State is way behind on building payments

Editorial
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4

Cyprus government accused of payment delays
BUILDING contractors are due a reported €200 million in repayments for jobs carried out for the state, with some reporting deliberate delays in inspecting the work in order to postpone payment further.

According to the head of the Federation of Associations of Building Contractors Cyprus (OSEOK), Nicos Kelepeshis, these delays have been taking place for a long time.

“The truth is we have been facing delays from the various authorities for a while now,” Kelepeshis told state broadcaster CyBC. “This isn’t something new; we are talking about final payments and settling of bills for work that was carried out and passed through the inspections, and for which an order was issued for payment.”

Money owed since 2008

He added, “We have examples that have taken years”.

Kelepeshis said things got much worse with the economic crisis. “We have money owed from 2008 until 2011, with the amounts being very high.”

In addition, contractors are also owed a lot of money in claims.

Asked to comment on reports that inspectors were given orders to delay checks so as to delay payments, Kelepeshis said: “We have such information, yes. It is clear that EU directives and the new law are being violated, concerning payment by the public sector to third parties. The 30 days that are provided by law (for settling public sector bills) have been surpassed for a while now, as have the 60 and 65 days. Now we are seeing 90 to 120 days, for a finished job to be paid for.”

British High Commission advises extreme caution

Editorial
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23

CYPRUS is a popular destination for British nationals wishing to retire or purchase a holiday home overseas.  Many British nationals have purchased property in Cyprus without too much difficulty.

However, the process of buying land or a property in Cyprus can have many potential pitfalls. The British High Commission advises potential purchasers to exercise extreme caution when buying a property if the title deeds are not readily available, as to do so means that your property could be at risk.

It is common practice for developers to take out mortgages on land or property. If you sign a contract with a developer and there is already a mortgage, loan or claim placed upon it by the developer or landowner, then you are likely to become liable for that mortgage should the builder, developer or landowner declare bankruptcy.

You should request that your lawyer checks for mortgages placed on the land. If you are made aware of a mortgage prior to signing a contract it is unlikely that you will obtain the deeds in your name until the mortgage is paid off. Lawyers are not required to check for mortgages automatically although good lawyers should do this as a matter of course.

In 2011 the Republic of Cyprus Government introduced a Specific Performance Law to give a contract of sale precedence over any pre-existing mortgage however we still strongly recommend that you check no mortgages have been placed on the land prior to purchase to ensure you do not run into potential difficulties at a later date.

Other issues most frequently raised by British nationals include:

  • Lawyers also acting for vendors or builders therefore not independent.
  • Building taking place without the correct planning permissions/building permits (e.g. electricity or water).
  • Fluctuations in currency and interest rates affecting mortgages.
  • Payment plans/fees not being included in the initial contract.
  •  Difficulty in obtaining certificates of final completion (without which deeds cannot be issued).
  • Difficulty in obtaining title deeds.
  • Difficulty in obtaining redress after problems are identified.

With all property purchases, we strongly recommend that you seek your own independent legal advice. A list of English speaking lawyers can be obtained through the lawyer’s link.

If you have purchased a property/land and are encountering difficulties, you should seek qualified independent legal advice on your rights and methods of redress.

The Foreign and Commonwealth Office and the British High Commission are not able to offer legal advice or become involved with disputes between private parties.  We can, however, direct British nationals to organisations who may be able to help and we can raise systemic issues with local authorities.

The High Commission publishes answers to Frequently Asked Questions about buying property.

You may also wish to check on the AIPP – Association of International Property Professionals website to see if the company/legal advisor you are wishing to deal with are members.

Crown Copyright 2012

Cyprus has a growing housing stock overhang

Fiona Mullen
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8

THE number of new dwellings constructed in Cyprus swelled from 70,094 in the ten-year period of 1991-2000 to 136,906 in 2001-10, marking an increase of 95%. Yet the number of households in the same period grew by only 71,100, or 31%.

This building boom also led to an even higher increase in the number of new dwellings that lay vacant.

Newly constructed vacant dwellings grew by 288% in the same period, from 5,246 in 1991-2000 to 20,364 in 2001-2010.

Even allowing for the fact that some dwellings were built to be used as holiday homes (these are itemised separately in the figures from vacant dwellings), one has to wonder why so much investment was poured into dud real estate.

Annual construction of new dwellings peaked at 19,200 in 2008, but had dropped to 10,098 by 2011.

Construction of new dwellings that were vacant also dropped from 3,562 in 2008 to 3,039 in 2010.

But they mysteriously rose again in 2011 to 4,722. What does this increase tell us?

One thing it tells us is that developers and their creditors must be eternal optimists.

The relationship between dwelling permits and dwellings constructed shows that new dwellings normally take around a year to construct.

The year 2010 was when Cyprus climbed out of recession and we all thought that the crisis was behind us.

Cyprus housholds and housing stock - 2001/2011

So although new dwellings authorised actually dropped in 2010, it looks like developers took the mild upswing as an encouragement to build more, resulting in a higher number of new vacant dwellings in 2011.

Unfortunately all this has done is to have left us with a big overhang of housing stock.

In 2011 we had a total housing stock of 431,059 but only 309,300 households to fill them.

Yet ten years earlier, in 2001, we had a total housing stock of 294,143 and total households of 229,000 – just enough spare for the few tourists who decide to buy.

With Europe in the doldrums, these dwellings are likely to remain empty, and getting crumblier and uglier by the day, for the foreseeable future.

So maybe next time developers and bankers get excited about a real estate upswing, someone should tell them to call an economist.

Fiona Mullen
www.sapientaeconomics.com

Cyprus Bar Association fails to deliver justice

Editorial
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21

WITH considerable interest, I recently read an article on your website headed: no chance to complain about Cyprus lawyers.

I must be one of the ‘lucky’ ones who had my complaint heard and upheld by the (Cyprus Bar Association’s) disciplinary board. I made a formal complaint against a Paphos-based advocate on April 20, 2009 and I was present at a meeting of the disciplinary board on December 1, 2010, presided over and chaired by the president of the Bar Association Doros Ioannides.

The board upheld my complaint and ordered the lawyer to repay €7,500 within 90 days from the date of the hearing. Needless to say, I did not receive the money, and having informed Mr Ioannides that the amount remained unpaid, he subsequently confirmed to me that the lawyer had been ordered to reappear at a further disciplinary hearing on March 30, 2011.

I subsequently phoned Mr Ioannides to establish the outcome of the second hearing at the lawyer was asked to explain why she had not made the payment to me. He told me that he was not at liberty to disclose the findings of the hearing but that I was in a similar position to many other clients of the same lawyer.

To this day, I have never again heard from anybody within the disciplinary board or the Cyprus Bar Association. Mr Ioannides continues as president and the lawyer continues as an advocate in her Paphos practice. So much for Cypriot justice.

Thomas Murphy, Paphos

Judgement day for banks approaching?

Alan Lawton
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11

IN 2009 the Central Bank of Cyprus issued a circular asking banks to register new loans granted for the restructuring of existing ones in an attempt to prevent what it referred to as the “fictitious restructuring of loans”.

The circular confirmed reports that banks were “redeploying” existing loans that are not being serviced before the 90 days to avoid them being considered as nonperforming. The bankers’ actions allegedly focused on the construction and real estate sector, where hundred of businesses were left exposed.

Recently, Troika inspectors have been collecting data in efforts to assess how much money Cyprus will need for a bailout – and one of the issues concerning the banks is the way that nonperforming loans are defined.

According to the International Monetary Fund (IMF) “A loan is nonperforming when payments of interest and/or principal are past due by 90 days or more, or interest payments equal to 90 days or more have been capitalized, refinanced, or delayed by agreement, or payments are less than 90 days overdue, but there are other good reasons – such as a debtor filing for bankruptcy – to doubt that payments will be made in full.

“After a loan is classified as nonperforming, it (and/or any replacement loans(s)) should remain classified as such until written off or payments of interest and/or principal are received on this or subsequent loans that replace the original”.

However, it now appears that the banks in Cyprus do not count loans that are fully secure as being nonperforming even though they have not been serviced for 90 days.

If the Troika treats these so-called ‘fully secured’ loans as nonperforming, the banks will need considerably more from the state for their recapitalisation. There are also loans backed by real estate and by shares whose values today are a great deal lower when the loan agreements were made.

(We have reported previously that although the Central Bank’s Property Price Index shows a fall in residential property prices of 8.3% over the past two years, anecdotal evidence suggests that the decrease is at least double that figure, while property prices in the once popular tourist resorts have fallen by as much as 40%).

In an interview with the Sunday Mail, former president George Vassiliou said that if provisions are made for all of these loans, several more billions would be needed and “you are simply making sure that Cyprus would never recover.”

It is like getting blood from a stone

Editorial
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25

MY wife and I sold our house in England in April 2005. We purchased a house in Liopetri on the east side of the island. We both enjoyed our life there for nearly four years.

The pull of our family back in England grew stronger with the birth of our second great grandchild. We decided after many weeks of ‘will we or won’t we’, to move back to England.

We placed the house sale in the hands of an estate agent. Because of the situation with the recession we knew it would take some time to sell.

Finally it sold last year in May 2011. That’s when all my problems started. There was no contact from anyone in Cyprus unless I contacted them first. No one in the office did, nor would tell me about my funds. I knew the lawyers in Paralimni had my funds in their account by early August.

After more excuses and lies I found myself emailing their office three or four times daily. I became so worried about my funds that I contacted and employed another lawyer to find and collect the money.

A few days after the investigation started I received an email from the lawyer who I believe was keeping my funds illegally. He said I would receive my funds in three separate instalments. They did pay – two payments before, and the third after Christmas.

Then another email came saying he would pay me the interest lost on my funds due to the delay in transferring the money. The invoice for retrieving my funds came to €3,500, money well spent even though I could ill afford it.

What happened to my funds before they reached me is criminal. I just want this to end so we both can get back to our normal lives. I am only asking for the money I was forced to spend to retrieve my funds and the bank interest that was promised. One of the worst things was that the purchaser of my property lived in my house for months before I had my funds.

I have spoken to the Cyprus Bar Association disciplinary Board of Advocates and have said they will take on my case at my say so. All I want is an apology and the money lost.

Martin Brough, UK

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