of non-performing loans through implementing the insolvency and foreclosure regimes, as well as continuing to enhance the debt restructuring supervisory framework. Focus will also be on implementing structural reforms with the aim of boosting growth and jobs and ensuring fiscal sustainability. Public administration reform and privatization are important in this regard, he noted.

Guzzo added that “the Board discussion for the 8th review is scheduled for September 23. Completion of the review would allow the disbursement of about €125 million” he explained.

Some reforms, he said, “have encountered delays, but overall policy implementation has been good with broad progress across the program agenda”.

Asked about NPLs and the country’s prospects to return to growth in 2015, IMF’s resident representative in Cyprus noted that “the NPL ratio for the banking system has remained broadly unchanged since the end of last year, but encouraging signs now appear to emerge with the pace of NPL restructuring accelerating in recent quarters. The economy has surprised on the upside in the first half of the year and this bodes well for a return to positive growth in 2015”.

Source: Cyprus News Agency (CNA)

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