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Cyprus Home Price Index up 2.65 percent in September

Nigel Howarth
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BuySell Cyprus Real Estate, a real estate advertiser, publishes a monthly ‘Home Price Index’ – the only one of its kind in Cyprus.

The company started to produce the index in 2004. It shows the movement of prices at which residential properties in Cyprus are sold and is based on an average of around 400 to 500 property sales/month.

When the index started in January 2004, the average residential property price was CYP 77,910. By the end of September 2007, it had reached CYP 103,799 – an increase of 33.23% over the 45 months since its introduction. This equates to an approximate annual growth of 8.86%.

For the whole of 2006, the Index rose by 5.87%, after a rise of 2.48% in 2005.

In the first 9 months of 2007, the Index has risen by 11.27%

Property buyers at the mercy of title deed traps

Cyprus Property Action Group
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WE REFER to your article of September 22, “Law reform hopes to clear up title deeds trap“. This reported that the House Legal Affairs Committee had discussed the issue and it is very encouraging that the government is starting to address some of the pitfalls of buying property in Cyprus.

A change in the law is being investigated with the aim of ensuring that a contract of sale takes priority over any developer’s mortgage; the contract will also need a bank’s written consent.

Despite the fact that estate agents, developers and lawyers continue to assure buyers that their ownership rights are fully protected by virtue of the Specific Performance law, the Lands and Survey Department has now admitted openly that they are not. Something that the Cyprus Property Action Group (CPAG) knows only too well and has raised previously.

Under the present system, if the buyer finds that a the developer has a mortgage on the property they’ve bought and paid for, using the Specific Performance law in order to force transfer of Title Deed is futile.

The chairman of the Committee, Ionas Nicolaou, was reported as saying, “In every other European country a contract is tantamount to ownership. In Cyprus you need to have the Title Deeds so that someone doesn’t sell it elsewhere“. Adding that this is “where a buyer failed to deposit a contract of sale with the Lands and Survey department and the developer could sell the property to a third party“.

Indeed the seller could sell it up to 4 or 5 times to unsuspecting buyers, as has happened in one scandal that’s been reported to CPAG! The police seemed reluctant or unable to investigate this fraud, which, according to the victims (10 families at least), must have involved collusion by various organisations to allow it to happen.

The victims hired a litigation lawyer, Marios Shiaeles, to pursue their case. But he fled the island after taking £3 million of client monies with him, including theirs!

Unlike some other European countries, lawyers in Cyprus are not required to carry substantial professional indemnity insurance; neither is there a Law Society compensation scheme for those who have been defrauded. As a consequence, these victims now have very few assets and are unable to pursue their cases through appropriate channels.

These two ‘title deed traps’ above demonstrate the inadequacies of the current system.

Another example is the problem that occurs when a buyer, who has yet to receive their title deeds, wishes to sell their property. Even though they may have paid for it in full and may have been living in it for several years, the developer has them over a barrel. Some developers charge a reasonable sum to reassign the original contract of sale to the new buyer, while others charge thousands of pounds; we have heard as much as 17 per cent of the selling price! Some developers even decide who you can and can’t sell it to!

Also, nearly all developers charge purchasers their own version of annual immovable property tax which can run into thousands of pounds per client until they obtain their deeds. After owners receive their title deeds, unless their property is worth over £2 million at today’s values they find that they will not be liable for this ‘tax’ which the developers collect. This is because the law states that the tax is assessed on property using ‘1980 indexed’ Land Registry valuations and virtually every individual property falls below the threshold for tax.

Developers exploit buyers in these and sometimes more shocking ways, using the threat of witholding title deeds. CPAG has been contacted by many buyers who are being treated in this way and who are often afraid to go public with their stories. However, the main potential trap centres around the full legal ownership of property by virtue of its title deed. Currently, developers are carrying a record £3.6 billion in loans, much on the back of title deeds they have yet to make available to buyers. The main consequence of this is that the risk of loan default is shared with the buyers. If the property market suffers a slowdown, if external banking problems have knock-on effects in Cyprus, if developers default on mortgage repayments, buyers’ homes are at risk.

As the article stated, “where a development company goes bankrupt, the bank puts up the land for public auction to make back its money. Any money left over goes to the (homeless?) buyers“. Presumably, this may also mean after the other creditors e.g. the tax authorities have had their dues.

Assuming that the proposed changes to the law are implemented, what impact will it have on existing property buyers who find themselves in one of these particular ‘traps’? Will they be able to get their hands on their title deeds, even though they have eluded them for many years?

According to the original article, it appears that buyers would still need to go through the rigours of the Cypriot legal system to prosecute for their rights, with all the attendant costs, delays and uncertainties.

Although these proposed measures are very welcome, CPAG envisages that the Lands and Surveys are going to face stiff opposition from various vested interests! But even if the Department does succeed and the law is changed, the proposed changes still fail to address the underlying problem of full legal ownership at the time of purchase, as is the practice in other EU countries.

The Lands and Survey Department had been given a month to submit its suggestions prior to a bill being drawn up. CPAG would welcome any opportunity to share our unique insight from the ‘sharp end’ in these deliberations.

www.cyprus-property-action-group.net

Copyright © Cyprus Mail 2007

The Cyprus Property File: Chickens Home to Roost

Cyprus Property Action Group
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FOR THE CYPRUS PROPERTY sector, the current worldwide ‘credit crunch’ in banking adds to other hazards that may affect its attractiveness as an investment destination.

Credit Crunch Hits Cyprus Property

In May 2007, the local press reported that bank loans for building and construction were up 31% year on year to CY£2.36 billion. By July, the Central Bank had lowered lending ceilings from 70% to 60% and banks were instructed to readjust loans to developers.

In short, the Central Bank in July perceived the credit exposure as risky even then. Since then, as a result of large-scale bad mortgage loans in the USA, the whole level of risk to the worldwide banking system and finance sector has risen significantly, with Europe badly affected.

So, what? If Cyprus is in the same boat as every other country, why is there special cause for concern about property risks in Cyprus?

The answer lies in the way that Cyprus property developers secure their loans and the way that the Cyprus Land Registry releases title deeds.

Cosy Collateral

How do developers in Cyprus secure their massive loans for their capital building projects? Clearly, as most of their assets are in property, they can use the title deeds from one set of properties as collateral for a new or extended loan for new projects.

Because few regulatory restrictions apply, Cyprus developers have had a field day with racking up huge loans on the back of ‘other people’s homes’. Thousands of people have bought property in Cyprus in good faith and have paid in full yet are unable to secure their title deeds because unbeknown to them the developer has used the deeds as collateral to fund further capital programmes. Either this or the asset value of the untransferred title deeds is used to boost the balance sheet and perceived creditworthiness of the company.

In the event of loan repayment default by the developer, the banks will have first call on these assets – which could well happen if the credit crunch continues or there is a continuing shortfall of buyers or, heaven forbid, the bubble bursts.

The Cyprus Property Action Group (www.cyprus-property-action-group.net) is receiving a growing number of reports of cases where purchasers have ‘discovered’ that the developer has an outstanding loan against the property ( e.g. see website case study “criminals in our own homes” ) and therefore the title deeds cannot be transferred.

A National Scandal

One major property developer tells potential clients in their brochure that it can take up to 2 years to obtain title deeds. In fact, currently, buyers can wait 10 – 15 years, or even longer, to become the legal owner of a property they have already paid for. As there are many elderly people buying here, in the event of death, inheritance of something they don’t own could also be a cloudy issue. For an EU member state to be operating like this in the 21st century comes as quite a shock to many buyers. Even Cypriots have called it a national scandal. Cyprus developers keep telling clients that the system is the same as the UK’s. It is not. In the UK and many other EU states, by law title deeds are handed over on the day of purchase completion.

All of this may eventually spell big trouble for the Cyprus economy, which is so dependent on tourism and property, both of which require very large numbers of foreigners to be happy with Cyprus.

A Way Out

CPAG, representing the buyers, strives to be a catalyst in addressing current property issues with the aim of making Cyprus the most reputable and safest place in the Mediterranean to buy property.

Cyprus property owners upbeat after Sarris meeting

Editorial
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A LOBBY group set up to help people facing problems with property developers and real estate agents all over Cyprus described last week’s meeting with Finance Minister Michalis Sarris as, “rewarding, positive and productive.”

The Cyprus Property Action Group, which has over 2,000 registered members, on Friday informed Sarris of the hundreds of complaints made against developers and estate agents relating to fraudulent dealings in the lucrative property market.

The group, formed last April to deal with the growing problem, told him that a concerning amount of expats were being cheated by dishonest developers and estate agents.

Nigel Howarth is one of the group’s founders and he described the problems as far reaching and added that they cannot be ‘fixed’ by a single government department. “As well as property developers and estate agents, they involve lawyers, planning, property titles, advertising standards, health and safety, law enforcement, banking, etc.”

He said the group spent a long time with Minister Sarris and two senior Civil Servants discussing various property issues.

“At the end of the meeting, the Minister asked us to prepare a report outlining the problems and our thoughts on how they may be resolved, which he would then discuss with the Council of Ministers,” he said.

He also pointed out that the group is not working solely on behalf of expatriate property buyers.

“One of the many Greek Cypriots who have registered with us recently wrote and thanked us for the information we provided for him, which he said is the most he has received in the last 15 years.”

Peyia’s municipal councillor Linda Leblanc, who is also a member of the action group, said: “Our goal is to work with the government and find solutions. We built our homes in Cyprus, we love Cyprus… and because things are getting a little out of hand, we think it is the right time for action because there are problems now,” she said.

“All the people we talk to acknowledge the severity of this issue and everybody involved needs to work together to solve the problem.”

Green Party leader George Perdikis was also present at Friday’s meeting and warned that many foreigners were being duped into making unsafe and dangerous purchases.

He described the situation as “a complex legal and financial problem involving implementation of the law, illegal buildings, title deeds and illegalities that affect the quality of life of buyers and residents.”

Perdikis highlighted the problem had a political aspect as well, given that Cyprus had an image to uphold as a safe place for people to purchase property, and as a country that abides by the rule of law – a factor often used to distinguish the south from the property market in the north.

Denis O’Hare is one of the Cyprus Property Action Group’s founders.

He yesterday told the Mail that many problems are caused by lack of regulations and standard good practices.

“We will be proposing that the people involved in the industry will be subjected to more regulations and that the laws in place are enforced,” he said. “If legal action is involved, the process must be made more user-friendly.”

He added that when people from the UK come to Cyprus to buy property, they’re told that the system, especially the legal one, is similar and they therefore put their trust in lawyers and estate agents.

“They soon find, to their cost, that this is not the case and the safeguards which they believed were in place, are missing as lawyers do not point out the potential pitfalls.”

He also stated that there may have to be compensation paid out by the government as a last resort to those with no other legal options open to them.

“Article 23 of the Cyprus Constitution assures property rights to residents of the island under certain conditions.”

Copyright © Cyprus Mail 2007

The continuing Cyprus property debate

Cyprus Property Action Group
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First, let me say that we are sorry to hear that you are also suffering at the hands of an unscrupulous property developer. Would you consider registering your problem on our website at www.cyprus-property-action-group.net? We know it’s of little comfort to you, but you’re not alone. More than 2,000 people, both Cypriots and foreigners, have already registered with us.

On the issue of Title Deeds, we were encouraged to read that the Government’s Lands and Surveys Department is looking at ways of improving consumer protection. This is probably the most important issue facing both Cypriot and non-Cypriot property buyers.

Some buyers run the risk that they will never own the property they bought. Even though they may have paid for it in full, their property is sometimes burdened by an unpaid mortgage taken out by the developer many years previously to help finance the original construction work.

In the past, some may have viewed this risk as being small; but things have changed. The current turmoil in world banking, the ensuing credit crunch and the real threat of property bubbles, only increase the possibility of loan default; buyers in some parts of the world are already losing their homes as a consequence.

This problem is exacerbated in Cyprus where ‘Klondike fever’ has gripped the island. With no Government regulations holding them back, experience or financial standing, people are, in the words of Antonis Loizou, “waiting to get on this golden bandwagon of easy income”. These ‘entrepreneurs’ can be anyone from a taxi driver to the owner of a local taverna. In a case reported in the media a couple of years ago, it transpired that the ‘property developer’ was actually a barman employed at an army camp. Needless to say when he went bankrupt, the buyers lost their money. What experience did he have, apart from mixing brandy sours?

We have no problem with property developers risking their money on their developments. But the practice of offloading their risk in the form of an unpaid mortgage onto unsuspecting property buyers is totally unacceptable!

As a buyer, the disadvantages of not having Title Deeds are significant:

  • They do not own the property and are therefore unable to enjoy the full benefits of property ownership; including the right to sell or transfer it to anyone they wish without reference to its Title Deed holder.

  • If they wish to sell the property, they need to cancel or transfer their contract of sale at the Land Registry with the agreement and cooperation of the Title Deed holder. This enables the Title Deed holder to enter into a new sale agreement with the new buyer – so far so good. Some unscrupulous developers also use the threat of withholding the Title to demand additional payments or to stifle valid complaints by clients.

    But this ‘right to sell’ is not automatic; it requires a ‘special’ clause in the original contract of sale (which also needs to limit the cancellation/transfer fee charged by the Title Deed holder at a ‘reasonable’ amount). Without such a clause, those wishing to sell their property are at the mercy of the Title Deed holder. CPAG has been contacted by a number of buyers who have been charged amounts many times greater than the actual costs incurred by the developer, to cancel their contract of sale and thereby potentially cancelling out any profit resulting from the sale.

  • Under certain circumstances the Title Deed holder can still raise a mortgage using the land on which the buyer’s property is built as collateral, without their knowledge or consent. This effectively prevents buyers from selling their property – who’s going to buy a property knowing there’s a mortgage lodged against it?

  • Without Title Deeds buyers are unable to raise money against the property and are unable to access any of the capital tied up in the property through equity release loans and other schemes.

  • As there are also problems in obtaining mortgages on resale properties without Title Deeds, anyone wishing to buy needs to have the ready cash.

But the problems don’t end there! Even if Title Deeds are available for transfer to the buyer, the Title Deed holder needs to produce a tax clearance certificate proving that any outstanding taxes have been paid to the authorities; sometimes they refuse. As a consequence, the only way property buyers can get their Title Deeds is to pay any outstanding taxes themselves!

CPAG is aware that unscrupulous property developers, in alleged collusion with lawyers, play the system. They do not repay their mortgages and so buyers cannot receive their Title Deeds; in these cases, the Specific Performance law provides inadequate protection. Furthermore, some developers charge property buyers without Title Deeds ‘recoverable expenses’ every year until such time as their Title Deeds are available for transfer. Over a period of years, the ‘recoverable expenses’ paid by a buyer can amount to thousands of pounds. Sometimes, developers demand cash payments with neither an invoice nor a receipt being issued. And the threat of withholding Title is used when buyers refuse to pay without being properly invoiced.

And let us not forget the loss of millions of pounds to Government coffers resulting from delays in the collection of property transfer fees.

We hope that the Lands and Surveys Department’s investigation will address these issues, which will go a long way to protect the rights of property buyers and reduce the opportunity for their exploitation.

As always, we remain at the disposal of Government or any other organisation to assist in any way we can to support efforts to protect buyers’ rights and the image of Cyprus and its property market.

Cyprus Property Action Group
PO Box 62427
Paphos 8064

Letter to Costas Apostolides (Cyprus Weekly)

Authorities failed to protect buyers and Cyprus’ reputation

Editorial
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LITTLE appears to have been achieved at yesterday’s meeting between finance minister Michalis Sarris and a delegation from the Cyprus Property Action Group.

The group which had been set up earlier this year, to deal with the problems faced by expatriates buying property in Cyprus, wanted to brief the minister about the many complaints it had been receiving. Most of the complaints related to the familiar issues of dishonest developers and estate agents.

Green party leader Giorgos Perdikis, who accompanied the members of the delegation, said that many foreigners were being “duped into making unsafe and dangerous purchases“. He blamed the problems on a number of issues, including the authorities’ failure to implement the law, the lax building regulations and the delays in issuing title deeds. Sarris is in no position to resolve these problems, even though, we are certain he would have expressed genuine concern about the situation, which does present Cyprus in a very positive light.

The fact the delegation had to visit the finance minister is an indication of the weakness of the authorities in protecting buyers. In a country, in which there is the rule of law, citizens, Cypriot or foreign, would not have had to take their grievances to the minister, but reported them to the police. And if there were no grounds for criminal charges, they could still file a law-suit against the person they had a dispute with. It would appear that these courses of action do not lead anywhere for foreign buyers, which is probably why they sought the help of the finance minister.

But as Perdikis hinted, property transactions are a very complex problem which the authorities had failed to address. The legal framework, for instance is full of loop-holes that nobody seem interested in closing. We have been hearing deputies, for years now, discussing ways of tightening the law with regard to the issuing of title deeds, but nothing has been done. Town planning regulations are provocatively ignored by contractors, because the law is never enforced – the penalty for violating building regulations is imposed on the buyer who cannot have a title deed issued!

A country, which understood its economic interests, would have done something about these problems. Foreign buyers have financed the construction boom of the last six years, yet our state has not bothered to provide them with the most basic protection against dishonest developers, estate agents and contractors. There are small numbers of crooked developers and contractors operating in all countries, but the test is how well the authorities can deal with them once they have been reported by buyers.

Our authorities have badly failed this test. When the powers that be eventually realise how much damage this failure has caused the Cyprus’ reputation, it will be much too late to do anything about it.

Copyright © Cyprus Mail 2007

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