Guilty of tax evasion unless you prove otherwise

Nigel Howarth
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14

IN virtually all civilised countries, the burden of proof rests with the person or organisation that lays charges against you; in other words, you are considered to be innocent until you have been proven guilty.

However in Cyprus, the reverse is true when it comes to paying your Property Transfer Fees at the Land Registry.

Using its discretionary powers to reassess Property Transfer Fees, the Land Registry relies on historical data to assess the market value of a property – and it will use that data as the basis for calculating the transfer fees to be paid by the purchaser.

The reason for the Land Registry’s reassessment, we are told, is that vendors and purchasers often under-declare the price of a property in efforts to defraud the state of much-needed tax revenues; by under-declaring the price, vendors reduce the amount of Capital Gains Tax they pay, while purchasers reduce their Property Transfer Fees. Of course for this fraud to take place both the vendor and the purchaser have to collude to deceive the authorities.

If the Land Registry considers that a purchaser has under-declared the property’s sale price, it will demand that he pays Property Transfer Fees based on their valuation (which incidentally is always higher that the declared sale price on the contract). The Land Registry is not required to say how it arrived at its valuation; the burden of proof rests with the accused (the buyer) to prove his innocence by showing that the Land Registry’s valuation is incorrect.

Strangely, the Inland Revenue Department does not re-assess the vendor’s Capital Gains Tax liability even though he must have colluded with purchasers to defraud the state.

To British property buyers, and others who have contacted me, this practice is a state sponsored rip-off and is typical of what you might find in less civilised countries in which corruption and nepotism are rife. It merely adds to the dissolution and anger felt by many who have purchased property in Cyprus and who have suffered at the hands of unscrupulous lawyers, developers and banks.

Have your say survey

IN an effort to assess the extent of the problem we are conducting a survey. If you are not Cypriot and have recently paid your Property Transfer Fees, we would like to know if you have been overcharged by the Land Registry and if so, by how much.

Please tick the appropriate button on the right under the ‘Have your say’ heading.

We shall be running this survey until the end of July. If any of your friends, relatives, acquaintances or colleagues have recently received their Title Deeds, please encourage them to take part in the survey.

Is help at hand with Title Deeds?

Patrick Dewhurst
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8

HUNDREDS of homeowners still without Title Deeds to their properties have handed over thousands of Euros in recent weeks to companies promising to provide them with their long-coveted ownership papers.

Three property firms – Buy Sell, Fotos Pittadjis and City Living – are asking for between €1,000 and €4,000 in return for helping owners who either live abroad or feel overwhelmed by the new legislation which supposedly simplifies and eases a procedure that has left around 100,000 foreign home owners without their Title Deeds.

The firms’ sales pitches have been met with scepticism and clear warnings from some industry observers on-line – some even decrying them as “preposterous” or “scams”.

Yet, as of Friday, 235 house buyers had signed up for the Buy Sell’s service, paying their first upfront instalment of €1000, with a total of €4,000 due when they receive the Title Deeds. Buy Sell’s 70-strong Title Deeds team expects to handle up to 2,000 applications.

Some people waiting 20 years for titles

Not surprisingly, this move had been unpopular with the developers.

In the past week Aristo Developers and the Cyprus Land and Building Developers Association (CLBDA) both issued statements advising purchasers to be cautious. At issue is the legal amendment, passed in May, which legalises minor building irregularities that until now were a major cause stalling the release of Title Deeds to the owners. It also lets purchasers apply for them.

The Interior Ministry’s Planning Amnesty Bulletin says that: “The right to activate necessary procedures for the legislation of the development… is extended – apart from the owner – to the purchaser (under certain conditions).”

“This (legal change) is a major development, since the absence of an independent Title Deed is extremely dangerous especially at this time and in light of the present financial crisis,” says the sales email pitch from Pittadjis, one of the companies offering to get Title Deeds for €3,000. So what do you get for your money?

According to Buy Sell’s Chris Hajikyriacou, you get a 99 percent chance of receiving your deeds for €4,000, however much it eventually costs Buy Sell.

“The procedure requires an architect or civil engineer to inspect the property for any illegalities or irregularities. Following their report an application will be made to the relevant authorities… for the issuing of the Title Deeds,” he said.

At the same time, Hajikyriacou said, Buy Sell’s “tax experts and accountants will commence with obtaining your Tax Clearance. Once all the necessary procedures have been completed the Title Deeds will be issued.”

Aristo Developers have been quick to criticise a service that encourages “property buyers to pay substantial amounts of money for services regarding assistance with the issuing of Title Deeds”.

“Aristo Developers would like to reassure all its clients that the company will assume all responsibilities regarding … Title Deeds thereby avoiding the unnecessary costs made to third parties,” the company said in paid advertisements in the local press. The CLBDA went further, advising buyers to “play it safe”: “Buyers should be warned that they may be trapped into additional expenses and contributions, which they may have already paid or are not necessary to pay.”

The strongest warning of all has come from local property expert and Cyprus Property News editor Nigel Howarth, who said the firms’ service charges are unrelated to the actual cost of securing Title Deeds.

The full cost, Howarth said, could include any of the following:

  • some of the developer’s mortgage on the land,
  • charges to correct any planning irregularities,
  • the developer’s tax liabilities,
  • the cost of a tax clearance certificate to the Land Registry and
  • property transfer fees to the Land Registry.

“Buyers wishing to recover these costs (excluding property transfer fees) may sue their developer. This will involve additional legal and court fees and there is no guarantee that the court will rule in their favour when their case is eventually heard,” he told the Sunday Mail.

Asked about these costs, Buy Sell marketing manager Chris Hajkyriacou said the company would cover them. “Buy Sell is not making any money on this… We are paying for all the costs of the developers, for the permits and for the certificate of final approval,” he said.

“People are fed up and don’t trust the developers… They are all talk – there are some people who have been waiting 20 years for their Title Deeds.” Even if these outside services can help owners secure deeds in cases of building irregularities, there remains the far thornier issue of those who bought property from developers holding mortgages on the development. In such cases the banks hold onto the Title Deeds until the developer clears his mortgage, even if the buyer has paid the developer for the property.

According to Howarth: “The main barrier… will undoubtedly be a developer’s mortgage that pre-dates the buyer’s contract of sale.” In such cases the developer’s bank will not release its charge on the property until that mortgage has been repaid.

“I know Buy Sell say that a buyer’s contract will take precedence over a developer’s mortgage, but this will only apply to sales that take place after the new law is implemented, it does not apply retrospectively to sales that have already taken place,” Howarth said.

Finally, the new law requires that the developer do all that is needed to secure deeds in a timely manner, including, where necessary, applying to have any planning infringements legalised.

If these infringements are severe, the private firms would have to cover the cost of a redesign.

Hajikyriakou said the firm would try to avoid taking on cases where the issuing of Title Deeds have stalled because of pre-existing mortgages, but that if they take a case they would cover all legal costs if the matter went to court. He said: “If developers refuse to transfer the property to the purchaser, we will arrange a court order… If it will cost €5,000 we will cover the last €1,000 out of our own pocket.”

For those who do not wish to chance it with the private agencies, you can make the application yourself and wait for the government to do the job for you.

This requires submission of a ‘Statement of Intent’ form before October this year, followed by a full application by April 7 2014, available from a Citizens Service Centre.

Use an independent lawyer not an ambulance chaser

Editorial
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8

WE have received the following letter from Roxburgh Investments, which is a firm that specialises in alternative investment strategies and property consultancy.

roxburgh logo large

Without Prejudice

Wednesday, 22 June 2011

Mr David Pollard
Fine & Country

If you have purchased a property in Cyprus over the last three years you may have recently received a letter from Mr David Pollard of Fine & Country. Upon first reading the letter is very concerning and has led to our office receiving a large number of calls from worried clients, agents and other interested parties.

Mr Pollard has made a number of statements with regard to construction sites, title deeds, banking and re-saleability of property. It should be noted that Mr Pollard does not work for and is not CEO of Fine & Country Cyprus. Fine & Country, who are a reputable brand in the European real estate market, have confirmed to us that they have cancelled Mr Pollard’s agency and contract for non-payment of fees. Fine & Country are not engaged in the mediation and litigation services offered by Mr Pollard and wish to distance themselves from the recent letters and emails sent using their logo without consent. Fine & Country no longer have any offices or agents in Cyprus.

Our representatives in Paphos visited the offices of Mr Pollard at 13 – 15 Queens Gardens, Tomb of the Kings Road, Paphos to interview him with regard to his actions only to discover that the premises have been vacated. Local enquiries lead us to believe that the office was abandoned some time ago.

Mr Pollard is looking to review people’s purchases and in the event of establishing some kind of issue or problem go on to help remedy the situation. This is obviously a commercial venture and he is looking to take fees from clients for his services. Mr Pollard is not a lawyer, surveyor, accountant, IFA or other suitably qualified professional to carry out such work. If you have any concerns with regard to any aspect of any property purchase, please do not engage the services of an ambulance chaser. If after discussion with your agent and any developer in question you still have any outstanding questions please ensure that you engage the services of an independent fully qualified and registered lawyer in the country where you purchased the property.

We trust that you find this information useful.

 

Jamie Dewar.
For Roxburgh Investments.

The British High Commission publishes a list of local lawyers who are able to give advice in English to British nationals for the convenience of enquirers.

No decision on proposals to hike property tax

Nigel Howarth
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6

GOVERNMENT plans to introduce a €1,000/annum tax on profitable companies for two years have been received positively by the Chamber of Commerce and Industry (KEVE).

The government estimates that if around 100,000 of the companies registered in Cyprus pay this tax it will result in an inflow of some €100 million/annum into the state’s coffers.

There are approximately 170,000 companies registered in Cyprus; 70% of these are foreign and 30% are Cypriot. But the tax will only be levied on those companies that have returned a profit in the last three years.

Plans to increase property taxes were also discussed, but no decision was reached. Chairman of the employers’ federation Filios Zahariades said that “There was a preliminary discussion, which we will continue to see how the immovable property tax will become better and fairer, and we will revisit the matter.”

At present:

  • Those who own property up to a value of €171 thousand do not pay Immovable Property Tax.
  • Those with properties valued between €171 thousand and €427 thousand pay 2.5‰
  • Those with properties valued between €427 and €854 thousand pay 3.5‰ and
  • Those with properties valued at €854 thousand and above pay 4‰.

Immovable Property Tax is calculated on the market value of the property as at 1st January 1980 and is paid annually to the Inland Revenue Department.

Last year, parliament rejected government proposals to raise an additional €80 to €100 million by increasing the Immovable Property Tax paid by some 1,800 of the Island’s largest land-owners.

Cyprus construction industry shows no sign of recovery

Poly Pantelides
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6

unemployed construction workersTHE CONSTRUCTION industry is showing no signs of economic recovery with activity levels remaining where they were a year ago, the Federation of Building Contractors Associations of Cyprus (OSEOK) warned yesterday.

Lack of demand, heavy competition within the industry, the financial crisis and difficulties obtaining loans to keep fluid capital are, in that order, the major problems ailing construction, OSEOK bosses said.

About 49 per cent of contractors said their business in the first three months of this year echoed the state of the industry in the same period last year.

A third of all Cypriot construction workers said they were out of work, a figure again comparable to that of a year ago.

OSEOK gathered the statistics in collaboration with RAI Consultants with the aim of creating a construction industry index for Cyprus.

“The impression we’re out of the financial crisis has been proven wrong,” said RAI’s Olympios Tomazou.

The researchers conducted island-wide questionnaires every three months in addition to monitoring and analysing market statistics such as contracts, sales and employment.

A total of nine per cent of all construction projects are currently frozen, only a slight improvement on the 13 per cent stalled at the beginning of 2010.

Contractors cited lack of demand and funding as reasons to pause works.

The district of Paphos initially fared the worst in early 2010 with a reported 69 per cent reduction in activity. Larnaca ranked second with 43 per cent and Nicosia was doing much better with 29 per cent reduction in industry activity.

By the first trimester of 2011, the situation in all cities somewhat equalised with a 47 per cent reduction for Paphos and Larnaca, 45 per cent in Nicosia, 41 per cent in Famagusta and Limassol faring a bit better at 35 per cent.

The construction industry index – a continuous project – aims to monitor development and the impact of external factors, such as the financial crisis.

House prices drop, bad loans rise

Stelios Orphanides
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3

PRICES of houses and apartments fell 2.5 per cent last year and property prices are expected to fall another 2.5 per cent this year as fewer Cypriots buy homes, the Central Bank has said.

Even though transactions involving foreign buyers rose 15.7 per cent in the first four months of 2011 compared to the same period last year, they will not be sufficient to offset the overall decline in demand, the Central Bank said in its semi-annual economic bulletin this week.

Prices for houses and apartments fell in the fourth quarter of 2010 2.6 per cent and 2.4 per cent respectively compared to the year before. The biggest drop in house prices was observed in Limassol where they fell 4.8 per cent. For apartments, the worst hit was Famagusta district where they fell 4.2 per cent.

Prices for commercial properties also fell, the Central Bank said. Offices were sold for 3.4 per cent less, while prices for shops and warehouses fell island-wide on average 2.5 per cent and 2.4 per cent respectively.

Rents for all categories of buildings fell in the last quarter last year. The steepest decline was for houses which fell 6.1 per cent last year followed by apartments with a 5.5 per cent drop. Rents for warehouses, shops and offices decreased 4.2 per cent, 3.8 per cent and 2.7 per cent respectively, according to the Central Bank of Cyprus.

As construction activity is also in decline, a further slump in the housing market could put Cyprus’ financial system at risk, the central bank acknowledges. This could in turn result in a further “notable” drop in home prices.

Even though such an event could lead to a drop in household wealth, and further threaten financial stability, the “likelihood remains low, although it rose slightly compared to 2010”, the supervisory authority of the banking system said.

While economic recovery remains “fragile”, bad loans are on the rise as households and companies alike are increasingly unable to service their debts.

Non-performing household loans rose in March to 8.4 per cent, up from 7.9 per cent the year before, according to the Central Bank. The share of company loans which had not been serviced for more than three months rose to 9.1 per cent in March from 7.4 per cent the year before.

The above figures do not include fully collateralised loans of more than three months in arrears. As foreclosures can take up to ten years in Cyprus, an inclusion of fully collateralised non-serviced loans in the bad loan statistics would result in higher figures.

Editor’s comment

THE Central Bank’s figures are somewhat out of line with those to come out of the RICS (Cyprus) Property Price Index.

The RICS figures showed that in 2010 prices of apartments and houses fell by 11.2% and 7.4% respectively, with an average falls over the year of more than 9%.

Worst hit areas were Paralimni/Famagusta, where apartment prices slumped 23.2% and Larnaca, where house prices fell by 13.2%.

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