Banks face more serious risks says CPAG

Stelios Orphanides
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CYPRUS BANKS may be exposed to greater risks in the property market than those reported by rating agency Moody’s last week, according to the leader of the Cyprus Property Action Group.

As the 8 percent rebound of real estate transactions in the first ten months of the year indicates only a sluggish recovery of Cyprus’ property market, buyers left with no Title Deeds because their properties have been mortgaged by developers have no possibility to resell, said Denis O’Hare. This comes after the island’s property market saw prices fall 8 percent in 2009, which the Central Bank says may fall a further 4 percent this year.

This price decline will put additional pressure on Cyprus banks, according to Moody’s. The exposure of Cyprus’ banking system to the real estate sector was 20 percent on corporate loans totalling €20.1 million in March, according to the Central Bank. This ratio translates into over €5.7 billion of total real estate debt in March this year, down from €6.3 billion a year before. This 8.8 percent annual decline followed a 66 percent increase in March 2009 compared to the year before.

Cyprus’ banks may face additional risks in the form of fines based on provisions of the European Unfair Commercial Practices Directive. This was transposed into national law in July 2007 and states that it is a violation for a business to omit or hide material facts from buyers, which if had been made known would have influenced the buyer’s purchasing decision.

Violators face a fine of up to 5 percent of their annual turnover or €256,290. In addition, preventing the Competition and Consumer Protection Service of the Ministry of Commerce, responsible for the implementation of the legislation, is an offence punishable with a fine of €85,430 or a six-month prison sentence or both.

O’Hare said the banks have violated the consumer protection law in question. “The banks that have a loan agreement with a property buyer are supposed to inform the buyer about material facts. As they know that the developers have mortgages on them” and “first priority” in foreclosures if the developer’s mortgage turns in to a bad loan, he said.

The CPAG leader said there has been evidence of banks “trying to cover their reckless lending by rescheduling loans and handing out even more money,” a practice that led to the intervention of the Central Bank. The latter asked commercial banks to “act within the rules for declaring and reporting non-performing loans. What is now crystal clear is that this orgy of lending has created a toxic debt time bomb for the banks with the developers unable to service the debt because of the world recession“.

Downward spiral

Non-performing loans to Cyprus’ real estate sector as a percentage of total real estate loans rose to 4.4 percent in March from 4.2 percent a year before, or to €251.3 million from €231.8 million, according to the Central Bank. This translates to an increase of 8.4 percent in bad loans in the real estate sector.

O’Hare warned that unless the government acts now to prevent a “downward spiral” of the property market the banks will be left with “many collateral properties with highly inflated debt on them” which cannot be resold.

“Local buyers who are struggling with mortgage repayments could cite the EU law which made it an offence for the bank not to inform them of any developer mortgage and simply cease to pay it while they seek redress. In addition, foreign buyers who were sold property investments using buyer mortgages will have reason to just walk away from these bad investments. This will mean that even more developers will go bust,” the CPAG leader said.

Banks face more serious risks says CPAG

Overseas sales maintain slow recovery

Nigel Howarth
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ACCORDING to the Land Registry figures published on Wednesday, the number of contracts of sale deposited at Land Registries throughout Cyprus on behalf of overseas buyers during October was 191 compared to 180 in September and 117 in October 2009.

Last month, the number of properties purchased by overseas buyers increased in all Districts. The best performing District was Famagusta, where sales were up by 119% compared to last year. This was followed by Larnaca, where sales were up by 100%, then Paphos up by 61%, followed by Limassol up 40% and finally in Nicosia where sales were up 23% compared to the numbers sold in October last year.

Nationally, the number of properties sold to overseas buyers during the first 10 months of 2010 was 1,593; up by nearly 8% on the 1,480 sold during the same period last year (but down by more than 50% on the 6,118 sold during the first 10 months of 2008).

Sales of Cyprus property to overseas buyers - October 2010
Source: Department of Lands and Surveys

Although total sales are heightening fears of a much longer crisis in the Island’s property industry, it appears that efforts to attract overseas buyers from Russia, the Arabic countries and Iran may be paying dividends.

State to appeal O’Dwyer decision and sentence

George Psyllides
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THE Attorney-general will appeal a court decision and the sentence handed down in the assault of a British national by a developer following a dispute over a property.

On Wednesday, a Paralimni court sentenced property developers, Christoforos Karayiannas, 55 and his son Marios, 35, to a 10-month jail term that was however suspended for two years for assaulting Conor O’Dwyer in 2008.

A third man involved in the incident, 31-year-old Charalambos Ttigis was fined €3,000.

The court found the trio guilty last month of assaulting O’Dwyer and causing actual bodily harm (ABH) – and not the more serious grievous bodily harm (GBH) count, the state had charged them with

State prosecutor Thanasis Papanicolaou told the Cyprus Mail yesterday that the state will appeal. “I have been authorised by the Attorney-general to file an appeal for both the decision and the sentence,” Papanicolaou said. He added that this would be done in the next few days.

Papanicolaou stressed, that the fact that the plaintiff was British did not make any difference to the state.

“Every person has rights in the Republic of Cyprus, whether they are Cypriots, foreigners, EU nationals or third country nationals,” he said. “The Attorney- general’s position is that nothing changes because he is British or any other nationality. Justice is for all.”

The GBH charge carries a maximum of seven years in jail while ABH goes up to three years.

In her decision on October 27, Judge Evi Antoniou said O’Dwyer – when he testified during the trial – was “excessive in most points.”

“He was stressed, lost his temper, and through his testimony it became evident that the only thing he wanted was the punishment of the defendants,” the judge said. “This led him to numerous contradictions in his testimony.”

During sentencing, the judge said she accepted the position that Christoforos and Marios Karayiannas had been repeatedly provoked by the plaintiff. “Recording most of the conversations the plaintiff had with defendant One without him knowing … publishing the conversations on the Internet, the claims of the plaintiff that defendants One and Two are liars and they mislead people, and publishing these claims as well as harassing” the defendants’ clients “cannot be ignored,” the judge said.

“The plaintiff’s behaviour cannot be isolated from the way things went. He activated four spy cameras; one being a micro- camera hidden well in his jacket to peacefully measure, according to his claim, the pavement of the house he bought and to take pictures,” the judge said.

That provocation was taken into consideration when deciding whether to suspend the sentence, the judge said. It is believed that this particular point will be disputed by the prosecution in the appeal.

The legal precedent cited by the judge stated that provocation can be a mitigating factor in passing sentence but nowhere did it explicitly say that it can be used to suspend a sentence.

State to appeal O’Dwyer decision and sentence

Fears for property crisis heighten

Nigel Howarth
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FIGURES released by the Land Registry on Wednesday show that property sales fell for the fourth consecutive month compared to last year, heightening fears of a much longer recession in the Island’s property market than was anticipated earlier in the year.

According to the Land Registry figures, the number of contracts of sale deposited at Land Registries throughout Cyprus in October was 714 compared to 687 in September and 723 in October 2009.

Last month, sales fell in all towns with the exception of Nicosia, which recorded an increase of 15.4%. In Famagusta, sales were down by 26% compared to last year, in Limassol they were down 6%, in Larnaca sales were down 4%, while in Paphos they were down 1%.

During the first half of the year, analysts were hopeful of a rapid recovery in the property market as sales had increased by 23%. However, the decline in sales during the past four months has reduced annual growth this year to just 8%.

Cyprus property sales October 2010
Property Sales (Source: Department of Lands and Surveys)

If this slowdown continues until the end of this year it seems probable that the total number of sales will be only be marginally better than those achieved 2009, which was the poorest year for sales on record since 2002.

Nationally, the number of properties sold during the first 10 months of 2010 was 7,160. This compares to the 6,615 sold during the same period last year and the 13,261 sold during the first 10 months of 2008.

Unemployment levels in Cyprus are now at a 10 year high having reached a reported 20,846. Nearly a quarter of those who have lost their jobs were employed in real estate and construction related activities.

Developers escape jail sentence in assault case

Patrick Dewhurst
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THE property developers convicted last week of assaulting a British expat escaped jail yesterday after the presiding judge handed down a 10 month suspended prison sentence for two of them and issued the third a €3,000 fine.

Christoforos Karayiannas, 55, and his son Marios Karayiannas, 35, received the jail sentences suspended for two years while their associate Charalambous Ttigis, 31, who allegedly pinned down Conor O’Dwyer during the assault in 2007, received a €3,000 fine.

They were found guilty of actual bodily harm (ABH) against O’Dwyer, who said yesterday “I am absolutely shocked and disgusted. This trial was 100 per cent worse than the assault. It seems that in two years of hearings the judge has lost sight of who the victim was.”

O’Dwyer’s lawyer in two other cases that he has against the Karayiannas’, Yiannos Georgiades, also expressed his surprise at yesterday’s decision. He told the Cyprus Mail “I’m quite shocked. In other cases… where three men have assaulted one vulnerable man… the assaulter has ended up in prison.”

He also questioned the judge’s decision to reduce the conviction from grievous bodily harm (GBH) to ABH, and from a custodial to a suspended sentence.

The sentences follow an equally lenient sentence handed down to Christoforos Karayiannas for crashing into O’Dwyer’s car during the incident in 2007. He received a mere two penalty points on his driving licence. Had he been given three he would have lost his licence.

During the trial, the court heard how the men rammed O’Dwyer’s rental car at a busy junction in the eastern village of Frenaros, he was then subjected to a savage beating, including having his head stamped on – the attack left him in hospital for a week.

The controversy between the two parties began five years ago when O’Dwyer claimed he purchased a house in Frenaros that was then resold without his knowledge by the developers.

An emotional O’Dwyer said he was in a state of shock at hearing the result, having spent years protesting and campaigning to have his case heard. “So far all I have gained is two points on (Karayiannas’) licence and a suspended sentence”.

The civil case against the Karayiannas’, which will examine a dispute over the termination of the contract between the O’Dwyer and the developers, is due to begin on Friday.

A second private criminal prosecution case is already underway, for the alleged double sale of O’Dwyer’s house. At the same time, Georgiades said, the Attorney General is also bringing a case against O’Dwyer for the content of his website.

Cyprus developers escape jail sentence in assault case

Massive implications for property sector & economy

Nigel Howarth
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A new StockWatch survey among twenty developers and real estate agents carried out last week shows that the crisis in the Cyprus property market has expanded. It has started to affect the value of shops and offices as well as plot prices.

The crisis is exceptionally intense on housing properties, where prices have declined up to 25%. Although in the previous survey crisis focused on tourist areas only, the new survey shows that it affects all housing properties in the market.

Sixteen of the total twenty developers support that prices fall. Only one sees that prices will go up and three expect that they will stabilize. Two developers stressed that conditions in Limassol differ due to the interest on behalf of the Russian businessmen.

All twenty developers and estate agents are actively involved in all cities of free Cyprus. The list includes businesses of all sizes, including the big.

Most of the respondents said that shop and office prices fall too, while others see a decline in plots and farms. At the previous StockWatch survey, none of the respondents expected a drop in this type of properties. Almost all anticipated that plot prices would stabilize.

According to a developer, he undertook the construction of a 23-flat complex in Larnaca in early 2008, but none of them has been sold yet. Two more developers said that they have not sold any property in 2008.

One of the developers that participated in the survey said: “The Company has a new flat of 90m2 in Protaras of CYP 100,000. We tried to sell it for CYP 90,000 but it was not sold. We pushed the price down to CYP 85,000, but still nothing. We will be forced to push price further down to sell it“.

A real estate agent from Larnaca said that the crisis does not concern housing properties only, but plots too. “About 5 months ago we were selling a plot in Alethriko for CYP 120,000. Now we are forced to sell it for CYP 90,000“, he noted.

“We are in the middle of a crisis and there’s no room for sentiment. Each one of us will have to push prices down to save his business“, another developer said.

“The market is moving in such a way so as to correct the fictitious property prices, which jumped 40% – 80% in 2005-2007“, a developer said.

According to latest central Bank data, housing property prices grew 15% in 2007 against 10% in 2006, 12% in 2005, 20% in 2004 and 8% in 2003. There are no official data for 2008 yet. These figures, however, concern all properties, while the developers referred to properties for sale.

“Two years ago we sold a property against CYP 50,000 thousand. Now we ask for CYP 200,000 – CYP 250,000. With such prices, how we can avoid a crisis?“, he wondered.

Some of the respondents talked about a depression in the property market with a disproportionate increase in offer, unemployment and loss. Due to the prevailing conditions, certain developers became more restrained. “We are more restrained now. We build fewer flats and houses to avoid stock and bank pressures“, they said.

“We expect things will get worse in 2009. That’s why many businessmen have already reduced their staff. Also, a number of businessmen are not professionals and their activities are not based on strong foundations. Therefore, they are now forced to sell cheaper so at to pay their debts“, they said.

The cooperation between the developers and the real estate agents has been affected too. Some developers say that sell without the agents’ intervention. On the other hand, the real estate agents support that developers offer a 10-15% additional commission to them if they manage to sell.

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