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Massive implications for property sector & economy

Yesterday’s revelation about the illegal activities could have massive implications for Cyprus’ property sector and the Island’s economy. The Cyprus government may have no option other than to take effective action immediately.

YESTERDAY’S revelation that developers, estate agents, lawyers and banks in Cyprus have been continually, systematically and habitually infringing EU Directives and breaking the law could have massive implications for the Cyprus property sector and banking system.

  • Those involved in the sale of property will no longer be able to sell mortgaged property. As a consequence, developers will not receive the inflow of cash required to service their massive debts – and the banks will have even bigger problems than they have today as more developers will file or be forced into bankruptcy. The recent Moody’s report that the outlook for the Island’s banking system was “negative” and that the property market “remains a risk area with weak demand and unclear growth prospects” will only add to their woes.
  • Thousands of property buyers will be able to walk away from their bad investments and claim compensation from the banks and developers (at no cost to themselves) through the Commerce Ministry’s Competition and Consumer Protection Service (CPS). This will result in more property developers being forced into bankruptcy and will put even more pressure on the banks to keep their heads above water; some of whom could fail.
  • Those who have bought property since the law was passed will have an excuse not to pay their mortgages and will submit a claim to the CPS. Based on the money they paid in say, 2008, they will be able to buy a similar property at a greatly reduced price.
  • The maximum fine of 5% of annual turnover placed on those who have broken the law would result in the Cyprus government (and possibly the UK Government) collecting billions of Euros that could be used to finance a rescue package to compensate buyers who have been missold property. But this again would result in more property developers being forced into bankruptcy and will put even more pressure on the banking sector.
  • The EU may place sanctions on Cyprus for failing to comply with the Unfair Commercial Practices Directive 29/2005/EC and possibly others.

The result

The result could be complete and utter chaos for the banking system and the Island’s economy. If the Cyprus government wants to avoid the chaos, it has no option but to take effective action immediately.

Possible solution

One possible solution would be for the government to issue a gold-plated guarantee to the European Union that no property buyer, regardless of when they purchased the property, will lose their home as a result of a developer’s debt – and issue all of those who have paid for their properties in full with a temporary certificate of full legal ownership that will remain effective until such time as a Title Deed is issued.

YESTERDAY’S revelation that developers, estate agents, lawyers and banks in Cyprus have been continually, systematically and habitually infringing EU Directives and breaking the law could have massive implications for the Cyprus property sector and banking system.

Those involved in the sale of property will no longer be able to sell mortgaged property. As a consequence, developers will not receive the inflow of cash required to service their massive debts – and the banks will have even bigger problems than they have today as more developers will file or be forced into bankruptcy. The recent Moody’s report that the outlook for the Island’s banking system was “negative” and that the property market “remains a risk area with weak demand and unclear growth prospects” will only add to their woes.

Thousands of property buyers will be able to walk away from their bad investments and claim compensation from the banks and developers (at no cost to themselves) through the Commerce Ministry’s Competition and Consumer Protection Service (CPS). This will result in more property developers being forced into bankruptcy and will put even more pressure on the banks to keep their heads above water; some of whom could fail.

Those who have bought property since the law was passed will have an excuse not to pay their mortgages and will submit a claim to the CPS. Based on the money they paid in say, 2008, they will be able to buy a similar property at a greatly reduced price.

The maximum fine of 5% of annual turnover placed on those who have broken the law would result in the Cyprus government (and possibly the UK Government) collecting billions of Euros that could be used to finance a rescue package to compensate buyers who have been missold property. But this again would result in more property developers being forced into bankruptcy and will put even more pressure on the banking sector.

The Office of Fair Trading may discover that Cypriot companies operating in the UK have been breaking the law if it carries out an investigation as recommended. This could result in the closure of the UK offices of those companies and the banning the promotion of Cyprus property at exhibitions of overseas property held in the UK. (See Lord Jones of Cheltenham’s written question in the House of Lords and the reply from Her Majesty’s Government.)

The EU may place sanctions on Cyprus for failing to comply with the Unfair Commercial Practices Directive 29/2005/EC and possibly others.

The result

The result could be complete and utter chaos for the banking system and the Island’s economy. If the Cyprus government wants to avoid the chaos, it has no option but to take effective action immediately.

Possible solution

One possible solution would be to issue a gold-plated guarantee to the European Union that no property buyer, regardless of when they purchased the property, will lose their home as a result of a developer’s debt – and issue all of those who have paid for their properties in full with a temporary certificate of full legal ownership that will remain effective until such time as a Title Deed is issued.

Readers' comments

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  • dimitri says:

    Great article, Let’s hope the gaurantee is made effective a.s.a.p rather than have to go through the endless government delays needed to ratify any changes that in essence do not make money for the government….sources tell me a lot of banks have become very wary of ‘developers’ requests for funding which is a good thing, but still this does not do anything to solve the problems of the toxic debts they have…at the end of the day there are issues for example issuing deeds due to the sheer bureaucracy and inefficiency of the ‘system’ but this does nothing to help the image of developers who have been given a bad name due to the few who have double sold properties etc …

    I think the government is at fault, an article in Politis last week mentioned comments by a land registry official who stated it was not ‘their’ job to check if a property has already had a sales agreement lodged against it! with officials like this who needs unscrupulous developers?

  • Hector says:

    If only this could be true..

  • Richard says:

    Good – it appears that Mrs Reding at the EU was very very wrong in stating (earlier this year) there was ‘no need’ for the EU to send a deputation out to Cyprus to investigate this matter.

    Not only does this reinforce massively my belief that a corrupt gravy train on the island is about to derail (long overdue) but also that parts of the EU administration are frankly inept and inefficient at tackling governance issues that matter.

    If this forces change on both fronts – BRING IT ON!

  • Peter says:

    “One possible solution would be for the government to issue a gold-plated guarantee to the European Union that no property buyer, regardless of when they purchased the property, will lose their home as a result of a developer’s debt”

    As long as they don’t use my taxes to pay off the developer’s debt.

    Lets not forget the developer has had the money and spent it, the banks were indifferent and didn’t care where it was spent but have extended the loans against proper banking rules and regulations Neither of these organisations deserve ‘rescuing’ with tax payers money

  • Dee says:

    An excellent summary of these positive events. There’s hope at last!
    Thank you Nigel.

  • Gavin Jones says:

    Clearly and beautifully written, Mr. Howarth.

    Well done indeed for putting it together. Nothing more to be said…

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