New Immovable Property Tax lies

Nigel Howarth
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18
New Immovable Property Tax lies

WHEN Interior Minister Socratis Hasikos told CyBC that “people will be asked to pay less [Immovable Property Tax] than last year and the reason is very simple, many more properties have been included”, he was being economical with the truth!

It is clear from the table below that the Cyprus government has shifted the burden of taxation onto the 22% who own properties valued between €200,000 and €400,000 and the 20% who own properties valued between €400,000 and €1.5 million who will be required to pay €79 million of the €137 million of the Immovable Property Tax the government plans to collect.

A number of people commenting on earlier articles in Cyprus Property News have already raised the point that they will be paying more Immovable Property Tax this year than last, despite the Interior Minister’s assurance that they would pay less.

Assessed Property Value
IPT Rate
Number of Owners
IPT
Total 386,695 (100%) € 137,489,891.70
Up to € 200,000 0 209,883 (54.3%) € 0
€ 200,000 to € 400,000 0.1% 85,540 (22.1%) € 24,407,083.10
€ 400,000 to € 1,500,000 0.1% 77,463 (20.0%) € 54,299,733.80
€ 1,500,000 to € 5,000,000 0.1% 11,635 (3.0%) € 28,133,688.60
€ 5,000,000 to € 10,000,000 0.1% 1,423 (0.4%) € 9,683,055.50
€ 10,000,000 to € 30,000,000 0.1% 591 (0.2%) € 9,267,679.70
€ 30,000,000 and above 0.1% 160 (0.0%) € 11,698,651.00

And who do these changes benefit? You’ve guessed it those larger owners, including property developers, whose properties are valued in many millions of Euros.

As well as the larger owners, the owners of low value properties will also benefit from the change in taxation; those owning property up to €200,000 (54% of owners) will be exempt under the new arrangements.

Meanwhile I’ve received reports and supporting documents showing that the nefarious developers have already invoiced their deed-less customers for Immovable Property Tax for 2014 based on the 2013 rate (1.9%) rather than the 2014 rate (0.1%) – 19 times more than they should be paying.

I wonder if the government and lawmakers will ever have the will or the intestinal fortitude to stop all the lies and deceit that has given Cyprus such a bad name internationally.

Maybe they should start with the people at the top – perhaps lessons in speaking the truth would help.

Fitch upgrades Bank of Cyprus and Hellenic Bank

Editorial
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0

Fitch ratings agencyON FRIDAY, Fitch ratings agency upgraded the Bank of Cyprus (BOCY) long-term issuer default ratings (IDR) to ‘CC’ from ‘RD’ and Hellenic Bank (HB) long-term IDR to ‘CCC’ from ‘RD’.

It also upgraded the two banks’ short-term IDR to ‘C’ from ‘RD’, while affirming BoC’s viability rating (VR) at ‘cc’, HB’s VR one notch higher at ‘ccc’.

The agency said the upgrade came as a result of the lifting of the domestic capital controls on May 20, which have been imposed since the agreement on a €10 bln bailout by the Troika of international lenders including the ECB, EU and IMF in March 2013.

“Although restrictions remain on cross-border outward capital flows, these banks are now substantively able to service all their obligations,” Fitch pointed out, adding however, that the remaining capital controls, especially outward “is unlikely to be fully implemented before the end of 2014.”

Fitch believes that BOCY’s and HB’s VRs are influenced by the recession in Cyprus, which continues to put at risk the two banks’ very weak asset quality, as well as weak profitability and vulnerable capitalisation.

The agency considers asset quality as one of the main concerns for Cypriot banks. In 1Q14 both banks’ non-performing loans (NPLs) continued to increase, albeit at a lower rate than past quarters, reaching 55% at BOCY and 49% at HB of gross loans and Fitch expects loan quality to weaken further in the near future, although more moderately.

“The two banks’ most important challenge will be to improve NPL recoveries, for which banks have internally strengthened their recovery units. NPL coverage remained low in Fitch’s view in a stress scenario at 35% for BOCY and 43% for HB at end-1Q14,” it added.

Noting that customer funding in 2013 started to stabilise following large deposit outflows in 2012, Fitch said that the two banks’ deposit franchises remain and highly vulnerable to Cyprus’ recession and could also be affected by the recent lifting of domestic capital controls and notably the anticipated gradual lifting of cross-border capital controls.

The agency notes that in the absence of further liquidity shocks, Bank of Cyprus’ dependency on central bank funding will decline further, but will remain large in the foreseeable future, indicating material funding constraints.

With regard to the two banks’ viability rating, Fitch noted that while limited in the short-term, the VRs could be upgraded if pressure from unreserved NPLs ease and/or capital materially improves and further profitability improvements are evidenced.

BOCY’s VR could also be upgraded if there is a significant reduction in central bank funding. An upgrade of the Cypriot sovereign rating (B-/Stable) would also put upward rating pressure on the banks, if this is associated with improved macro-economic fundamentals.

Conversely, the VRs would be downgraded because of a weakening of the banks’ asset quality and profitability, resulting in significant capital erosion, or if their funding profiles become more unstable and deteriorate.

In Fitch’s view, BOCY remains more at risk of a VR downgrade than HB.

Bank of Cyprus and Hellenic Bank

Banks forced to compensate forex borrowers

Nigel Howarth
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0
Banks forced to compensate forex borrowers

THE FINANCIAL Times reports that the new law will force banks to compensate borrowers for imposing what it refers to as “unilateral” loan interest rate increases and for changing the margin between the issue rate when the loan was sold and the buying rate when repayments were calculated.

It’s been estimated that this new law will cost the banks between €2 billion and €3 billion.

Between 2002 and 2009 hundreds of thousands of Hungarians took out forex mortgages mainly denominated in Swiss Francs. However, like many who took out Swiss Franc home loans to purchase property in Cyprus, they saw the loan repayments rocket as a consequence of the financial crisis.

This new law is part of a bundle of new laws that the government plans to introduce over the next six months phasing out forex loans and converting them to the local currency (Hungarian Forint).

Since taking office in 2010, the Hungarian government has made what it refers to as ‘the exploitation of consumers by banks’ one of its key concerns.

Meanwhile an international conference will be held in Cyprus in mid-September attended by delegations from the UK, Cyprus, Croatia, Serbia, Greece, Germany, Hungary, Poland and Montenegro.

The objective of the conference is to coordinate action to find a Pan-European solution to the Swiss France loan problem by bringing the matter to the attention of the European Court of Justice and petitioning the European Parliament.

Further reading

Hungary acts on foreign-exchange loans (subscription)

Hungary Bill to Require Banks to Give Loan Refunds

Property tax bills hit obstacles

Angelos Anastasiou
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10
Property tax bills hit obstacles
Land registry property tax
Limassol District Lands Office

THE submission of the two government bills revising property tax coefficients to next week’s plenum has come under question as yesterday’s session of the House interior committee revealed several concerns with regard to the way property revaluation to 2013 prices was made.

After the session, committee chairman Yiorgos Lamaris said that committee members also expressed reservations with regard to a bill stipulating that local authorities will be required to reduce property taxation from 0.15 per cent to 0.022 per cent, in order to take account of 2013 prices.

Until now, properties were valued at 1980 values for taxation purposes, but these were revised by the Land and Surveys department to reflect 2013 values. A land registry official told the committee that some areas saw property values revised at six times their previous value and others at 36.

“An initial view is that the process through which property prices have been revised has not been adequately substantiated,” he said. “The Land Registry and others failed to provide convincing explanations as to how it was done.”

One example of such “unconvincing explanations”, Lamaris said, relates to on-the-spot appraisals that involved reviewing only the exterior of premises.

“It is a matter of concern with regard to the number of objections to revised property values that may be received,” he explained.

The government bill provides for the exemption of properties worth up to €200,000 and lower tax rates for properties valued above this threshold.

But Yiorgos Pantelis, who attended the session representing the Finance ministry, said that despite the lower rates there may well be cases where property owners will be called to pay a higher tax than last year, due to the upward revision of prices. One example, Pantelis said, would be a property valued as an empty plot last year when in fact it was a house.

Lamaris said he has called on parties to reflect on whether they will proceed to vote on the bill next Thursday, and noted that a government bill submitted yesterday to the House Finance committee is also pending.

Committee member Yiorgos Perdikis also expressed reservations on the potential increase of local authority property taxation based on the revised valuation.

“The bill’s provisions cause justified concern that while property taxation may indeed be reduced, municipal taxes may increase,” he said.

The government’s 2013 revenues from property taxation were €100m, which is also this year’s target amount.

property tax

Property prices at 2006 levels

Nigel Howarth
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7
Property prices at 2006 levels

property-pricesTHE CENTRAL Bank of Cyprus Residential Property Price Index reports that that property prices fell 2.7% in the first quarter of 2014 compared with a drop of 2.6% in the previous quarter.

The largest quarterly fall in apartment prices was recorded in Limassol (-3.7%), while Famagusta experienced the smallest drop (-2.6%). In Nicosia and Larnaca, apartment prices declined by 2.8% and 3.4%, respectively. Bucking the downward trend apartment prices in Paphos increased by 1.2% over the quarter; the first positive change in apartment prices in the district since 2010.

The largest fall in house prices over the quarter was recorded in Paphos (-3.7%), while the smallest drop was reported in Limassol (-2.2%). Houses in Nicosia, Larnaca and Famagusta, fell by -2.5%, -2.5% and -3.1% respectively, compared with the previous quarter.

On an annual basis, the residential property price index fell -9.7% in the first quarter of the year compared with an -8.7% drop in the previous quarter.

House prices declined by -9.4% and apartment prices by -10.0% on a year-on-year basis.

The largest annual falls in house prices were recorded in Famagusta (-18.5%) and apartment prices in Larnaca (-12.4%).

Property prices are now at approximately at the same level that they were towards the end of 2006.

Further reading

Central Bank of Cyprus Residential Property Prices Index – 2014 Q1

Property Transfer Fees reduction

Angelos Anastasiou
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12
Property Transfer Fees reduction

Cyprus Property Transfer FeesTHE GOVERNMENT is looking into the possibility of reducing Property Transfer Fees by 50 per cent to help clear a backlog of some 28,000 Title Deed applications.

Interior Minister Socratis Hasikos said the cabinet was close to approving the change but noted that it would be a temporary arrangement.

“One the hand the reduction to Property Transfer Fees will help people get their title deeds … on the other there will be income for the state,” he told state radio. This would also help in clearing a backlog of 28,000 applications.

The arrangement will be in place for one or one and a half years, the minister said.

Clearing the backlog is part of the island’s bailout terms. Cyprus must cut down the number to around 2,000 by the end of the year.

Yesterday, the Cabinet approved a bill that aims at resolving aging problems relating to demarcation and development of jointly owned, unallocated and enclosed housing plots.

Papadopoulos said that the bill also simplified the process of examining town-planning amnesty applications, and reduces the 30 per cent offset cost payable by applicants who have exceeded the total area allowed by the building permit.

Asked to elaborate on the bill’s provisions, Papadopoulos said that until now, in case a plot of land was owned by two or more people, if at least one did not consent to its development or demarcation nothing could be done.

“The new bill will allow demarcation given the consent of 60 per cent of the owners,” he said.

Papadopoulos added that the bill would address issues relating to roads and passageways for enclosed plots.

“If the owners of a plot surrounding an enclosed plot do not consent to demarcation, the Land Registry head will be allowed to examine the applicant’s request to build a road and develop the property,” he said.

Cyprus Mail

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