Home Blog Page 664

Distortions in Cyprus property sale contracts

Editorial
-
0

THE LEGAL SERVICES AND CYPRUS LAND REGISTRY OFFICE are to prepare a bill that would improve procedures for land purchases in an effort to close numerous loopholes in the system that lead to price distortions and other manipulations.

House Legal Affairs Committee Chairman Ionas Nicolaou of DISY said that maybe as many as 90 percent of the contracts for land transactions do not have the real sale price of the property, which has various repercussions at the expense of the public; for example, the price written on the contract is determinant for the compensation that will be decided in the event that the land needs to be expropriated.

Furthermore, the state’s income in taxes is affected, as are transfer costs. “But the most affected by this situation is the land owner, whose best interests are harmed in the event that the state decides to move ahead with expropriation,” said Nicolaou.

Another significant issue raised is that some have spotted the weaknesses in legislation and are selling the same land twice. As the DISY deputy explained, there have been cases where someone sold his land at a certain price, then realised the value of land had gone up and so proceeded to sell the same property on for more, while compensating the first buyer.

“For example a piece of land worth CYP 50,000 in 1995 and sold at that price is then sold to another buyer at CYP 500,000 with the seller paying off CYP 50,000 to the original purchaser,” said Nicolaou, adding that for this purpose it was necessary to close all such loopholes in the system.

Copyright © Financial Mirror 2007

Law reform hopes to clear up Cyprus property title deeds trap

Editorial
-
0

NEW HOMEOWNERS IN CYPRUS will have greater property security if an amendment that allows their contract of sale priority over developers’ mortgages is approved.

The issue was brought up for discussion at the House Legal Affairs Committee on Thursday and is backed by the Lands and Survey department.

By law, in order for a person to legally own property in Cyprus, he or she must have the title deeds to the property. However there have been instances where developers have delayed the transfer of title deeds to their clients for over 10 years, a phenomenon that has caused much frustration among foreign buyers looking to settle on the island.

A property under development is initially registered with the Lands and Survey department as a whole part of land. Only when the land is developed and separated into houses or flats upon its completion is each one allotted a separate title deed.

Within two months of purchasing a property from a developer, a buyer must deposit a signed and stamped copy of the contract of sale with the Lands and Survey department. By doing this, the buyer is able to take legal action against any developer that refuses to transfer the title deeds to him or her. The courts will then instruct the developer (the seller) to transfer the title deeds to the purchaser.

The problem lay in the fact that the seller was not sufficiently protected under the existing law, first Land Officer, Haris Mardas, told the committee.

At present developers’ mortgages take priority over the deposit of the contract of sale. In other words any seller who has taken out a mortgage on the land slated for development has precedence over the buyer.

“Therefore the seller who has mortgaged the property and sold it to buyers of flats or houses they’ve built has priority,” he said.

In order to do away with this problem the Lands and Survey department is suggesting amending the law so that the contract of sale will have priority over any mortgage. The contract will also have to have a bank’s written consent, he said.

The reason the bank’s consent is necessary is because 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 buyers.

However if the law were changed, the proceeds from the public auction would first go to the buyers and any profits left over to the bank.

“In other words banks would have to start being very careful about what developers they give mortgages to,” a financial source told the Cyprus Mail.

Another issue brought up at the House Committee was that sellers (developers) hold the title deeds as a trustee on condition that the buyer fulfils his obligations, thus protecting the buyer.

At present although the seller is obliged to transfer the title deeds to the buyer, the existing mortgage makes the transfer impossible to be carried out.

DISY deputy and House Legal Affairs Committee chairman Ionas Nicolaou said he was also planning to suggest amending the law so that by submitting the contract of sale with the Lands and Survey department, buyers had the same ownership rights as if they had already received the title deeds.

“This is so that they feel more secure and so that they don’t have to wait for the title deeds to be issued,” he said.

He added: “In every other European country a contract of sale is tantamount to ownership. In Cyprus you need to have the title deeds so that someone doesn’t sell it elsewhere.”

What Nicolaou meant was that where a buyer failed to deposit a contract of sale with the Lands and Survey department, the developer could sell the property to a third party.

“The first buyer would then be compensated for the property by the developer but that would be of little consolation if it was bought 10 years ago because he or she would receive a lot less than what it was valued for today,” he said.

Nicolaou said the Lands and Survey department had been given a month within which to submit its suggestions and from then the committee hoped to begin drawing up the bill.

Copyright © Cyprus Mail 2007

Cyprus Home Price Index up 0.57 percent in August

Nigel Howarth
-
0

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 August 2007, it had reached CYP 101,119 – an increase of 29.79% over the 44 months since its introduction. This equates to an approximate annual growth of 8.12%.

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

In the first 8 months of 2007, the Index has risen by 8.39%

Cyprus developers concerned over banks’ lending freeze

Editorial
-
0

PROPERTY DEVELOPERS yesterday said they were worried about the Cyprus Central Bank’s new rules for mortgage financing, fearing serious damage to tourism and the economy.

A statement from the Cyprus Land and Building Developers Association said the move to curb excessive lending in the real estate sector affected 129 developers, 1,453 building contractors and 14 mortgage lenders.

The entire sector contributes around £1 billion per year to the economy, it said.

“We consider that the sector is very important,” Association president Lakis Tofarides said.

“The sudden application of the package of measures has already created serious problems in the continuity of work of the companies in this sector.”

Tofarides said that the developers did not underestimate the dangers of a property bubble and understood the concerns of the Central Bank and why it took the decision it did.

As of last month, banks are not allowed to loan more than 60 per cent of the price of a property. Previously they were allowed to loan 70 per cent.

First-time buyers are not affected by the credit squeeze and may still borrow up to 80 per cent to buy a property.

The Central Bank took the measure to curb the rising rate of lending in the real estate sector to reduce the property speculation that has pushed house prices to unprecedented levels.

However Tofarides said the Central Bank needed to re-evaluate to avoid damaging the economy.

“With the measures that have been specifically announced we consider that this danger is real,” Tofarides said.

He said the financing of first-time property purchases by Cypriots and foreigners should remain at 80 per cent because foreign purchase incentives must be safeguarded.

If they were not, Tofarides said, they would look to the north to buy a property.

Foreign purchases were also contributing substantially to tourism, he added.

“The reduction already in demand from foreign buyers has begun to have negative repercussions,” Tofarides said.

He also said mortgaging for developers remain at 70 per cent and second buys by Cypriots and foreigners should be reduced to 60 per cent financing from the banks, he said.

To curb land speculation, Tofarides suggested financing be set at 50 per cent. “This will discourage speculation,” he said.

Copyright © Cyprus Mail 2007

Compensation for late delivery of a property

Editorial
-
0

IN A CONTRACT OF SALE regarding immovable property, either off plan or under construction, there is usually a term stating that the purchaser is entitled to a specific amount of money as monthly compensation in the case of late delivery of the sold property.

This term, however, is considered as a penalty clause and it does not qualify the purchaser to demand the stated – agreed amount. In the case of late delivery, the purchaser is entitled to demand compensation equal to the real loss and damage he has suffered due to the loss of the use of the property, which is usually equivalent to its rental value. A term of this nature that predetermines the amount of compensation is regarded as a penalty clause and is ignored by the law. The court cannot judge how much damage has been suffered by the innocent party due to the violation of the contract by the vendor. It is necessary for the purchaser to present the court with reliable and accepted evidence by an expert property valuer to prove the real loss and damage he has suffered. In the absence of such evidence, the court will only award nominal damages to the innocent party, which is often minor, in the region of £5 to £10.

Therefore, specifying the damage in advance on the contract of sale is not binding and only serves as a guide for the maximum compensation that can be awarded. Failing to deliver a property at the agreed time gives the right to the purchaser to claim from the vendor the rental value of the property and any other consequential loss or damage he has suffered. This constitutes the legal measure for the compensation the purchaser is entitled to in the case of delays. In this respect, the purchaser must appoint either an expert property valuer or secure other acceptable evidence to prove the rental value of the property for the period of the delay.

The law states that when a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named, or, as the case may be, the penalty stipulated for.

The Supreme Court of Cyprus (McGregor on damages) has decided that the standard measure of compensation is the value of the use of the property, generally regarded as the rental value for the period between the time agreed for the completion of the property and the actual delivery. The issue is analysed thoroughly in a decision issued in 2001, where the appellant had a proprietary right over a property by virtue of a registration certificate for renting premises on a long term lease agreement. He proceeded with the sale and transfer of his right through a sale contract which provided for the price to be paid in installments on fixed dates. There was a term stating that the premises were to be evacuated and delivered to the purchaser simultaneously with the payment of the last installment. Although the sale price was paid and discharged, neither the evacuation nor the delivery of the premises was made, but the property was transferred six months later.

The purchaser filed a lawsuit claiming that the delayed delivery of the premises, in violation of the agreement between her and the vendor, had caused her damages. Therefore, she claimed the amount of £37,800 as compensation for the delay in the delivery of the premises for the total of 189 days and which, according to the agreement in question, was giving her the right to claim the agreed compensation of £200 per day. The court awarded her £15,000 for compensation, meaning £9,000 as compensation for the damage she had suffered due to the delay in the delivery of the premises and £6,000 as an additional amount deemed as reasonable compensation. In this case, the Court reached the conclusion that the amount of £200 per day, as provided in the agreement in question, constituted an agreed compensation and not a penalty clause.

On appeal, the Supreme Court of Cyprus put the issue as follows: In view of the failure to deliver the premises in the agreed time, the rental value of the property constitutes a legal measure in determining the compensation owing to the delay in the delivery of the premises, thus violating the contract. Therefore, the Court of First Instance has correctly awarded the above-mentioned amount of £9.000. This was the only damage that the purchaser was able to prove and the only one she was entitled to, according to the authorities. Therefore, the adjudication of £6,000 as additional compensation, which was not verified, was wrongly judged and it was overlooked.

Based on the above, a term in a contract of sale predetermining the measure of damages is not valid by the law. The measure of compensation is the real loss of the purchaser and it is normally equivalent to the rental value of the property.

Copyright © Cyprus Mail 2007

New action needed on Cyprus building boom

Nigel Howarth
-
0

AUTHORITIES need to take prudent new measures to tame a construction boom that threatens the soundness of the country’s banking system just as it is about to adopt the euro, economists warned yesterday.

Despite a newly reduced ceiling on lending for holiday home buyers, bank credit grew in August by an annual 25 per cent, as investors sought to beat the introduction of value-added tax to land sales from the end of this year.

The availability of cheap loans that has been stoking the construction boom could even increase when Cyprus joins the euro zone in January since the bloc’s interest rates are currently half a percentage point lower than those of Cyprus.

“There is currently a bubble [in the real estate market], comparable to what we had at the stock exchange between 1999 and 2000,” said Yiannis Telonis from Hellenic Bank.

However, Telonis cautioned that construction was the economy’s locomotive at present, and there would be negative consequences if it were slowed down too abruptly.

“It is not up to the Central Bank to fix this problem. It is an issue of the [government’s] general economic, development and social policy,” he said.

Economist Marios Mavrides said imposing a property tax could go some way to addressing the problem, as could halving the island’s capital gains tax to 10 per cent to make alternative investments more attractive.

“[But] if they take too drastic action, property prices will suffer and so will mortgages,” he added.

Central Bank governor Athanasios Orphanides warned on Monday of probable risks for the banking system, should credit expansion persist as a result of local banks competing intensely to boost profits and market share.

According to price tracker BuySell Home Price Index, house prices increased 9.7 per cent in July year-on-year and 1.8 per cent compared to June.

The average lending rate for housing loans has fallen since Cyprus’ EU accession in May 2004 from 7.3 per cent to 5.94 per cent in July this year.

Economist Mavrides said he could not rule out a scenario similar to that of the US subprime loans mess, and a repetition of 2002 and 2003, when Cypriot bank results were battered by exposure to a poorly-performing stock market.

Mavrides said a speculative bubble behind property inflation was mainly rooted in VAT introduction. It was introduced on buildings in 2004, and is will apply to land sales from 2008.

Once the VAT target date was passed, Mavrides said demand for real estate was likely to decrease as investors took more account of price-to-income ratios in assessing the value of real estate deals.

Mavrides said there was a danger that in two or three years, clients would experience difficulties in paying back their debts.

“The expected decrease in interest rates as a result of euro adoption will not be able to offset the decrease in demand,” he said.

Mavrides’ views on the effect of lending on the banks’ profitability are not shared by bankers.

“We are not concerned that the quality of our asset portfolio will be affected as we have not relaxed the criteria for the approval of new loans we introduced years ago,” Yiannis Kypri from Bank of Cyprus, said. The Bank of Cyprus policy followed Central Bank guidelines and offered the bank a protective “cushion” to offset risks of a probable decline in property price, Kypri added.

In 2006, the direct contribution of the construction sector to the island’s GDP was 7.5 per cent. One in 10 Cypriots worked in the construction industry in 2004.

Copyright © Cyprus Mail 2007

1...663664665...691Page 664 of 691