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Cyprus property companies on brink of bankruptcy

A 20 to 30 per cent cut in the old prices, which were too high, could stimulate some interest from people and get the stagnant property market moving; at lower prices, the banks could also become more willing to offer housing loans to buyers.

Abandoned construction site near Paphos

Abandoned construction site near Paphos

DEVELOPERS and contractors from the Paphos area are in dire straits as a result of the recession, it has been reported. Many companies are on the brink of bankruptcy as hundreds of their properties are unsold and the banks are refusing to help them out with new loans. Some company bosses complained that they could not even cover basic running expenses, which would make lay-offs inevitable, sooner rather than later.

Businessmen, mayors, deputies and ministers from the Paphos area met on Saturday to discuss ways of applying pressure on the government to speed up planned projects for the area, as they felt the recession had already arrived.

The district should be allocated amounts that reflected its contribution to economic development rather than its population, the group said. It also wanted banks to abandon their tight credit policies and give loans to businesses and individuals, as at present nobody could buy or sell properties.

When companies are recording high profits, as contractors and developers had been doing in Paphos for the previous six or seven years, their owners are all committed to the free market. As soon as there is an economic slowdown and they are faced with the prospect of losses they decide that it is the state’s responsibility to help them out.

Admittedly there is a problem for many companies, but this has a lot to do with the irrational expansion of the last decade, when they were working on the absurd assumption that demand for holiday homes would keep rising. Even if there was no credit crunch, developers would at some stage face problems because of an excess supply of holiday homes. Development could not have continued indefinitely at the ridiculous rates of the past few years.

In this respect, banks are also to blame for not restricting credit facilities to developers. Now the banks’ main priority is to maintain their liquidity and to ensure that developers are making their loan repayments, rather than to give money for more construction. As for housing loans, even if the banks were offering them, it would be questionable if there would be any takers because people will be waiting for prices to fall.

The slashing of prices for holiday homes is the only way forward for Paphos. The way things are, developers’ only real option is to cut their losses by drastically cutting prices. A 20 to 30 per cent cut in the old prices, which were too high, could stimulate some interest from people and get the stagnant property market moving; at lower prices, the banks could also become more willing to offer housing loans to buyers.

This is the only way to get the property market moving again because the boom period of the past is over for good. No matter how many public projects are undertaken by the state in the Paphos area, these would make little difference to the stagnating property market.

Copyright © Cyprus Mail 2009

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