Land Registry secrecy and mistrust

Nigel Howarth
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12
Land Registry secrecy and mistrust

suspicion mistrustTHERE has been much criticism over the revaluation exercise conducted by the Land Registry that brought the 1980 values to present day (2013) values and the secrecy behind the methodologies it employs to calculate ‘taxation values’ and ‘market values’.

Taxation values

It is important to note that the 2013 values are solely used for taxation purposes and were assessed based on a property’s location and zoning as well as other building and plot-related characteristics as required in the Memorandum of Understanding (MoU) agreed between the Cyprus government and the troika of international lenders.

Land Registry staff did not enter any premises (with some exceptions) and the valuations were assessed by external inspection. If two properties had an identical external appearance, the same outlook, etc. they would be assigned the same value for taxation purposes.

Numerous anomalies in the revaluations have been reported in the Greek language media and the chairman of the Cyprus Technical Chamber (ETEK) has demanded the Land Registry publish the criteria they have used to determine immovable property values for taxation purposes.

Real market values

It is perfectly possible for two properties with an identical external appearance to have different market values. When assessing a market value factors such as the age of the property, its internal condition and decorative order, the quality of its fixtures and fittings, whether it is freehold or leasehold, whether it has statutory tenants, its proximity to local schools and amenities, service charges, etc. are also be taken into account. Typically market valuations are assessed by a suitable qualified property valuer or an experienced estate agent with a good knowledge of local market conditions.

Land Registry market values

In addition to a property’s ‘taxation value’, the Land Registries are required (by law) to assess a property’s ‘market value’ at its date of purchase to calculate the Property Transfer Fees payable when its ownership changes hands. (For readers from the UK, this is the Cyprus equivalent of the ‘Stamp Duty Land Tax’ or SDLT).

But unlike property valuers and estate agents, Land Registry staff do not visit and inspect properties to assess their market value, they employ a comparable sales method. This assesses market values based on prices that properties in the same area were sold for at the same time as the property being transferred. This method, which is also known as ‘inferred analysis’, may also include market conditions and sales activity within a particular location or area.

There have been many reported cases where the Land Registries have assessed a property’s market value at considerably more than the purchaser actually paid. In one case the Land Registry valued a property purchased for around €294,000 at €465,000 meaning that the purchaser was asked to pay 126% more in Property Transfer Fees than anticipated.

It has also been noted that Land Registry property valuations are never lower than the actual price paid for a property and that it refuses to disclose the criteria it uses to assess market values.

Suspicion and mistrust

While the Land Registry refuses to reveal the methodologies it employs to value properties it merely reinforces the atmosphere of suspicion and mistrust that pervades the Cyprus property market.

Lawsuits filed against banks

Nigel Howarth
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7
Lawsuits filed against banks
Paphos District Court
Paphos District Court

A TRADE UNION, representing small businesses and the self-employed operating under the name of SYMEA, is taking local banking institutions to court, protesting excessive charges on loans, on current accounts and on credit cards, according to Andreas Alambritis, SYMEA president.

“We have agreed with our lawyers to take our grievances to court against all licensed credit institutions for illegal additional fees they have been charging over the years, which must be revoked so that we can have a clear picture of the balance on each account,” Alambritis told CNA today, adding that this would help borrowers as well as the banks themselves.

Filing a law suit against the banking institutions would block repossession of mortgaged properties for as long as the case is before the court, he explained.

The government is working for the approval of a bill on foreclosures, a prerequisite for the next tranche of a 10 billion bailout Cyprus’ international lenders have agreed to provide. The bill has to be approved by the House of Representatives in the coming weeks and before the next Eurogroup meeting. Parliamentary parties have warned that unless substantive changes are introduced to the existing bill to protect the ordinary citizen who has been affected by the financial crisis, they will reject it.

“No property can be repossessed if legal proceedings are underway,” SYMEA president said, noting that even if the draft legislation on foreclosures is approved, it would essentially be ineffective because of the lawsuits.

Replying to questions, he referred to tens of thousands of cases which could find their way before the courts, adding that priority will be given to cases relating to non-performing loans and to current accounts which are in overdraft.

SYMEA was set up in April this year with a view to protecting and safeguarding the interests of small businesses and the self-employed in Cyprus. It also aims to secure lower interest rates and seeks to freeze for a year all loans small businesses and their shareholders have taken out.

Source: Cyprus News Agency

The property circus show

Editorial
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14
The property circus show

circusTHERE is always a list of excuses for not doing something in Cyprus; some may have merit, others not. The point is that the reflex is always to keep the status quo, on which the ‘nice little earner’ corrupt practices depend.

Apart from all this, what is far more worrying is the way the government is giving serious time and attention to the idiotic notion that no-one who cannot/will not settle their bank debts should be protected from losing their primary residence.

It has always been the case in contract law that debtors run the risk of losing their collateralised assets should they fail to honour the repayments. So, why do a lot of Cypriots believe that this fundamental principle should not apply to them? It is childishly naïve in the extreme to believe that you can borrow large sums, not be responsible for repaying them and not bear a heavy penalty if you fail to repay. And why, pray, should any responsible government even give ten seconds’ thought to such lunacy? No wonder the Troika is being uncooperative on this one. Ergo, will the government fail to obtain its next bail-out tranche?

Why have we not yet seen one of the major developer defaulters being liquidated by one or more banks? Perhaps we are seeing the prize turkey being basted ready for the oven, with several different strands of alleged financial wrongdoing being touted and now a criminal investigation into one of them announced. It does rather look like a certain developer is being prepared for being the sacrificial lamb, or is it goat?

Unfortunately we cannot turn the clock back to the halcyon days when money in Cyprus grew on trees and no-one was called to account for not paying their debts. People have to realise that if they borrow money they have an obligation to repay the lender – or face the consequences (which may include the seizure and sale of their property).

As for the privatisation of auctions, Cyprus has agreed to this in the Memorandum of Understanding with the Troika – paragraph 1.28:

“The legal framework in relation to foreclosures and the forced sales of mortgaged property will be amended in consultation with the EC and the IMF and informing the ECB and the ESM, and adopted by end-June, with immediate effect for all mortgaged properties except primary residences (for which provisions will enter into effect by end-December, in line with the adoption of the insolvency legislation), to allow for private auctions to be conducted by mortgage creditors, without interference from government agencies.”

The government could (try) and introduce a scheme whereby home-owners become tenants paying rent until they recover with the rent being deducted from their outstanding debt.

But there is a problem if the likes of major developers set themselves up as auctioneers as well. Hopefully, the lunatics running the asylum will recognise this potential problem and put legislation in place to prevent it.

Expatriates could pay more tax

Nigel Howarth
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2

EXPATRIATES who rent out their homes in Britain could find  themselves unable to benefit from their personal allowance if Chancellor George Osborne presses ahead with plans to force non-residents to pay tax on all of their UK income according to a report in the Daily Telegraph.

Currently, EU nationals and British expatriates can offset the income they earn in the UK from renting their properties against the £10,000 personal allowance.

The proposal to strip expatriates of their right to use their personal allowance has been released by the Treasury as part of its consultation process. If adopted, it would bring the British tax regime in line with those of the US, Canada and much of the European Union.

It’s been estimated that the change would affect in the region of 400,000 expatriates and bring the government a further £400 million a year in taxation and would include 175,000 people who live abroad and earn an income from property in Britain.

Jackie Hall, a tax partner at accountants Baker Tilly, said expatriates should consider selling their UK rental properties and reinvesting the money in shares or property abroad.

The changes to the tax regime, if implemented, could scupper the plans of some Britons planning to retire overseas, while others could be forced to return to the UK as they would no longer have sufficient income to support themselves.

The Treasury has been reported as saying that no decision has yet been made.

Foreclosure bill bunfight continues

Nigel Howarth
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6

APPARENTLY oblivious to the fact that Cyprus will not receive the next tranche of the bailout if the foreclosure bill does not pass into law, the parliamentary debate on the bill continues at joint sessions of the House finance and interior affairs committees in efforts to reconcile political differences.

According to reports the government advised the troika of international lenders of eight amendments proposed by political parties; the troika rejected them all stressing the need to comply with the Memorandum of Understanding (MoU).

Following the troika’s response political parties are now demanding that the insolvency law, which is planned for later this year, is submitted together with the foreclosures bill, which in its current form, will only protect primary residences from seizure until 1st January 2015.

But the government has advised that the insolvency law is a complex issue and its needs more time to work on a bill before presenting it to parliament.

Although the troika said that Cyprus was making “relatively good progress” at the completion of its fifth review of the Cypriot economy, it is clear that Cyprus has failed to achieve some of the target dates it agreed with its international lenders in the MoU:

Paragraph 1.26 – “The authorities established a Task Force to prepare a study assessing the magnitude of registered, but untitled, land sales contracts and underlying mortgages and to develop recommendations by end-June.”

Paragraph 1.27 – “The authorities will, in consultation with EC and IMF and informing the ECB and ESM, prepare a comprehensive reform framework to be endorsed by the Council of Ministers by end-July, establishing appropriate corporate and personal insolvency procedures. A draft of the reform framework as well as an impact assessment of various options on lenders will be completed by end-June, and shared with the EC, ECB, IMF and the ESM. On the basis of that framework, corporate and personal insolvency legislation will be adopted, which will include licensing and regulation of insolvency practitioners by end-December.”

Paragraph 1.28 – “The legal framework in relation to foreclosures and the forced sales of mortgaged property will be amended in consultation with the EC and the IMF and informing the ECB and the ESM, and adopted by end-June, with immediate effect for all mortgaged properties except primary residences (for which provisions will enter into effect by end-December, in line with the adoption of the insolvency legislation), to allow for private auctions to be conducted by mortgage creditors, without interference from government agencies.”

During a conference call following the troika’s fifth review Delia Velculescu, Mission Chief for Cyprus, answered a number of questions relating to the foreclosures bill and warned “this [the foreclosures law] is a precondition for the conclusion of the fifth review with Cyprus. If the law is not passed, the review would not be concluded and we may need to come back to Cyprus and discuss again the situation.”

Meanwhile political parties appear content to continue the bunfight trying to score political points from their ‘adversaries’ – seemingly oblivious to the fact that the foreclosures bill has to be passed into law before Cyprus receives the next tranche of the bailout loan.

Clarity over property values essential

Editorial
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8
Clarity over property values essential
land-registry
Limassol Land Registry Office

PROPERTY prices have always been a dubious issue in Cyprus. One reason is that it is a very small property market without the volume of transactions that would give a reliable indication of price trends and values. The fact that banks needed 10 to 15 years to repossess properties on which loans were not being serviced also distorted prices, keeping them unjustifiably high.

Then there was also the habit of property owners to inflate the price of their house or plot and insist this was the value, even if there were no buyers. There would be people claiming their home was worth €2 million even if they found nobody to pay the ridiculous asking price. Someone would occasionally be found to pay an extortionate asking price but it was an exception rather than a confirmation of the inflated values.

Even the Land Registry Department took advantage of this mindless inflation of values, because it allowed it to collect higher transfer tax when a property was sold. The department, as a matter of routine, would refuse to accept the price on the sales contract and impose tax on the price arbitrarily decided by its officials, who based their evaluation on the prices supposedly paid for other properties in the same area.

The justification for doing so was based on the suspicion that money had been paid under the table, so that a smaller transfer tax would be paid. It was a ridiculous way for a department of the state to behave, but in Cyprus even the state authorities contributed to the efforts to inflate property values. And this habit continues to this day.

The other day it was reported that the values on which we would be paying Immovable Property Tax (IPT) would be those prevailing in January 2013, even though the Land Registry admitted that prices, on average had fallen by about 15 per cent since then. And we would not have known this if it had not been cited as an explanation for the lower transfer tax paid by the First Lady for the Limassol plot she had bought from the Church; apparently, she paid transfer tax on 2014 land values.

While for IPT purposes, it is understandable that property values would be arbitrarily decided by Land Registry officials, but the Technical Chamber ETEK is absolutely right in demanding that the criteria and assumptions used for the calculations should be made public. People have the right to know how the state made its evaluations because they also have the right to question them.

It is high time that Land Registry officials were made accountable for their decisions. They have been allowed for too long to arbitrarily determine property values, happily inflating them in order to boost tax revenue for the state, and oblivious to the distortions caused to the property market. Making them accountable and forcing them to explain the methodology behind their valuations would limit their ability to abuse their power.

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