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Government needs to take urgent action

The Cyprus government has been urged to take “decisive steps to eliminate delays related to the issuing of title deeds,” to focus hard on reviving the island’s overseas property sector, and to avoid increasing local property taxes.

SPEAKING to the Overseas Property Professional (OPP), Harris Samaras, the chairman and chief executive of local research company Pytheas, said “a major factor in turning the amazing potential that the island has into achievement in the overseas property market is the ability of the Cyprus Government to develop, introduce and enforce effective legislation to deal with the many problems in the country’s real estate, banking and legal sectors.

Samaras called on the island’s politicians to be much more pro-active and for “Cyprus to act forcefully, with a greater sense of urgency to reverse its high fiscal deficits, to safeguard public financing and to increase the scope for private sector growth.

He argues that even though the Cypriot banking sector is basically sound, “the real estate market is a significant component of the banks’ loan books and represents the majority of loan collaterals (more than 40%).” The situation worries him and “the low overall profitability contribution to Cypriot banks from Greece and the elevated loan provisions that subsequently need to be undertaken will affect the funding ability of banks to real estate related clients for at least the next 12 months.

The lending community on the island needs to be much more competitive says Samaras. “Where some other countries have lowered their mortgage interest rates and property taxes to encourage overseas investors, mortgage interest rates in Cyprus are amongst the highest in Europe and the government is talking about increasing property taxes it charges large land owners; a charge that will no doubt be passed on to those buying property. This approach is a recipe for disaster, especially when competition (governments in other countries) has taken steps to reduce the costs associated with property ownership to encourage investment.

Samaras is worried about longer term trends too. “Cyprus enjoyed a more than ten-year housing boom until 2008” he says, “and then the market began to fall in certain areas, mainly because of:

  • the fall in the value of Sterling against the Euro over the past two years means that British buyers, who accounted for more than 50% of foreign buyers, have less equity at their disposal. At the beginning of 2007 a pound Sterling would buy €1.47; today it will buy around €1.20, making investments in the Eurozone that much more expensive;
  • the worldwide economic turmoil that has changed the characteristics of the ‘typical’ overseas property buyer. Investors are now being much more cautious about their investment decisions;
  • the property-related laws in Cyprus that need to become more transparent, although the government seems to be making concrete attempts to rectify the situation;
  • the mortgage interest rates in Cyprus which are amongst the highest in Europe.

Government needs to take urgent action

Readers' comments

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  • Alan Waring says:

    @Andyp. What you said sounds right but I am not an expert in banking rules. Nigel and Denis (with his banking background) may wish to comment. Certainly, the banks’ position must be getting hairier. Also, if Samaras’s statement that developer loans account for ‘more than 40%’ of the banks’ exposure, does this not provide a way to back-calculate the total size of the developer debt burden held by the banks? Presumably the Central Bank has data on the banks’ total loans/mortgages for all purposes. We could then see if the current guesstimate of Euro7bn+ is right for developer debt.

    Also, today’s CM carries an article ‘Laws Aim to Solve TD Problem’ which reports yesterday’s extraordinary House Legal Affairs Committee’s proposals for 2 new laws. These would, it says, make the buyer’s contract superior to any developer mortgage. Doubt it will be retrospetctive though, so no joy for the current 130,000.

  • Andyp says:

    @ Hector. The answer to your question is no.

    That is why the Banks talk about restructuring developer loans as this means they do not have to comply with the Basel rules and that non performing Bank loans are therefore not shown on their books after 90 days.

    I may be wrong but perhaps Nigel or Alan Waring could clarify.

    Sorry Nigel. Hacked off last night.

  • Hector says:

    I am amazed that the banks have not gone under; “the real estate market is a significant component of the banks’ loan books and represents the majority of loan collaterals (more than 40%).”

    Are the loans being serviced? I really have doubts about that. How are the banks managing to hide what surely must be huge bad debts? Are the banks just racking up huge interest on these outstanding loans and then going to move in and repossess all the houses of the unsuspecting home owners as as happened in the north of Cyprus?

    I wouldn’t want to have any of my money invested in these banks whilst wondering when the dominoes are going to fall as they surely must.

  • Andyp says:

    Nigel you may wish to moderate but I hope not. Only one word sums up paragraph one-b******s.

    These people have no clue whatsoever, or do they!!

  • Peter says:

    To little, to late comes to mind.

    The Goose is well and truly cooked. The Cyprus Government doesn’t even appear have any idea why people buy in Cyprus. They have not done any market research. Do they think that people fall out of bed and say. “I know I will move to Cyprus and buy a house for the benefit of the developers”.

    They have been here before and liked what they see, but those days have gone. Not even the tourists return, complaints about rudeness and being overcharged are found in the streets.

    Or put another way. “Would you move here today and buy a house knowing what you now know”? As for the 6% who would buy a house without title deeds they have over 130,000 houses to chose from.

  • jon frazer says:

    In relation to the property laws here in Cyprus, Mr Samaras believes… “the government seems to be making concrete attempts to rectify the situation.” Doubtless the government is doing something to try and help its friends- the developers and bankers- but I see no concrete attempts to help the victims of the collective property fraud.

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