Are we about to meet our NAMAsis?

Nigel Howarth
-
4
Are we about to meet our NAMAsis?

TROIKA’S draft proposals entitled “The economic adjustment program for Cyprus” contain several suggestions that will have a significant impact on the island’s property market.

One of their key proposals is the establishment of a “Cyprus Asset Management Company” (CAMC). This sounds very similar to Ireland’s “National Asset Management Agency” (NAMA), which was set up to address the serious problems that hit the country’s banking sector as the result of excessive property lending. NAMA acquired land and development and loans with a nominal value of €74 billion and is currently on-track to repay €7.5 billion of bond debt by the end of next year.

Troika proposes that CAMC will ‘buy’ non-performing and non-core assets at their real (long term) economic value and its objective will be to maximize the recovery value of those assets over the medium term.

As part of its funding strategy, CAMC will have the capacity to issue bonds that are guaranteed by the State. In exchange for the assets, the banks will receive a suitably small equity participation by CAMC, bonds issued by CAMC, cash and/or high quality securities.

Nonperforming loan recovery

The Troika also proposes that Cyprus should amend its legislation to maximize bank recovery rates for non-performing loans and that the legislative framework currently constraining the seizure and sale of loan collateral will be amended such that the property pledged as collateral can be seized and offered for sale within a maximum time-span of 18 months.

It also calls of the island’s Central Bank to immediately amend its classification of nonperforming loans to include all loans past due by more than 90 days.

Property taxation

Regarding property taxation, the Troika wants to see additional revenue of at least €20 billion. (The Interior Minister, Eleni Mavrou, has stressed that small-time property owners will not be hit by this tax rise in her recent statements to the media).

Title Deeds

The Troika suggests that Cyprus:

  • Strengthens existing enforcement procedures and, if necessary, plans for additional legal measures to ensure the issuance of the remaining outstanding Title Deeds by Q4-2013.
  • Provides a monthly review of the town planning amnesty, and plans for additional incentives to reduce the majority of pending building permit certificates that are required for the insurance of Title Deeds by Q3-2012.
  • Implements consolidated electronic access to the registries of Title Deeds, mortgages, sales contracts and cadastre by Q3-2013.
  • Reports on a possible legal basis and regulation to produce a unified land registry (of immovable property sales contracts, Title Deeds, and mortgages) and a registry of indefeasible property rights [Q4-2012].

During its investigation, the Troika concluded that many of the problems in the island’s banking sector are home-grown and relate to over-expansion in the property market (as the case in Ireland and Spain).

A formal government response to the Troika proposals is anticipated in the coming days.

Further Reading

The Troika draft proposals “The economic adjustment program for Cyprus”

“Can Cyprus Benefit from the Irish Experience” by Denis O’Hare

 

Cyprus real estate: Is PAMELA coming for a visit?

Pavlos Loizou MRICS VRS
-
1

THE CYPRUS government is slowly, but surely, following the footsteps of the five other countries before it, preparing itself to sign the bailout agreement with the “Troika” comprised of the EU, the ECB, and the IMF.

The choreography has been pretty much the same as that of the other countries, but this dance partner has been particularly ‘bad’ as it keeps changing its mind if it wants to dance or not. Whilst it has been obvious for many months that this day was coming, the government and politicians in general, have been postponing the decision as no one wants to carry the political cost of agreeing to it. Looking at the election results of incumbent governments who have agreed to a bailout, it is clear that they are making the right choice; but only for them and for no one else.

The draft of the agreement is titled “The Economic Adjustment Program for Cyprus“, but a way to think about it is losing weight in order to fit into a tight pair of jeans. You spent the last while consuming copious amount of resources using borrowed money lent to you by various banks and COOPs, and now it’s time to pay it back. This can only be achieved by a combination of diet, i.e. cutting back on salaries and social welfare programmes and increasing taxes, and exercise, i.e. economic growth as a result of more efficient procedures and a better functioning and more equalitarian marketplace. Whilst you may end up looking good in them, the pain of getting there is already evident in the social unrest and anti-austerity demonstrations in Portugal, Spain and Greece.

Over the next few months, government sector salaries will be reduced, VAT and property taxes will increase, and new taxes will be levied on consumer goods like petrol, alcohol and tobacco.

The resulting effect, through the multiplier effect, will be significantly higher as consumption expenditure decreases. The banking sector will be quick to follow suit, as will some other private sector companies jumping onto the bandwagon. Non-performing loans are likely to rise further, as the impact of a decrease in disposable income hurts businesses and puts additional financial strain on household budgets. This may end up becoming a self-fulfilling and self-fuelling negative feedback loop, increasing the economic strain further.

The big change in the banking and property industries will come through the creation of the Cyprus Asset Management Company (CAMC). This company, similar to the Irish National Asset Management Agency (NAMA), will have as its purpose to resolve the problem of banks and COOPs having so many bad assets and to reduce the financial sector’s exposure to non-performing and non-core assets. The company will ‘acquire’ loans from the various credit institutions which have received or will receive aid from the government, and will attempt to maximise the recovery of “value” (money) from the various assets having a medium to long-term perspective.

The role of this state-run organisation will be to asset manage the various loans (and their collateral) and progressively begin disposing of these assets in order for the government to recover some of the money it provided as aid to the credit institutions.

If things to come follow a similar path to Ireland, then the first to be affected will be property developers and construction companies, followed by real estate investors, and lastly people who owe money on their permanent residence. The aim will be to keep the social impact of this “value recovery” to a minimum, but at the same time show that action is been taken to “put things right”.

The CAMC’s challenge will be to increase the value of the assets by applying technical skills, in-depth market knowledge, additional investment, plus risk acceptance, and all for an expected higher price down the road. It involves tough decisions – some of which will be unpopular or ‘wrong’ or ‘questionable’ in hindsight or through the media lens.

The CAMC could end up stuck with many assets which will not sell at a price that is deemed “acceptable”. Thus, the only choice will be to hold them and to try to add value during this period. This takes time and skilled resources and incurs significant risks. However, by taking the active workout route the CAMC could be rewarded by an eventual higher price or in the worst case, simply preserve value.

Given how the Cyprus government has performed to date, we do not think that Pamela will be coming to visit any time soon. PAMELA stands for “Proper Asset Management of Estates, Loans and other Assets”, and somehow proper management and Cyprus seem not to be able to go hand-in-hand. We can only hope that we are wrong in our assessment, as the CAMC will soon form a significant player in Cyprus’ property market and its involvement will span all sectors and sub-markets for quite a number of years. If the government uses the CAMC to minimise the impact of the financial crisis on society, then the Troika would have achieved its goal.

If however, it is left to grow into a bureaucratic and arteriosclerotic behemoth, then the Cypriot government is now planting the seeds of yet another “white elephant” which will create market distortions and hamper growth and private initiatives.

About the author

Pavlos Loizou MRICS is the lead consultant at Leaf Research

Leaf Research is a real estate consulting firm, providing high quality real estate market research, strategic consultancy, valuation, and financial modelling.

Leaf Research provides consultancy services to individuals and to a wide range of corporate clients, including financial institutions and investors. It undertakes projects relating to residential and commercial real estate, and specialise in alternative types of real estate, carrying out work in the areas of tourism & leisure, health & wellness, education, and renewable energy projects.

Discrimination against non-Cypriot estate agents

Nigel Howarth
-
16

ALTHOUGH the Cyprus law was changed in 2010 to open the doors to European estate agents wishing to practice in Cyprus, non-Cypriots EU citizens wishing to establish an estate agency on the island find that their applications are often refused.

These non-Cypriots EU citizens have the relevant qualifications, have run estate agency business in their home countries for many years and some are members of internationally recognised bodies such as FIABCI (The International Real Estate Federation).

The Cypriot authorities have given various reasons for not granting them licences and some claim they have been trapped in ‘sting’ operations and summonsed to appear in court.

One foreigner, frustrated at having been refused a real estate licence on several occasions, complained to Your Europe Advice and received the following reply.

It is not illegal under EU law to require a UK real estate agent to join the real estate association in Cyprus and it is possible to impose conditions on EU citizens who what to practice the profession of real estate agent in Cyprus.

However, the conditions which one must currently fulfil in order to be included in the registry of real estate agents in Cyprus discriminate against non-Cypriot EU citizens and do not conform with EU law.

In particular, in order to be included on the register of real estate agents in Cyprus and be able to practice the profession one must:

  • have a degree of three years duration or equivalent part time from a university or other higher education institution on subjects relevant to real estate; AND
  • have worked as a trainee in Cyprus for 1 year and be included in the real estate agents’ trainee registry; AND
  • pass a written test on Cypriot legislation in the field of real estate.

The first of these conditions is unproblematic, the latter two, however, the way they are currently applied, violate EU law (namely Directive 2005/36 on the recognition of professional qualifications).

What would be permissible is to require that someone has completed a traineeship anywhere in the EU as part of obtaining their professional qualification as real estate agent.

As regards an exam, it is possible to ask someone to do one, but only if their professional qualifications obtained in another EU Member State differ greatly from those required to practice in Cyprus, for example if one does not have a university degree or the requisite professional experience.

It is not compliant with EU law to impose an exam as a general requirement on everybody who wants to practice as a real estate agent in Cyprus.

The European Commission has already received complaints from citizens about this and agrees with our analysis that these conditions violate EU law.

The Commission has contacted the Cypriot authorities earlier this year as regards this issue and is currently awaiting their response. Although the proceedings currently are at an informal stage, if the Commission is not satisfied with the response of the Cypriot authorities they can start formal infringement proceedings against Cyprus which could ultimately result in the Commission taking Cyprus to the Court of Justice of the EU, if the violation is not ended in the meantime.

As regards the fact that the application form is in Greek only, this is not something which is illegal under EU law. Member States are not obliged to offer official documents and administrative procedures in English or in any other particular language.

It is normal and not illegal that national authorities and administrative bodies such as the association that regulates the profession of real estate agents in Cyprus function in the official language(s) of the Member State in question.

The same goes for any aptitude test which is imposed upon applicants – the association of real estate agents is not obliged to offer it in English (it must however, respect EU law and not apply such a test to everyone who applies but only those whose qualifications are deemed insufficient).

What the Cypriot authorities cannot do is require you to speak Greek at a certain level and take a language test when that is not necessary for you to practice your profession.

If you would like to take action challenging the violations of EU law described above there are various steps you could take.

As a first step, you could contact SOLVIT. SOLVIT is a problem solving network in which EU Member States work together to solve without legal proceedings problems caused by the misapplication of EU Internal Market law by public authorities. The service is free.

There is one SOLVIT centre in every EU Member State. SOLVIT will make an assessment of your case and if they determine that they can help they would contact the authorities on your behalf and aim to find a solution within 10 weeks.

You can find the contact details and more information on Solvit at:

http://ec.europa.eu/solvit/site/index_en.htm

Other possible courses of action, (which would, however, take longer) are:

Make a complaint directly to the European Commission. You can use the special complaint form at http://ec.europa.eu/eu_law/your_rights/your_rights_forms_en.htm.

Although the Commission is already taking action on this, making a complaint will mean that you stay informed as to any developments on this matter.

Challenge the conduct of the relevant authority before the Cypriot national courts claiming breach of EU law. The judge will have to apply EU law may then find that the Cypriot rules on real estate agents do not comply with it. If you decide to take this course of action the Cyprus Bar Association should be able to point you to lawyer who may be able to help. You can contact them at:

Address: Florinis 11, off.101, 1st Floor 1065, Nicosia P.O.Box. 21446 1508, Nicosia – Cyprus

Tel: +357 22873300
Fax: +357 22873013
E-mail: [email protected]
E-mail: [email protected]
Website: www.cyprusbarassociation.org

Please note that these procedures could take a long time and that SOLVIT may be able to help much faster.

If you wish to consult Directive 2005/36 you can find the text at:

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CONSLEG:2005L0036:20110324:EN:PDF

See also the European Commission’s website on the Directive http://ec.europa.eu/internal_market/qualifications/directive_in_practice/index_en.htm which contains a very useful User Guide on how this law is applied http://ec.europa.eu/internal_market/qualifications/docs/guide/users_guide_en.pdf

We remain at your disposal for any further question you may have regarding your rights within the EU.

With our best wishes,

Your Europe Advice

(At the present time, the Cyprus Real Estate Association website doesn’t list a single non-Cypriot EU citizen among its 154 registered members).

Cyprus protest at Birmingham property exhibition

Nigel Howarth
-
16

Cyprus protest
PROTESTORS from around the UK braved the chill autumn weather and converged on the NEC Birmingham and greeted visitors to the ‘A Place in the Sun’ exhibition to raise awareness of the potential problems associated with buying property in Cyprus.

Those taking part in the demonstration believe they have been mis-lead and cheated by estate agents, financial consultants, developers, lawyers and bankers in Cyprus and the UK.

The plight of some of the protestors was the subject of a BBC TV documentary broadcast last year that investigated a 500 million pound property scheme that had turned sour. Many hundreds involved in that scheme and others caught in similar schemes are now taking legal action in efforts to recover their money.

The protesters discussed the potential pitfalls of buying off-plan properties with visitors to the exhibition and handed out leaflets warning of the possible dangers.

Organised in conjunction with the popular Channel 4 TV programme, ‘A Place in the Sun Live’ claims to be ‘the UK’s biggest and best-attended overseas property exhibition’.

Over 100 agents and developers selling property attended the exhibition; those promoting Cyprus included: 21st Century Overseas, Aristo Developers, Moving Earth Construction and Sold on Cyprus.

The three day protest passed without incident.

Cyprus property agents talk up Chinese interest

Susie Watkins
-
8

ONE hundred home sales in as many days on a tiny island in the Mediterranean? For sale signs being hurriedly translated into Chinese?

While the goddess of love and beauty, Aphrodite, might have bestowed those gifts on her birthplace, Cyprus, reports that the island has suddenly become a magnet for Chinese investment appear a little mythical.

According to the latest figures, real estate prices have tumbled by 7.6 per cent year on year, while the number of completed sales last month was down 15 per cent since 2011. That is an annual decline of 47 per cent and the biggest fall since foreign and domestic buying habits were first recorded back in 2000.

With such a cloudy outlook, who can blame some agents in Cyprus for perhaps embellishing the interest being shown by Chinese investors, following an acceleration of the terms some overseas buyers can gain residency permits.

Cyprus, which has long been considered as occupying the crossroads of Europe and the Middle East, and a trading post to Africa, revised its law in 2007 to allow non-European Union (EU) nationals who buy properties worth over €300,000 (HK$2.98 million) automatic and permanent, yet flexible, residency permits.

Now the policy has been accelerated and, with Spain and Malta tightening their residency rules, Cyprus is one of the few places in Europe where Chinese nationals – provided they invest €50,000 in a bank account for three years – can automatically get permits. Cyprus, which joined the EU in 2004, has long been a favourite for Russian investors, but there are signs that Asian investment is stepping up.

Property developer Cybarco, which is developing several luxury builds on the island and selling the portfolio with the respected global player Knight Frank, is behind the country’s first residential marina development in Limassol, which is offering docking for 650 yachts and apartments from €428,000. It is also working on a project along the unspoilt northwest coast of Cyprus, Akamas Bay Villas, which is already 70 per cent sold, many to buyers from China.

CEO Michalis Hadji­panayiotou says: “The Russians are not moving out, but the flow from China started recently. The Chinese are mainly interested in seaside locations; Limassol, in particular, remains the ideal city for purchasing permanent or holiday homes, but also for investing in commercial properties or office spaces.”

A bonus to investing in Cyprus is that Chinese nationals can get their children into universities with a lower number of credits, and that Chinese Cyprus permanent residence holders have unrestricted travel rights to Hong Kong and Macau.

The island, with its 330 days of sunshine a year, low crime rate and lowest European corporate tax rate of 10 per cent, certainly has much to offer, admits independent property adviser Nigel Howarth.

“It is certainly a lovely place to live. But reports of a mass influx of investment should be read cautiously. And at the lower end of the market there are thousands of holiday apartments that have not been completed and values have fallen, in some cases by up to 50 per cent.”

Howarth, who publishes reports and advisories on housing and economic news from the island, says that the geographic location of Cyprus is critical. “It is an important axis point for East meeting Europe, there is an excellent port and some lovely parts to the island, but you would have to be very naive to believe all the reports of a boom.”

There clearly is something going on in this tiny island. Although a multimillion dollar plan by a Chinese consortium, Far Eastern Phoenix, to develop the old Larnaca airport into a commercial showroom for Chinese products and a logistics centre has collapsed, there is a major charm offensive under way.

One of the most spectacular developments ever seen on the island has already attracted interest from China. Although the price is only an application, rumours abound that you will need over €20 million to buy the Santa Barbara Residence, being built by Cypriot developer Country Rose.

The director of the development is coy about interest, and the price, but says that a number of Chinese buyers have been in touch. Situated at East Beach, a short distance from Limassol, the residence may have five floors named after mythical gods, but is a showcase to all that a modern and discerning owner may desire. The residence has its own spa, complete with a snow cabin and steam geyser, a wine cellar carved into the rocks and a dining room that has wrap­around views of the sea.

But, as Howarth warns, even the most astute investors should be careful. Estimates put the number of properties in Cyprus without title deeds at up to 130,000, staggering considering there are only 900,000 people living on the island, and that it is far from unusual for the unsuspecting to buy homes which are built on land which is not owned by the developer.

Legal battle looms over Cyprus homes

David Budworth
-
15

MORE than a thousand Britons threat­ened with repossession after buying a “dream” property in the sun are prepar­ing to fight one of Greece’s largest banks in the courts.

The borrowers who bought holiday homes in Cyprus are battling to protect not just their Cypriot property but their family homes in the UK, as the lender, Alpha Bank, threatens to take back the keys. Their fate and the legal battle they face is a warning to anyone buy­ing a property abroad, especially using a mortgage in a foreign currency.

They were victims of the hard sell to buy in Cyprus with a mortgage denomi­nated in Swiss francs at the peak of the island’s housing boom. Swiss franc loans were sold to tens of thousands of Britons and locals by Cypriot banks and their agents in 2007 and early 2008, as the interest rate was much low­er than that available in the Cyprus pound (which became the Euro in Janu­ary 2008) or sterling. Borrowers were asked to pay about 8 per cent on mort­gages in Cyprus pounds or Euros while Swiss franc loans offered rates of about half that.

With hindsight, borrowers piled into Swiss franc mortgages at exactly the wrong time. Foreign currency loans come with huge risks, as mortgage re­payments and the loan value in sterling fluctuate with exchange-rate move­ments. Cyprus’ housing boom oc­curred just before the credit crisis struck, which caused the Swiss franc to appreciate against currencies world­wide as investors sought to benefit from its reputation as a safe haven. In September 2007 the pound was worth SwFr 2.36. Now it is valued at SwFr 1.52.

The threat of repossession in Cyprus is a reality for hundreds of borrowers

This means that the repayments on mortgages have risen in sterling terms. You would need around £424 to cover a monthly repayment of SwFr 1,000 at an exchange rate of SwFr 2.36 to the pound. At SwFr 1.52 to the pound, your sterling repayment would be closer to £658 a month. The banks have made matters worse by increasing rates, meaning that many borrowers have watched in horror as their payments have doubled.

When Times Money first reported on the plight of the Cyprus property victims (“Foreign currency mortgages turn sour, leaving Brits facing reposses­sion” July 2, 2011) many were at their wits’ end but still managing to pay their loans. Since then, the crisis has escalat­ed, with the threat of repossession be­coming a reality for hundreds who have halted their mortgage payments.

Alpha Bank Cyprus, a subsidiary of Greek’s third biggest bank, has been serving writs demanding borrowers, or a lawyer representing them, appear in the District Court of Nicosia within ten days or judgment will be given in their absence. Some of the Britons affected would dearly love to hand back their keys and walk away, but fear being pur­sued for debts in the UK, and therefore have decided to fight for justice.

Gareth Fatchett, a solicitor at Regula­tory Legal, which is acting for 750 homeowners, says: “If they do not fight they will face a judgment in Cyprus and the property will be sold but there will probably still be a debt. The bank can then pursue money through the courts in the UK, putting the debtors’ assets, including their homes in Britain, at risk. This is a Waterloo moment for everyone because they are going to have to fight this.”

The plight of the borrowers has been heightened by the collapse of the Cyprus property market. According to the Central Bank of Cyprus, property prices are down by 15 per cent over the past four years. The franc’s apprecia­tion has also increased the sterling cost of debt. A SwFr 100,000 mortgage would be worth about £42,400 at SwFr 2.36 to the pound. With the franc at SwFr 1.52 to the pound, its value will have increased to about £65,800. Alpha Bank argues that borrowers were asked to sign all the relevant legal documents, including declaration let­ters acknowledging that they fully un­derstood the risks involved in borrow­ing in Swiss francs.

But Neil Heaney of Judicare, another law firm representing hun­dreds of Cyprus victims, says: “There are irregularities and issues with many of the loan documents. Many were signed by lawyers who were given power of attorney but these were not certified properly. This could invali­date the loan agreement.”

Others are fighting on the basis of fraud, claiming that the bank colluded with developers. In the case of off-plan developments bought before they are built, money is released from the bank in tranches as the build progresses. They say that the bank signed off pay­ments before their apartments were at the appropriate stage.

Meanwhile, borrowers who have tried to renegotiate their loan with the bank and keep matters out of court say that their attempts have been quashed (see case study). It is likely to be at least 2014 before any of the cases are heard.

We lost our retirement package

Case study

Trevor Holdsworth rues the day in 2007 that he attended a property fair in King’s Hall, Belfast, and decided that Cyprus was the place to buy an apartment for he and his wife Fiona’s retirement.

He went on a three-day trip to Paphos intending to buy one apartment outright but was persuaded to buy a second with a loan.

Mr Holdsworth, who works for the Police Service of Northern Ireland, was introduced to a solicitor, who signed documents for a Swiss franc mortgage from Alpha Bank.

However, rather than taking out a loan on just one property, it was split between the two. As the Swiss franc has appreciated Mr Holdsworth’s mortgage payment has jumped from €400 to €900, and both of the apartments are now in negative equity. Last year Mr Holdsworth, 56, attempted to renegotiate the deal, converting to a euro loan while offering provisos that would ensure the bank would not lose out. However, his pleas were ignored. The couple has now appointed Judicare to act on their behalf, claiming mis-selling.

Mr Holdsworth says: “We have lost our entire retirement package.”

1...473474475...695Page 474 of 695