Developers unhappy with property tax changes

George Psyllides
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6

DEVELOPERS are unhappy with a new immovable property tax regime, agreed as part of the island’s bailout with the troika, saying it will jeopardise the already badly-hit sector’s prospects.

In a written statement, the Cyprus Land and Building Developers Association warned that implementation of the new regime would lead many people to sell their properties because of the high tax.

This will in turn force the value of mortgaged property down and create fresh recapitalisation needs for the banks, the developers said.

“We think that immovable property is once more used as the easy way out to cover the state’s financing needs, without considering the effects such a choice would have on the future growth of the sector and employment,” they added.

The preliminary agreement between Cyprus and international lenders provides for updating the 1980’s prices by applying the consumer price index (CPI) over 1980 to 2012 and amending tax rates for the value bands.

Until now, immovable property tax was calculated based on the value of the property on January 1, 1980.

Under the new regime, the taxable figure would be the result of multiplying the value of the property in 1980 by around 3.5 – the CPI, according to deputy land registry director Andreas Socratous.

Developers called on MPs, who will be asked to approve the changes, to also consider several other factors, which the bill appears to ignore, according to them:

The property at the disposal of developers is stock and a tool of the trade and not wealth; and the bill fails to tackle the fact that from the moment a property is sold and until a title is issued it is the developer who is obliged to pay the tax, although most developers who have not issued title deeds collect the money from people who bought homes on their properties, in many cases charging in excess of what was owed in actual taxes.

They added that their association will soon be submitting a compromise proposal on the matter.

Cyprus developers unhappy with tax changes

Construction sector investment retreats

David Crowther
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5

THE NUMBER of building permits issued in September 2012 stood at 604 compared with the 648 issued in September last year; a fall of 6.8%, according to the latest figures released by the Cyprus Statistical Service.

Compared with September 2011, the total area of these permits fell to 116,300 square metres from 219,492 square metres (-47%) and their value fell to €135.1 million from €187.8 million (-28%).

During September, building permits were issued for:

  • Residential buildings – 327 permits
  • Non-residential buildings – 74 permits
  • Civil engineering projects – 171 permits
  • Division of plots of land – 29 permits
  • Road construction – 3 permits

During the period January – September 2012, 5,365 building permits were issued; a decrease of 6.7% compared to the number issued in the same period last year. Their total value fell 24.0% and their total area fell by 33.2%.

New home construction

The 327 residential building permits approved in September provided for the construction of 491 new homes comprising 200 single houses and 291 multiple housing units (such as apartments and other residential complexes).

This is a fall of 47% compared with September 2011 when building permits were issued for the construction of 932 new homes.

During the first nine months of 2012, the number of new homes for which permits have been issued has dropped 37.2% compared with the same period last year.

Cyprus new home construction September 2012

According to the Cyprus Statistical Service, building permits constitute a leading indicator of future activity in the construction sector.

Problems will continue after property tax shakeup

Nigel Howarth
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18

THE Memorandum of Understanding on Specific Economic Policy Conditionality (MoU) will bring significant changes in the way  Immovable Property Tax (IPT) is calculated in Cyprus, putting to an end the use of 1980 values.

The MoU calls for 1980 prices to be adjusted by the Consumer Price Index from 1980 to 2012 and the threshold at which IPT becomes payable to be increased to €150,000.

Since 1st January 1980 (the date on which the Land Registry’s estimates are based) until October 2012, the Consumer Price Index had risen 3.40 times.

Under the new regulations anyone who owns property with a 1980 value exceeding roughly €44,000 (€150,000 / 3.40) will become liable to pay IPT and will be required to submit an annual self-assessment to the Inland Revenue.

If a property is equally and jointly owned, for example by a man and his wife, the 1980 value of their property will have to exceed approximately €88,000 (€300,000 / 2 / 3.40) before either of them becomes liable for IPT.

(The October 2012 Consumer Price Index is the latest figure available from the Cyprus Statistical Service and it is likely that the figure of 3.40 may increase slightly by the end of this year).

Revised IPT rate schedule

Property Value (1980 value uplifted by CPI)
Proposed Tax Rate
Up to ?€150,000 nil
From ?€150,001 to ?€500,000 0.6%
From €?500,001 to €1,000,000 0.8%
More than ?€1,000,000 1.0%

Problems will continue

However, problems with the current taxation system will continue. If a private house or a building has not been registered on the Title Deed, then an accurate assessment of its owner’s tax liability will be impossible.

To give you an idea of the extent of this problem, a well-known authority on local property matters said he suspected that 50% of private buildings/houses were not registered on the Title Deed in his newspaper column.

The Cyprus government has said there should be a comprehensive analysis of all properties and reassess their current market values for taxation purposes. This would take into account the spread of urban areas, changes in use and new developments.

Troika proposals

The troika has proposed changes in the way that property taxes are calculated. These will be implemented in 2014 following the introduction of a property price index in 2013.

This price index will be based on the value of the habitable area of the building and the area of land on which it is situated and will vary according to the property’s location and zoning and some other factors.

In addition, the MoU calls for annual adjustments so that taxes collected will be based on up-to-date estimates of property values.

To counteract the negative effects of increasing IPT, the MoU provides an extension in the reduction in Property Transfer Fees until 2016.

Cyprus draft bailout conditions leaked

Nigel Howarth
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20

EARLIER today, the Memorandum of Understanding between Cyprus and the Troika came into the public domain. The complete 29 page document, which includes the timetable and target dates for implementing the measures, can be viewed by clicking here.

Here is an abridged summary of the key points relating to property regulation and taxation:

Provide for mandatory registration of sales contracts for immovable property.

Eliminate the title deed issuance backlog to less than 2,000 cases of immovable property sales contracts with title deed issuance pending for more than one year.

Publish quarterly progress reviews of the issuance of building and planning permits, certificates, and title deeds, as well as title deed transfers and related mortgage operations throughout the duration of the programme.

Implement electronic access to the registries of title deeds, mortgages, sales contracts and cadastre for the financial sector and government services.

Introduce legislation on amending the procedure on the forced sale of mortgaged property to allow for private auctions as under the rules for immovable property recovery under bankruptcy regulations.

Better target the rules of court to improve the pace of court case handling. The authorities shall assess the need for additional measures – including if necessary legislative reforms – to eliminate court backlogs by end of the programme.

Provide for specialized judges akin to the rules for criminal case handling in order to expedite the handling of cases under commercial and immovable property laws.

Implement a property price index that establishes the average property market valuation in 2013 by square meter of habitable surface and land plot.

Implement the recurrent immovable property tax based on imputed market valuations of land plots according to a unit tax base established by this property index.

Establish the legal basis for a mandatory annual adjustment of the property unit tax base by a competent executive authority.

Provide for an extension of the reduction in property transaction fees until 2016.

Property pledged as collateral can be seized within a maximum time-span of 1.5 years from the initiation of legal or administrative proceedings. In the case of primary residences, this time-span could be extended to 2 years.

Ensure additional revenues from property taxation by: (i) updating the 1980’s prices by applying the CPI index over 1980 to 2012; and (ii) amending tax rates for the value bands. The new rates, which will apply to the updated values, are as follows:

For values of EUR 0 – 150,000 coefficient of 0‰
For values of EUR 150,001 – 500,000 coefficient of 6‰
For values of EUR 500,001 – 1,000,000 coefficient of 8‰
For values of EUR 1,000,001 and above coefficient of 10‰

Further reading

Memorandum of Understanding on Specific Economic Policy Conditionality between Cyprus and Troika

Armou families dealt another blow

Jean Christou
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7

Cyprus electricity
HOMEOWNERS at a stricken development in Armou in Paphos were dealt another blow yesterday as they were informed that electricity supplies to their homes were due to be switched off.

The news comes a day after official notices were placed on the substandard homes that they were unfit to live in.

Louise Zambartas, lawyer for one of the homeowners, Simon Phillips, told the Cyprus Mail that the Paphos District office had confirmed that the Cyprus Electricity Authority (EAC) would be cutting off the power supply to all of the homes, making it impossible for the families to remain there.

Resident Simon Phillips told the Cyprus Mail: “We have nowhere else to go, my two children are terrified that we won’t have a roof over our heads and even if we wanted to stay in our home, we will no longer be able to do that as we won’t have any electricity.”

Phillips and his wife Jen are permanent residents and bought their house outright. They don’t have the money to move. With Christmas looming, the family now faces the prospect of homelessness.

“We don’t pay a mortgage or rent and so these expenses are not factored into our earnings,” Phillips said. “It would be impossible for us to pay for somewhere to live but somehow, we have to ensure we have a home for our two young children. Nobody should have to go through what we all have to suffer. I keep hoping I will wake up and it will have all been a bad dream.”

Zambartas said: “The district office hasn’t said if they will help to re-home the Phillips family or not. As instructed by them, we have written a letter to the man who signed the notices requesting assistance for the Phillips family. This is a dreadful situation for our client and his family.”

The homeowners were left in a state of shock and confusion on Tuesday after a representative of the Paphos district office placed notices on all of the houses informing them that they were unfit to live in. The notice states the decree shall remain in force until such time as repair works deemed necessary by the District Officer are carried out.

All of the houses, which were only built in 2004, have serious structural problems, from slanting floors, to the partial collapse of stairs, walls, swimming pools and patio areas. Outside drains are exposed in one garden and retaining walls have split.

Families ordered to leave unsafe homes

Bejay Browne
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2

HOMEOWNERS at a stricken development in Armou in Paphos were left shocked and confused after a representative of the Paphos district office accompanied by the local village leader placed notices on all of the houses informing them that they were unfit to live in.

The notice states the decree shall remain in force until such time as repair works deemed necessary by the District Officer are carried out.

The Sunday Mail first highlighted the dire plight of the homeowners in March.

The six houses which make up the development in the picturesque village are still moving down the hillside and are likely to collapse completely if rains are heavy this winter. One of the houses has already been deemed unfit for habitation and has been condemned.

A number of the homeowners have begun court proceedings against the developer. All of the houses, which were only built in 2004, have serious structural problems, from slanting floors, to the partial collapse of stairs, walls, swimming pools and patio areas. Outside drains are exposed in one garden and retaining walls have split.

Yesterday, homeowner Geoff Higgs contacted the Cyprus Mail from England, where he is now living.

“We have just received a distressed phone call from our daughter who said that our homes are not fit to live in and may be demolished,” he said.

Geoff and Maggie Higgs were forced to leave their ‘dream home’ a few months ago as they no longer felt safe.

Only two homes are now occupied, one by Simon Phillips, his wife and two children. The Higgs’ daughter, Sian Sparrow, her husband Jason and two children are renting a house next to theirs to keep an eye on her parents’ property.

Jason Sparrow said: “There was a knock at the door just after 2pm and a woman from the district office and the mukhtar said they were putting notices on all of our doors. They told us that we will all have to leave and if it comes to the point of pulling the houses down and we are still here, the police will be asked to come and get us out.”

The Sparrows immediately contacted the British embassy who translated the notices for them as they are written in Greek.

Sparrow added: “We were told the notices say that the homes aren’t fit for human habitation and we must leave until repairs are carried out. It’s very confusing as no timeframe is given for us to leave the property.”

When contacted by the Cyprus Mail, Evagoros Andreou of the Paphos district office planning permit department said he was unable to shed any light on the matter.

“We have given them notices within the law and I’m not advised to give out any further information. The homeowners will be sent letters tomorrow (Wednesday).”

The Cyprus Mail asked if these would be translated into English the native language of all of the homeowners, he said:  “The letters are in Greek which is the language of this country.”

The estate was constructed on land locals had long been warned was unsafe. One of the access roads to the development is currently impassable and although a second road was repaired, large cracks have again appeared.

The developer responsible for the estate is JNM, but despite repeated efforts, the Cyprus Mail has been unable to contact them.

A report by the president of Paphos’ architects and civil engineers association, Chrysostomos Italos was completed in June and has been handed over to the legal advisers of the homeowners. Italos places the blame firmly on the developer.

Armou village leader Panicos Hadjitheoris said: “I feel very sorry for these people and I will try to do what I can to help.”

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