Property prices continue to weaken

Nigel Howarth
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Property prices continue to weaken

THE LATEST Cyprus Property Price Index published by the Royal Institute of Chartered Surveyors (RICS) reveals that the average price of houses and apartments fell by 1.1% and 0.7% respectively during the fourth quarter of 2014.

The largest quarterly falls were reported in Nicosia (1.1% for apartments) and Famagusta (3.6% for houses).

Values of retail premises fell by an average of 1.6%, values of offices fell 1.2% and values of warehouses fell 1.9% over the quarter.

Compared to the fourth quarter of 2013, the average price of a residential apartment has fallen 5% and the average price of a 3-bed semi has fallen 5.4%. Retail property has fallen in value by 8.1%, offices by 6.1% and warehouses by 5.3%.

Commenting on the latest Property Price Index, Charalambos Petrides from RICS Cyprus said: “It seems that transactions have rebounded and the price fall restores activity with increased property sales.

“Real estate prices are expected to continue declining in 2015 in view of developments in the financial sector, particularly as regards non-performing loans, strict lending policy and high interest rates.

The market is affected by increased property taxes and the issue of foreclosures on mortgaged properties, preventing the market from stabilising.”

Overall property price falls

Since the first RICS Cyprus Property Price Index was published for the first quarter of 2010 residential house values have fallen by an average of 30%, while those of apartments have fallen 40%.

(Note that the RICS Price Index does not include prices of holiday homes.)

Rental values

Rental values recorded a quarterly drop of 1.3% for apartments, 0.2% for houses, 0.4% for retail units and 0.9% for warehouses. On a brighter note, the rental value of office increased by 0.2%.

Compared to the fourth quarter of 2013, rents have dropped 5.0% for apartments, 3.1% for houses, 8.9% for retail premises, 2.9% for offices and 8.8% for warehouses.

Gross yields

At the end of fourth quarter of 2014 average gross yields stood at 3.8% for apartments, 2.0% for houses, 5.3% for retail, 4.3% for warehouses, and 4.4% for offices.

The parallel reduction in capital values and rents is keeping investment yields relatively stable and at low levels (compared to yields overseas). This suggests that there is still room for some re-pricing of capital values to take place, especially for properties in secondary locations.

RICS-Cyprus-Property-Price-Index-Q4-2014

Professional bodies contributing to the Property Price Index are RICS Cyprus, the Cyprus Association of Quantity Surveyors and Construction Economists (??????), and the Cyprus Association of Valuers and Property Consultants.

Characteristics of the properties used to compile the index and the methodology employed was developed by the University of Reading, UK. The document may be viewed by clicking here.

Municipal secretary quizzed at Aristo trial

George Psyllides
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Municipal secretary quizzed at Aristo trial

Municipal secretary quizzed at Aristo trial

THE TRIAL of Aristo Developers founder Theodoros Aristodemou, his wife Roula, draftsman Christos Solomonides, and former Paphos municipal engineer Savvakis Savva continued on Tuesday, with defence lawyers cross-examining municipal secretary Themis Philippides.

The defendants are on trial relating to a suspicious land-zoning deal, regarding the demarcation of 177 land plots in Skali, Paphos.

Police claim that the plans for which the demarcation permits were issued were switched with new plans, which seemed to cede approximately 4,000sqm. previously designated as green space, back to Aristo.

Aristodemou’s defence lawyer Giorgos Papaioannou challenged Philippides to recreate a report submitted by Androulla Efthymiou – a municipal civil engineer – based on which the municipal council filed a report against Aristo to the police.

Philippides responded that he lacked the training and knowledge to adequately recreate the report but added that by just reading it, it was evident there was a large discrepancy between what was originally agreed with the company and the plans filed.

Papaioannou kept pursuing a line of defence he had established at the previous hearing; that since the land registry hadn’t issue a final approval certificate for the project, then the company essentially did not commit a crime. Papaioannou had claimed that the discrepancy found in the new plans was a mistake that would be picked up and rectified by the local land registry.

Police investigator Andreas Tsekouras – a prosecution witness who testified in a previous hearing – had said that the existence of the altered plans was proof enough that the company intended to deceive authorities.

Papaioannou also argued that Aristo suffered a substantial financial blow, having been forced to let go 50 employees while putting all other projects on hold because police are in possession of all the company’s files.

Papaioannou wondered why the case was reported to the police without the municipality first contacting the company for clarification.

Philippides rejected the notion that the municipality didn’t comprehend the report filed by Efthymiou, adding that both former mayor Savvas Vergas and the company’s lawyer Andreas Demetriades were notified before police investigators requested all the municipality’s files.

Vergas is currently on trial on a separate case. The former mayor is charged with corruption after he supposedly pocketed millions in kickbacks to award contracts on the town’s sewerage project to selected contractors.

Savva’s defence lawyer, Elias Stefanou, questioned Fillipides on the nature of the relationship between Androulla Efthymiou and his client

Philippides admitted that the two did not get along and that Savva had questioned Efthymiou’s professional adequacy on a number of occasions.

The trial will resume on Thursday.

Theodoros and Roula Aristodemou, as well as Solomonides, are facing 32 charges each, while Savva is facing four additional counts in his capacity as a public official.

They are facing charges of forgery, conspiracy to defraud, abuse of power, and legalising money obtained from illicit actions.

Fifth insolvency bill facing problems

Editorial
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Fifth insolvency bill facing problems

insolvencyFOUR BILLS of the insolvency framework have already made their way to parliament, but the fifth was under Troika scrutiny.

Cyprus’ international creditors appear to have red-flagged a provision linking guarantors’ obligations to those of the borrower, meaning they should be let off the hook if the borrower has declared bankruptcy, and that their obligations should be reduced in line with concessions made to the borrower.

But the Troika delegates, in town to discuss the progress made on the country’s economic adjustment programme, appeared resolute that guarantors’ obligations should remain unaffected by any settlement the bank may agree with borrowers.

Disagreement has also surfaced on a second front – that of the proposed protection of primary residences.

According to Sigma TV station, in addition to the criteria set for viable borrowers to be eligible for a court order imposing a repayment plan to the bank – thus precluding foreclosure – the Troika technocrats demand that before a borrower’s primary residence can be protected by the court, the borrower’s other assets must be liquidated.

A bank, the Troika argued, cannot be entitled to less than it would be if the borrower were to declare bankruptcy, in which case all of his assets would be liquidated at market value.

Disagreements on the insolvency framework cause yet more uncertainty as to the prospects of the country’s economic adjustment programme, which was thrown off track after parliament voted to suspend tougher foreclosure legislation until the end of January last month. The suspension was extended on Thursday until March 2.

Despite the fact that, as long as the programme remains off track, Cyprus is not eligible for any more funds from the emergency bailout loan agreed in March 2013 with international creditors, Finance minister Harris Georgiades said a more damaging blow was struck to the country’s credibility, rather than its coffers.

Speaking on state radio, Georgiades said the government is sufficiently funded to operate smoothly in the near future, but noted that “we are faced with a serious problem, precisely because of the uncertainty of government funding, whether by the Troika, or by international markets, which was our goal”.

Noting that, despite the House’s decision to extend the suspension of the law on foreclosures, the Troika mission chiefs are expected in Cyprus next week, in order to record and evaluate progress, Georgiades said the mission will likely not amount to anything, given the recent negative developments.

Mortgage regulation tightened

Nigel Howarth
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12
Mortgage regulation tightened

Mortgage regulation tightenedFOLLOWING many years of ‘devious’ practices by financial institutions and intermediaries throughout EU member states, the Mortgage Credit Directive sets out common standards to enhance the protection of consumers taking out loans to buy residential property.

The Directive, which has taken nearly twelve years of negotiation to come to fruition, is designed to ensure that borrowers have all the relevant information that will enable them to make informed decisions when reviewing the terms and conditions of a loan offer. It also requires financial institutions to undertake creditworthiness checks on potential borrowers before granting a loan.

The Directive includes a ‘European Standardised Information Sheet’ (ESIS); a five page form that lenders are required to complete free of change enabling borrowers to compare loan products from different lenders tailored to their specific requirements.

The ESIS explains the terms and conditions of the proposed loan agreement and how the interest rate is calculated. It also requires lenders to draw attention to the risks when taking a loan in a foreign currency.

Member states are required to transpose the provisions of Directive 2014/17/EU into their national law by March 2016 and it is likely to result in substantial changes to mortgage lending procedures in Cyprus.

Further Reading

Directive 2014/17/EU on credit agreements for consumers relating to residential immovable property.

Foreclosures bill suspension extended

Nigel Howarth
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Cyprus Parliament votes to extend foreclosures bill suspensionOPPOSITION MPs voted to extend the suspension of the foreclosures bill until the 2nd March at a plenary session of the Cyprus parliament earlier this afternoon.

The motion to suspend was carried by 27 votes in favour, 19 against.

The main opposition party AKEL had earlier tabled a proposal to extend the suspension until 1st July. Both this and another proposal put forward by the Greens to extend the suspension until 1st June were defeated.

The vote by opposition MPs may have thrown the Cyprus economic adjustment program into chaos.

The International Monetary fund has already withheld €86 million of a bailout tranche due to the delay in implementing the foreclosures bill.

Commenting on an earlier vote to suspend the bill in December, Finance Minister Harris Georgiades said that the decision by parliament had critically undermined the credibility of Cyprus.

How can you trust anyone who breaches the terms of their previously agreed contract by failing to comply with their obligations?

It seems that opposition parties are determined to follow the example set by the new government in Greece, no doubt taking courage from its stance in opposing their country’s agreed bailout conditions.

Cyprus real estate insight (apartments)

Nigel Howarth
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Cyprus real estate insight (apartments)

APARTMENTS proved to be the most popular purchase for those buying property in Cyprus during the first three quarters of 2014 with 1,948 transactions taking place according to Cyprus Economic Intelligence (CEI).

The median price of apartments at the top-end of the market rose from €166,634 in the first quarter of 2014 to reach €235,000 in the third quarter of 2014 due to the large number of high value transactions that took place in the second and third quarters.

CEI considers that this increase in prices is probably related to government incentives for multi-entry visas and naturalisation.

The CEI newsletter also notes that a total of 1,317 houses were transacted during the same period.

Meanwhile, sales of land (fields and building plots) accounted for 24% of all transactions, while sales of other types of real estate (including offices, warehouses and shops) accounted for just 4%.

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