Slump in construction activity continues

David Crowther
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THE NUMBER of building permits issued in July 2012 stood at 613 compared with the 601 issued in July last year; an increase of 2.0%, according to the latest figures released by the Cyprus Statistical Service.

However, compared with July 2011, the total area of these building permits fell from 186,807 square metres to 142,702 square metres (-24%) and their value fell from €177.1 million to €147.9 million (-14%).

During July, building permits were issued for:

  • Residential buildings – 392 permits
  • Non-residential buildings – 85 permits
  • Civil engineering projects – 92 permits
  • Division of plots of land – 38 permits
  • Road construction – 6 permits

During the period January – July 2012, 4,284 building permits were issued; a decrease of 7.4% compared to the number issued in the same period last year, while the total value of these permits fell by 26.5% and their total area fell by 31.7%.

New home construction

The 392 residential building permits that were approved in July provided for the construction of 569 new homes comprising 217 single houses and 352 multiple housing units (such as apartments and other residential complexes).

This is a fall of 34% compared with July 2011 when building permits were issued for the construction of 859 new homes.

During the first seven months of 2012, the number of new homes for which permits have been issued has dropped 38.6% compared with the same period last year.

Cyprus new home construction

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

High-ranking officials accused of abusing state housing

Editorial
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GOVERNMENT housing in Troodos is being let at outrageously low rates, as a result of which rent revenues barely meet the cost of upkeep, lawmakers heard yesterday.

In some 20 documented cases, residential lodgings are being sub-let to the private sector for between €3 and €5 a year for a period of 99 years, the House Watchdog Committee was told.

Moreover, state property in Troodos is being used by private-sector individuals for commercial uses, including as hotels, kiosks and restaurants.

The annual rent for the two hotels in question amounts to €20,000 and €30,000, whereas long-term leasing for residences and restaurants comes to €5.10 and €3.40 per annum, respectively.

Some 50 residential lodgings are being used by civil servants, senior state officials, police officers, post office employees, Forestry Department personnel, and by bodyguards of the President and the House Speaker.

Deputies heard that from 2005 to 2011 the state received €1.1 million from renting out these properties; the cost of maintenance was about €1 million, not including billable man-hours.

A Finance Ministry official told MPs the government is drafting legislation revising the rental rates for residential lodgings.

Greens MP George Perdikis said that the mismanagement of state property in Troodos has led to it operating at a loss.

Moreover, government housing is being “scandalously” abused by high-ranking state officials, he said.

EDEK deputy Fidias Sarikas proposed that the lodgings be administered by a private company.

Moody’s slashes Cyprus government bond ratings

Editorial
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MOODY’S downgraded Cyprus’ bond ratings to B3 from Ba3, placing it six levels into junk territory, and has assigned a negative outlook to the ratings.

Moody’s also downgraded its ratings on three Cypriot banks to reflect the severity of the banks’ capital shortfalls owing to the firm’s expectations of acute asset-quality deterioration and funding pressures faced by the banks.

The Bank of Cyprus ratings were lowered by two notches to Caa1, placing it seven levels into junk territory, while the Cyprus Popular Bank ratings were cut by one notch to Caa1. The agency also downgraded the Hellenic Bank ratings by two notches to B3, six levels into junk territory. All three banks have negative outlooks.

Deteriorating conditions in Greece and Cyprus have weighed on the Cypriot banking sector. Moody’s said the main factor in its downgrade is the substantial increase in the amount of government support that Cypriot banks are likely to require.

Moody’s said the projected recapitalization costs have increased sharply in recent quarters due to the large asset quality deterioration that has been recorded in Cypriot banks’ domestic and Greek loan books, a trend that is expected to continue. The firm said the recapitalization needs of Cyprus’s three largest banks, should they materialize as projected in 2013, would raise the country’s debt to gross domestic product ratio to more than 140% of GDP. Moody’s said such a level may not be sustainable for a small economy with very weak expected GDP growth such as Cyprus.

The banking sector’s difficulties are also likely to reduce domestic credit growth and constrain the country’s growth potential over the next three to five years, Moody’s added. The firm said the Cypriot government, in order to address fiscal deterioration, will need to achieve substantial downward adjustments in its public-sector wage bill. However, the firm also noted the government’s previous record raises doubts about its ability to swiftly and vigorously implement such adjustments.

In June, Cyprus became the fifth member of the euro zone to formally request aid from its European partners and the International Monetary Fund to rescue its teetering bank system, which is heavily exposed to Greek debt.

Government hunts property fraudsters in Switzerland

Nigel Howarth
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THE GOVERNMENT is determined to bring Cypriot tax evaders to justice, particularly those holding bank accounts in Switzerland, according to state broadcaster CyBC.

It has been reported that President Christofias raised the issue with the Swiss president, Eveline Widmer-Schlumpf, during her recent visit to Cyprus.

The government is in negotiations with Switzerland and is seeking a British legal model agreement that will protect the anonymity of the clients; a method that secured Britain €4 billion from tax evaders.

Nicosia has already established an agreement with the Swiss government which brings in €100 million in taxes from accounts held by their Cypriot clients.

According to certain reports, the undeclared deposits of Cypriots in Switzerland concern illegal transfers during the 1999-2000 stock exchange scandal and a more recent property fraud scheme.

Government tax hike will hit small home owners

Nigel Howarth
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ONE of the suggestions made by the troika was that it wanted to see the Cyprus government collect an additional revenue of at least €20 billion from property taxation.

Although the Interior Minister Eleni Mavrou has gone on record as saying that small-time property owners would not be hit by a rise in property tax, the government is proposing to lower the threshold at which Immovable Property Tax becomes payable from €120,000 to €40,000. The revised tax tales are as follows:

Properties with an assessed 1980 value up to €40,000 will be exempt.
From  €40,000 to €120,000 – the proposed rate is 0.3%
From €120 000 to €170,000 – the proposed rate is 0.4%
From €170,000 to €300,000 – the proposed rate is 0.9%
From €300,000 to €500,000 – the proposed rate is 1.0%
From €500,000 to €800,000 – the proposed rate is 1.1%
For properties valued above €800,00 – the proposed rate is 1.2%

The government is also proposing that residential properties with a total area exceeding 300 square metres will be taxed automatically.

If implemented, many small-time property owners will find themselves caught in this tax hike contradicting assurances given by Interior Minister Eleni Mavrou.

No let-up in catastrophic sales downturn

Nigel Howarth
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RECORD levels of unemployment, lack of liquidity, the economic situation, uncertainty in the market and the Title Deed fiasco continue to depress the Cyprus property market.

According to the Troika’s estimates the number of houses for sale will reach 50,000; but the banks disagree, referring to this number as “outrageous”. In its draft memorandum to the Cyprus government, the Troika has made several suggestions that could help encourage both domestic and overseas sales, including: the establishment of a ‘bad bank’ to take over toxic assets, clearing the backlog of between 120,000 – 130,000 Title Deeds held up in the logjam and more effective Land Registry systems.

Sales contracts

During September a total of 442 contracts for the purchase of property were deposited at Land Registry offices across the island compared with 608 in September last year; a year-on-year fall of 27%.

Of those 442 contracts, 83% (365) were in favour of Cypriot buyers and 17% (77) were in favour of overseas buyers.

Domestic property sales

Overall 130 fewer properties were sold in September compared with the corresponding month last year; a fall of 26%.

Limassol was hardest hit with 80 fewer properties being sold (-51%). Sales in Nicosia sales fell by 63 (-51%), in Famagusta they were down 24 (-43%) and in Larnaca they fell by 3 (-10%).

However, the number of properties sold in Paphos went up by 40 (44%) compared with September 2011.

In the first nine months of 2012 sales to the domestic market stood at 3,846 compared with 4,007 in the same period last year; a drop of 130 (-26%).

Cyprus property sales September 2012 (domestic)

Overseas property sales

Overall sales in September were down by 36 (-32%) compared with the corresponding month last year and, with the exception of Limassol, sales were down in all districts.

In Famagusta, sales fell by 60% (-18). In Nicosia sales were down 50% (-6); in Larnaca they were down 44% (-6), while in Paphos they were down 14% (-5).

In Limassol, 17 properties were sold; an increase of 1 (6%) on the 16 sold during September 2011.

During the first nine months of 2012, sales of property to the overseas market stood at 1,030 compared with 1,310 sales during the first nine months of last year; a fall of 280 (-21%).

Cyprus property sales September 2012 (overseas)

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