Immovable Property Tax reform a priority

Editorial
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THE PARLIAMENTARY Committee on financial and budgetary affairs has set priorities for the implementation of all actions necessary for the payment of the fifth bailout tranche.

According to a document sent by the Finance Ministry, by the 5th of June Parliament must approve the establishment and operation of a fiscal council and pass a bill that will integrate the Inland Revenue Department and the VAT Service.

By June 19 the House should vote for a bill harmonising the legislation amongst tax types so that not paying withholding taxes is a criminal offence and tax fraud is prosecuted as a criminal offence. It must also enact legislation to establish self-assessment for all income taxpayers by changing from a pre-assessment verification of income tax returns to post assessment audits selected on the basis of risk and pass legislation to strengthen powers of the tax authorities to ensure payment of outstanding tax obligations, including providing power to garnish assets or prohibiting the alienation or use of assets, including property and bank accounts, by the taxpayer.

By the end of June Parliament should enhance the effectiveness of competition law enforcement by adopting the necessary amendments to the legislation on mergers and antitrust.

Also by the end of June the Government must, among other things, bring before Parliament a bill reforming Immovable Property Tax and another introducing the Guaranteed Minimum Income.

Hourican calls for change in the law

Editorial
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9
Hourican calls for change in the law

BANK of Cyprus CEO John Hourican said on Wednesday, that non-performing loans are stabilising.

Hourican, who was addressing a conference in Nicosia on the future of asset management in Cyprus and Greece, assured that the Bank is more aggressive in pursuing the ‘high end’ borrowers and compassionate when it comes to ‘lower end’ borrowers, stressing however the need to amend current legislation on the matter.

He further highlighted the need for confidence to return to Cyprus’ banking sector.

“The Bank is delivering, the Bank is making progress”, he assured, adding that “we are announcing each step of that progress as we go”.

What I need everyone in Cyprus to do, Hourican pointed out “is to begin to give us some wind to our sails to ensure that we can continue to make that progress”.

Replying to a question on non-performing loans (NPLs) he said that “we are pursuing all of our non-performing loans with the decree of vigour that we are allowed under the regulation that we found ourselves and the loans we have available to be executed”.

He continued saying that “we are being compassionate in the lower end of our lending space and we are being aggressive at the more higher ends”.

“If we find a viable business we would like to see that viable business can survive and we make any restructuring to ensure that people stay employed”, he stressed.

On the other hand he added that “if we find a non-viable business we proceed to execute collateral that covers our loans”.

Hourican went on to say that “there are results”. If you see the statistics overall, he explained, “you will see that the non-performing loans are stabilised and it is our intention to continue to try and drive an improvement in that position”.

At the same time Hourican dismissed the notion that “nothing is happening”.

It is the case, he said, “that we are having to work one by one in the confines of the legal system of Cyprus, which is very poor”.

“We do want and we do need a change in the law to help us improve the position on NPLs, and that is not to say that we are not placing ourselves as close to the law and doing everything we can on every individual in trying to recover those loans”, he noted.

Replying to another question he said that there are “a lot of things that have to come right in order the Bank to generate capital, generate returns to investors”.

He spoke of the need “to have confidence in the system as a whole”. Banking, he pointed out, “is about confidence”. Cyprus, he stressed, “needs to return to having confidence in its banking system”.

At the same time he reiterated that BoC is “making good progress”, noting that “we have a clear repatriation of overseas capital agenda going on”.

Cyprus received in March 2013 a €10 billion bailout from the EU and the IMF to avert the meltdown of the island’s oversized banking system. However, following the bailout non-performing loans soared reaching €26 billion. Debt restructuring is considered by Cyprus’ lenders as an important element in the success of the island’s financial adjustment programme.

– Cyprus News Agency

Immovable Property Tax will be less in 2014

Editorial
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17

Immovable Property Tax (IPT)PROPERTY owners could pay less Immovable Property Tax this year as authorities update real estate values as part of the island’s bailout terms.

“People will be asked to pay less than last year and the reason is very simple, many more properties have been included,” Interior Minister Socratis Hasikos told state broadcaster CyBC.

As part of the bailout, Cyprus has to update real estate values by mid-2014.

Up until 2013, property owners were taxed based on 1980s values with many paying peanuts and others nothing at all.

The minister said the re-evaluation procedure was almost complete though Cyprus had another big challenge to address – title deeds.

Cyprus must cut down the number of pending applications to 2,000 by the end of the year in line with the bailout terms.

This is a very big operation and employees from other departments have been brought in to help the land registry, Hasikos said.

“These are matters that we should have sorted on our own years ago but we didn’t and the troika (lenders) had to step in,” the minister said. “In this instance, they are welcome.”

IPT Bill

Fourth year in recession

Nigel Howarth
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Fourth year in recession

recessionTHE RECESSION in the island’s construction sector continued in 2012 according to the report “Construction and Housing Statistics, 2012” issued by the Cyprus Statistical Service today.

The year saw the sector contract by a provisional 19.5% compared to 9.8% in the previous year with fewer homes and non-residential buildings being constructed. The homes that were built reduced in size, while unemployment in the sector continued to increase.

The main developments in 2012 were:

a)      The construction sector continued for the fourth consecutive year to be in recession. The rate of growth of the sector in 2012 (in terms of value added at constant prices) is provisionally estimated to have recorded a decrease of 19.5% compared to a decline of 9.8% in 2011.

b)      The gross output of the sector at current market prices was reduced in 2012 by 20.7% to €2,250.8 million compared to €2,836.7 million in 2011. The subsector of buildings construction and civil engineering recorded a decrease of 20.9%, while the subsector of land and buildings development registered a decline of 19.3%.

c)      New residential buildings accounted for 31.4% of the total gross output of the subsector of buildings construction and civil engineering, new non-residential buildings (offices, shops, hotels, factories, etc.) for 21.6% and new civil engineering projects (roads and bridges, water supply and sewerage networks, telecommunications and electricity lines etc.) for 26.4%, while repairs, maintenance and others accounted for the remaining 20.6%.

d)      Employment in the sector was reduced from 33,039 persons in 2011 to 28,562 persons in 2012 and accounted for 7.8% of the gainfully employed population.

e)      The number of persons registered as unemployed increased from 4,424 persons in 2011 to 6,177 persons in 2012.

f)       Labour cost in construction increased by 1.2% compared to an increase of 2.5% in 2011. The price index of construction materials recorded a rise of 0.2% compared to 4.1% in 2011.

g)      The number of new dwellings completed decreased by 27.8% to 6,565 dwelling units compared to 9,091 in the previous year. By administrative district, the number of new dwellings is distributed as follows: Lefkosia (Nicosia) 2,534, Ammochostos (Famagusta) 325, Larnaka 1,273, Lemesos (Limassol) 1,548 and Paphos 885.

h)      The average area per dwelling completed in 2012 was 234 square metres for houses and 128 square metres for apartments, compared to 239 and 131 respectively in 2011.

i)        The cost of construction per square metre (excluding the value of land) rose from €943.1 in 2011 to €988.1 in 2012 for houses and from €830.0 to €831.9 for apartments.

j)        The dwelling stock at the end of the year amounted to 430 thousand dwelling units, of which 62.5% were in the urban areas.

Further reading

Construction and Housing Statistics, 2012 (244 pages – English and Greek)

Building permits & certificate issuance progress

Nigel Howarth
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building_permit_statsSECTION 5.3 of the Memorandum of Understanding (MoU) agreed between Cyprus and it’s international lenders (troika) is that Cyprus should “every three months, publish quarterly progress reviews, including executive commentaries on developments related to the issuance of building and planning permits, certificates, title deeds, title deed transfers and related mortgage operations.”

The latest executive commentary (draft), relating to the issuance of planning permits, building and division permits and certificates, is presented below and covers the period to the 1st quarter of 2014.

Introduction

According to the MoU (5.3), the Ministry of Interior has undertaken the task of collecting and publishing statistical data for the progress of the issuance of development permits.

The data collected from the Planning Authorities and the Building Control Authorities, are related to the planning permit applications, the building and division permit applications and applications for certificates.

The data are collected every quarter and include data related on pending applications, applications that have been submitted and applications about permits or certifications that have been approved.

Planning permit applications

During the 1st quarter of 2014 a further slight reduction in the number of planning applications pending is noted at 2.6%. This percentage is increased compared to the 4th quarter of 2013, but it should be noted that there was a decrease in the number of the applications that were submitted (14.4%), and in the number of permits approved during this quarter by 10.9%.

Based on the data collected, the decrease in the number of applications submitted in connection with the decrease of planning permits issued resulted in the number of planning applications pending from the beginning of 2013 to be reduced by 1046 applications, i.e. 15%.

It should be noted that with respect to discrepancies observed during data checks, the Town Planning Department reports that this is due to shortcomings of the software registration system of planning data, where data considering permits that change due to administrative appeal are added to the pending number of planning applications.

2nd quarter 2013

  • decrease in the number of applications pending at the end of the 2nd quarter by 474 applications (7%),
  • decrease in the number of applications submitted by 200 applications (10%),
  • increase in the number of planning permits approved by 178 permits (8.6%).

3rd quarter 2013

  • decrease in the number of applications pending at the end of the 3rd quarter by 210 applications (3.3%),
  • decrease in the number of applications submitted by 114 applications (6.4%),
  • decrease of the number of planning permits approved by 294 permits (13%).

4th quarter 2013

  • decrease in the number of applications pending at the end of the 4th quarter by 101 applications (1.6%),
  • increase in the number of applications submitted by 297 applications (18%),
  • increase in the number of planning permits approved by 186 permits (9.5%).

1st quarter 2014

  • decrease in the number of applications pending at the end of the 1st quarter by 165 applications (2.62%),
  • decrease in the number of applications submitted by 282 applications (14.4%),
  • decrease in the number of planning permits approved by 234 permits (10.9%).

Building permits and division permits

During the 1st quarter of 2014 a further reduction is noted in the number of building and division applications pending at 4.2%. This percentage is at the same level to the 4th quarter, but it should be considered that there was a decrease in the number of applications submitted (4.8%) as well as for the number of permits approved during this quarter (15.8%).

Based on the collected data, the decrease in the rate of issuance of building permits and division permits in combination to the preservation of the number of applications that are pending at the end of 1st quarter of 2014 resulted in the number of the building and division permits that are pending since the beginning of 2013 to decrease by 779 applications (11.5%).

It should be noted that with respect to discrepancies observed during data checks for the previous quarters, a number of Building Control Authorities illustrated that submitted data show these differences, mainly due to weaknesses in the computer systems to define the correct data or even lack of computerized information systems and electronic databases. Consequently, the basis (benchmark) for the study of work performed and recording progress of the permits of the building and division permits (and certificates also), should be considered the statistical data submitted from the Building Control Authorities during the 3rd quarter.

2nd quarter 2013

  • decrease of the number of applications pending at the end of the 2nd quarter by 41 applications (0.6%),
  • decrease of the number of applications submitted by 256 applications ( 13.4%),
  • decrease of the number of permits approved by 89 permits (5%).

3rd quarter 2013

  • decrease of the number of applications pending at the end of the 3rd quarter by 337 applications (5%) ,
  • decrease of the number of applications submitted by 26 applications (1.6%),
  • increase of the number of permits approved by 349 permits (20.6%).

4th quarter 2013

  • decrease of the number of applications pending at the end of the 4th quarter by 267 applications (4%) ,
  • increase of the number of applications submitted by 433 applications (26.5%),
  • increase of the number of permits approved by 257 permits (12.6%).

1st quarter 2014

  • decrease of the number of applications pending at the end of the 1st quarter by 265 applications (4.2%) ,
  • decrease of the number of applications submitted by 99 applications (4.8%),
  • decrease of the number of permits approved by 365 permits (15.8%).

Certificates

At the 1st quarter 2014 a small decrease in the number of the pending certificates is observed (compared to the 4th quarter), at a percentage of 1.3%. It should be taken under consideration that there was a decrease in the in the number of application (12%) and in the number of the issued Certificates (8.6%). The decrease is due to the effort taken by the local authorities to submit to the Land and Survey Department information regarding the evaluation of the buildings.

Based on the data collected, there was a decrease in the number of certificates approved during the 1st quarter of 2014 (8.6% increase compared to the 4th quarter of 2013), As a result, the number of the certificates pending has decreased by 263 applications, i.e. by 7.2 %, since the beginning of the year 2013.

2nd quarter 2013

  • decrease in the number of applications pending at the end of the 2nd quarter by 326 applications (9.3%),
  • increase in the number of applications submitted by 157 applications (16.9%),
  • increase in the number of certificates approved by 330 certificates (30.4%).

3rd quarter 2013

  • increase in the number of applications pending at the end of the 3rd quarter by 187 applications (5.9%),
  • increase in the number of applications submitted by 347 applications ( 31.9%),
  • decrease in the number of certificates approved by 151 certificates (10.7%).

4th quarter 2013

  • increase in the number of applications pending at the end of the 4th quarter by 74 applications (2%),
  • increase in the number of applications submitted by 525 applications ( 36.6%),
  • increase in the number of certificates approved by 639 certificates (50.6%).

1st quarter 2014

  • decrease in the number of applications pending at the end of the 1st quarter by 45 applications (1.3%),
  • decrease in the number of applications submitted by 235 applications (12%),
  • decrease in the number of certificates approved by 163 certificates (8.6%).

Conclusions

During the 1st quarter of 2014, based on the data collected, the number of planning applications pending was decreased (from the beginning of 2013) by 15% , the number of building permits and division permits pending was decreased by 11.5% and the number of certificates pending was reduced by 7.2%.

The Technical Services of the Ministry of Interior in cooperation with the Land and Survey Department met with the Mayors and Building Control Officers of the Municipalities in order to update them in the progress of the work and provide them with further information in order to assist them in speeding up the process.

The Officers of building and planning authorities mention that they have focused on the information, requested by the Land and Survey Department, regarding the evaluation of the building stock. As soon as that process is completed they will focus on the issuance of permits and certificates.

Further reading

Executive commentary for 1st quarter of 2014 (plus charts).

Bank of Cyprus furious over leaked debtors list

Angelos Anastasiou
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Bank of Cyprus furious over leaked debtors list

Bank-of-Cyprus-HQA CONFIDENTIAL list with the 24 largest debtors in the Bank of Cyprus and the amounts they owe, including the bank’s analysis of their financial status and recommendations for further action, was leaked to the news site Stockwatch yesterday, infuriating the bank that said it would take legal measures.

The release has fuelled even further the controversy surrounding the collapse last year of the second biggest lender, Laiki Popular Bank, and its takeover by BoC, where, too, reports of extravagant and unsecured lending by management and board members have been revealed by several public inquiries, making the issue of recovery more difficult.

The BoC has been struggling with increasing amounts of non-performing loans (NPLs), which have been reported to approach 50 per cent of its loan portfolio and put tremendous pressure on the bank to write them off as provisions in its books, a development that would incur significant losses to the already troubled lender. However, commentators have repeatedly argued that a small number of borrowers – who have been facing difficulty servicing their loans – were responsible for a large chunk of the unserviced debt, and effectively dealing with them would go a long way towards restoring the bank’s liquidity position and alleviating the risk of sustaining further losses.

According to the list, drafted a year ago, the 24 problematic borrowers owed the bank close to €5bn as at June 2013, including account overdrafts, collateral margins and NPLs. This totals to just under a third of Cyprus’ GDP.

Lanitis E.C. Holdings Ltd appeared on the list as the bank’s largest debtor, with total obligations of €576m. According to the report, the group’s loans were “frequently adjusted” and since 2006 “only interest was being paid.”

“The bank’s board decided on March 8, 2013, to grant €13.65m to cover interest due for 2012 and 2013,” the report noted.

But despite the group’s high borrowing and the servicing problems since 2006, further loans of €133m were granted in 2011 to fund the company’s participation in developing the Limassol Marina.

A similar predicament was described for Leptos Group, another developing company that was recorded as owing the bank a total €510m last June. In this case, though the bank was exposed to significant risks with regard to Leptos Group, it nonetheless extended new credits of €162m in 2010 to fund the Neapolis Project, a 1-million square metre housing and commercial development project on the outskirts of Paphos.

NKS Shacolas Holdings Ltd, main shareholders of CTC Ltd which controls companies like Woolworth Cyprus, Ermes Department Stores and CTC Automotive, with a significant stake in Hermes Airports, were recorded as owing the bank a total €315m. Back in June, the bank’s report expected that the group’s dues would be settled by the sale of its stake in MTN, which was announced in February 2013.

Dolphin Capital Investors was another of the Bank of Cyprus’ large debtors with a total €300m. Last May, Dolphin announced the sale of the Venus Rock development project for €290m, which has not yet been completed.

The remaining debtors listed in the BoC report were:

Joannou & Paraskevaides Group with total dues €310m,
Limassol Marina Ltd with €138m,
Louis Group with €217m,
Libra Group with €134m,
G. Paraskevaides Group with €110m,
Quality Group with €172m,
Galatariotis Group with €100m,
K. Athienitis Contractors & Developers with €193m,
Constantinos Shacolas Group with €185m,
Hassapis Group with €212m,
Frangoudes & Stephanou Group with €169m,
SFS Group Public Co Ltd with €147m,
Lefkaritis Group with €118m,
Panayides-Farmakas Group with €102m,
Tsokkos Hotels Group with €172m,
Aqua Sol Group with €199m,
D. Zavos Group with €134m,
Piitarides (Fairways) Group with €100m,
ELPE/Latsis with €200m.

In a statement issued yesterday, the Bank of Cyprus lambasted Stockwatch for publicising confidential information relating to its clients, in contravention of banking confidentiality and warned that it would seek out those responsible for the leaked report.

“The bank affirms that it has taken all due measures to investigate the issue and punish those responsible,” the statement said. “Among these, the bank has instructed the internal audit service to investigate this matter, and is determined to bring those responsible to the competent authorities.”

Bank of Cyprus

Editor’s comment

In the Greek language section of its website Stockwatch stated that the publication of the Bank of Cyprus report “served the public interest” and that it contains “information which may require further investigation”, noting that “in many cases the loan balances have increased.”

Further reading

Download the 77 page Bank of Cyprus report (please note that the report is 35Mb and may take a few minutes to download and is mainly in Greek).

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