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Property disaster a self-fulfilling prophecy

Even a cursory search through the Internet to discover the state of the Cyprus property market will reveal that the situation has gone beyond dire.

DESPITE brave and confident statements from the government and some developers there appears to be little or no movement. It is tempting to blame the worldwide recession for this crisis, but the reality is much closer to home.

The market has dried up because the reputation of the property market has been destroyed by appalling controls, a ridiculously lengthy process and corruption.

Potential investors would be mad to trust their money here without effective safeguards. The international crisis has merely provided the catalyst for putting property markets under the spotlight.

In Cyprus this spotlight caused many vulnerable home buyers who thought their purchases were secure to question and protest through such organisations as the Cyprus Property Action Group. This travesty was predicted at least three years ago and much to the annoyance of the government was called the Cyprus Toxic debt!

But who destroyed this reputation? It is tempting to focus on one particular group or another, but the blame must be shared by many.

Unscrupulous developers have raised capital by reselling (mortgaging) property that they had already sold to someone else through a contract lodged with the respective lands office. This is fraud. It must have been committed if, on their mortgage application, the developers signed to say that no one else had a call on this property.

If the developer had sold the property and signed a contract with the purchaser knowing that a bank had first call upon it then this is also fraud. But it takes more than one party to commit these acts of fraud and the banks must also accept their share of culpability.

If the banks had carried out due diligence, they should not have loaned money on property to which someone else had a legal call. Indeed, did they even ask the question of the loan applicant? If not, they are guilty of negligence and should be fired! This is not shutting the stable door after the horse has bolted but merely complying with banking rules.

The lawyers who advised the property buyers must also be held responsible for not conducting thorough searches to discover whether the purchase was sound and whether the developer had borrowed money with the property as security. The Law Society bears a huge responsibility for not enforcing its own rules and disbarring members of its profession who both represent the buyer and the seller, thereby causing a conflict of interest.

The legal and judicial system deserves mention. Had the police investigated acts of fraud and the judiciary found perpetrators guilty and effectively punished them it would have demonstrated a serious resolve to stamp out such crime.

The next category may be uncomfortable to many, but the purchaser must also take some measure of responsibility. Those purchasers who came from the UK are well aware of the stringent safeguards that are in place to protect them when buying property there. Yet when they come to the sun they forgot all common sense and seemed to believe that the nice developer’s solicitor would be fine working for them as well!

They also failed to ask the nice solicitor whether his firm would conduct a thorough search on the property and the financial circumstances surrounding it! How do we know what level of search is conducted unless we ask? We cannot assume that standards are the same as those of our own country.

And what of the purchaser who does not want to pay their transfer tax? There are probably in excess of 130,000 people who are awaiting their Title Deeds. Many have waited for over a decade and may not wish to pay this additional tax, particularly if they are to be fined for any improvements and additions they have made to their property over these intervening years! Transfer tax is an unfair tax in that it cannot be predicted when it is due. It is also open to corruption, both from the purchaser/seller and the state. In addition there is no compunction to accept your Title Deeds.

Would it not be better to increase stamp duty (an incorruptible system because the revenue from the stamp purchase goes directly to the government) a little because a “little of something is better than a lot of nothing”. Stamp duty is also collected at time of purchase not at some indeterminate later date when titles are transferred. Those property purchasers who did not want to pay transfer tax would no longer have any incentive to delay or obstruct.

Finally, the government needs to take its share of the blame. But wait a moment, which government? This problem has been going on for many years, but the advent of the Internet has meant that this dirty washing is now being thoroughly aired world-wide, and the uncertainty of the economy has caused panic amongst those who now know that their properties are at risk. Certainly, to my recollection, there were incidents of developer malpractice dating back at least 12 years.

And how many governments have tried to address this problem and introduce legislation in an attempt to improve the credibility of the property market? Only one: the current AKEL led administration. However their attempts to drive the five complex strands of legislation through Parliament are continuously obstructed by special interest groups leaning on Members of Parliament to support their vested interests. It is not the government who should take all the blame – indeed they have tried to do something about it – but parliamentarians. They have failed to realise that, in their bid for popular support, they have put the future of Cyprus’ property market and indeed the economy at risk.

In the same way that the UK property market is dependent on first time buyers the Cyprus property market is dependent on foreign buyers because its domestic market is not large enough to stimulate a recovery. The foreign market was traditionally dominated by British purchasers who fell in love with this island on frequent holidays. Other nationalities, notably the Russian market, are being touted, but, guess what? The Russians use the Internet as well and are increasingly cautious. We now have a prophecy which has become self fulfilled!

(Name and address withheld)

Readers' comments

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  • aluminum extrusion says:

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  • out of the frying pan into the fire says:

    Well it’s all here and you have to agree. I still think it’s worth while getting onto our Euro and UK MPs there is not much else we can do. Apart from warning every one we meet about the dangers of travelling to and buying property in Cyprus. Fraud by lawyers is endless so who do you trust ?

    Sorry I can’t answer that question.

  • Odd_Job_Bob says:

    The ECB is basically Germany. Angela Merkel knows it’s political suicide to continue writing blank cheques to poor relations and the watered down package of reforms she wanted in December is still not watered down enough for the indebted nations (i.e. the Greek and Irish governments want their bond-holders to be bailed out by the ECB if/when they default). At some point, Germany will pull the plug and no-one else gets bailed out. Cyprus banks will default and as Johnny Cyprus states below, don’t leave any money in Cyprus banks. Or in Euro at all, for that matter.

    Where does that leave us?
    There won’t be any reform of housing practices as there will be no need to.

    This whole Cyprus property scam was not about property. Anyone and his dog (former goat herds, teachers, solicitors, shop-owners) who owned a bit of land (some even didn’t own land they just had access to capital and built on OTHER’S land) could borrow against it, sell property built on it, borrow against it AGAIN, possibly sell the same property again and then build more, repeating the process ad infinitum. We KNOW that a lot of money borrowed to build property went into nice cars and holidays and foreign bank accounts, with some properties never even being STARTED. There are so many irregularities in the system because the system was not designed nor intended for the building, sale and regulation of property transactions on the scale witnessed over last few years. This scam could have taken place over any so-called asset, it just so happened that the asset concerned was property, as there was a large and gullible expat population who were willing to give the borrowers even more money for it.

    If anyone disbelieves, just look at how, instead of trying to find solutions, the government emphasis is on fleecing even MORE money out of us. I’m sure there were many Cypriots kicking themselves with disbelief at how the worthless bit of dirt track that’s been in the family for years was now worth up to €5,000 per square metre…

    It’s the very structure of the EU that allowed these chancers to fill their boots. Watch and see what the EU does to resolve the problem…

  • Bill Williams says:

    Coincidentally, today I have received an e mail from a long established Larnaca developer, advising me that my deeds are ready. Credit where it is due. As a balance, I am still awaiting deeds after nearly 6 years from another well known developer in Paphos.

  • Johnny Cyprus says:

    Up to 2008 a large part of the Irish Banking sector was directly or indirectly controlled by Developers and Building Contractors. Deposits were diverted into soft loans to these peoples businesses and reckless mortgage lending to the buyers of the property they built.

    When the money ran out the Irish government and ECB finally had to step in, otherwise the whole system would have collapsed and Depositors would have lost their money.

    Cyprus is now in a very similar situation to Ireland in 2008.

    Some large Developers might be out of business if they did not have control over certain banks.

    Cyprus buys 4 Euros of imports for every 1 Euro it exports. The ‘Economy’ has been largely supported by large capital inflows arising from foreign buyers of real estate. So successive Governments have held back from reforming the property and banking sector. They have stood back while unscrupulous practices like the so-called ‘Specific Performance’ trick bicycle was peddled.

    Maybe reform will be forced upon them soon, just like Ireland. Something’s gotta give; don’t leave a lot of money in Cyprus Banks.

  • Costas Afortune says:

    Surely anyone can now see that Cyprus is about to implode! Corruption in banks, lawyers,developers and politicians have caused this and now the whole island will suffer. With more and more people being made aware of the heartache that will follow if you are stupid enough to purchase on this unbelievably corrupt island the place will become a no go area.

    And with a large property show at Birmingham just round the corner it is known there will be over 100 protesters shouting and screaming the pitfalls of buying into the island of nightmares . We, along with many other families spent over £6000 on our Cyprus holiday last year, but never again will I give anyone on that island any of our money. Just watch all the bars, tavernas etc complaining that it is quiet and no Brits are spending here now, good ! That’s what you all deserve.

    So called honest Cypriots should be standing up and making a fuss and helping us to maintain there beautiful island and help kickstart there economy . However I don’t think they ever will and therefore deserve what they get !

  • Unbelievable says:

    @Odd_Job_Bob

    Your right and I’ve been saying the same all along..

    None of you guys are Ever going to see justice or your Title Deeds for many many years to come.

    Scream, Shout, Kick and stamp your feet as much as you like. It wont change a thing.

    MEP’s and local MP’s…hah hah hah. Little people with big job titles. What they going to do for the common people that have been tucked up by Cypriot business people.

    NOTHING FOR YOU.

    Just remember, before you throw back the keys and tell the banks to stuff their dirty dodgy mortgages, make sure you have NO assetts in the UK.

    You Know What I’m saying….don’t you!

  • Odd_Job_Bob says:

    Without wishing to “kill all hope” as I have been accused of before, I think that the reliance on the EU to do anything to resolve the Cyprus property issue is unfounded. I really would like people to read this rather heavy article: http://investmentwatchblog.com/why-the-european-union-is-doomed-the-structural-flaw-at-the-heart-of-the-e-u-dooms-it-and-the-euro-to-either-dissolution-or-radical-tranformation/

    The most important line, to my mind is this: “The Union consolidated power over the shared currency (euro) and trade but not over the member states’ current-account (trade) deficits and budget deficits. While lip-service was paid to fiscal rectitude via caps on deficit spending, in the real world there were no meaningful controls on the creation of private or state credit or on sovereign borrowing and spending”.

    Simply put, the EU was in a mess from the creation of the euro (if not before). It allowed all sorts to join the single currency and to lend to our friends the developers at cheaper rates than they ever deserved. The Cyprus government has virtually guaranteed all developers amnesty and is blackmailing us the expats to get money back for the banks and themselves, leaving the developers assets intact.

    The lawyers, developers, bankers saw a chance of getting quick money, in a completely unregulated environment, and they took it. Evil, immorality, badness, childishness and all the other things I’ve read Cypriots being accused of have nothing to do with it.

    NO-ONE WILL HELP US, not the EU, not the Cyprus government, not our government (remember, the SBAs are the British government’s only real interest here and they certainly don’t want to risk their continued presence for anything).

    We have no option other than to help ourselves. We were caught in a Ponzi scam and we are on our own with the consequences. I feel we have no other option than to consider our investments in Cyprus as losses and do all we can to not part with any more money, as well as alerting people not to put any more money into Cyprus. Unless of course, someone has a better plan….?

  • hector says:

    This problem is not confined to the South of Cyprus (ROC). Unfortunately the same applies to North Cyprus (TRNC). It is a Cyprus wide issue and therefore a stain on Cyprus and it’s people. The south being part of the EU, you would think that there would be greater chance of legal redress but sadly it appears not. It is a stain on the reputation and standing of the EU as well.

  • andyp says:

    Peter. That is a big part of the problem, who to trust? it is all very well saying get yourself a good lawyer but no one really knows until it is too late.

    Lawyers need to get rid of the crooks in their midst to encourage trust but I fear this is just wishful thinking.

  • Peter says:

    Then I stand corrected regarding compulsory membership of the Bar Association. My understanding (when I was last in Paphos Court and dealing with a British Cypriot Solicitor) was that he needed to be have passed the examination of the Cyprus Bar (which he was waiting to do) to prove competency, but membership of the Bar Association was not compulsory. I stand corrected.

    But I know that two of the defence lawyers, (both barristers) were having a laugh at one of their number having gone to “help the orphans” with over £1.5 of clients money and there was definitely no compensation for their clients. One of my neighbours also sold a plot of land and then had to sue his own solicitor who refused to hand over the money to him.

    I don’t know if when sell who you can trust with the money? Certainly not you own lawyer.

  • @Denton Mackrell – Anyone practising law in Cyprus needs to be registered with and licensed by the Cyprus Bar Association. To get this licence, lawyers (or whatever) need to sit and pass a Cyprus Bar Association exam.

  • Unbelievable says:

    I suspect that many Developers will run to countries like Bulgaria along with their millions of stolen cash.

    As Bulgaria is an EU member, I wonder if these scum bags can still be brought to justice and their assets frozen.

    As I’ve been saying for many many months. The longer the Cypriot Government drag this out, the more time they are giving the thieving dirt bags time to hide,run & filter their cash.

    So you have NO chance of EVER seeing it again!

    Land & Money will change hands from family members. These scum bags will do their best to hide their illegal hoard.

    This is going to be the BIGGEST Ponzi scam of the Century !!!

  • Denton Mackrell says:

    @Peter. As far as I am aware, there are only advocates in Cyprus and there is only one regulating body the Cyprus Bar Association (and its associated body the Disciplinary Board of Advocates). To practise law in Cyprus and represent clients in court requires the advocate to be a member of the Cyprus Bar Association. Can anyone confirm this?

    Can you or anyone explain further what the ‘Legal Association’ is?

  • Gavin Jones says:

    A well crafted letter which mirrors what many of us have been saying and writing for the last few years concerning the nefarious activities of developers, banks and lawyers. Make no mistake, this has been a conspiracy on a grand scale which continues unabated.

    The game’s up in Cyprus and there’s nowhere to hide for the ruling classes now that the property fraud involving the developer, legal and financial ‘fraternities’ has been exposed worldwide. The odd purchaser of real estate may possibly be seduced into buying a jerry-built, deedless and by definition worthless property. However, the heady days of developers taking unsuspecting buyers on rounds of wining and dining, meeting their respective families and drinking coffee in their ‘quaint’ villages are well and truly over.

    The ultimate culprits in this shoddy tale of institutionalized chicanery have been successive governments for allowing this to occur in the first place. Having said that, are any of us in the least bit surprised? The majority of the Deputies (MPs) are lawyers and many of the Ministers are members of this same ‘profession’; to emphasize this modus operandi of incestuous relationships, a leading Executive of one of the developers is one of the top dogs of one of Cyprus’ leading banks.

    What compounds this state of affairs is that this present government continues this tradition and fails to respond to the most basic of requests made to it, whether from individuals or even Members of the European Parliament, employing this weapon of silence as part of its cruel, strategic arsenal of inaction.

    The list of such ‘weapons’ has no end.

    Denis O’Hare.

    As usual, your erudite comments and general advice have been a Churchillian voice in the wilderness which has been ridiculed by some and ignored by many who chose to believe that things weren’t as bad as they were and that you were scaremongering. The reality has in effect been worse and regrettably there’s no end in sight to this nightmare of broken dreams and financial ruin. Thousands are caught up in this catalogue of corruption and their lives are in effect in a state of limbo, many with failing health and diminishing resources.

    I understand that developer indebtedness to the banks is nigh on 6 billion euros (more perhaps?) and that the developers simply do not have the resources to either pay this off or even service their interest payments. (Perhaps you have up-to-date information regarding this).

    The general view is that the end of the line has been reached and I have to admit that I concur. The European Parliament dimension/involvement seems to be wanting and I suspect that apart from platitudes of support and ‘shock’ at what we tell them is happening here, this is the best that we can hope for – certainly at the moment: I suspect that they’re more focused on events in Libya, Syria and elsewhere, not forgetting the financial turmoil in Greece, Ireland and Portugal.

    In conclusion, thank you for your efforts and detailed, factual exposure of this scandal.

    Once again thank you too to the writer of the letter – whoever he or she may be.

  • Peter says:

    There is no requirement for practising Cypriot lawyers to belong to an organisation such as the Bar Association (Barristers) or the Law Society Solicitors. In Cyprus there is no difference between a solicitor or a barrister you can use either for your house purchase.

    Further unlike the UK the Legal Association does not indemnify the dishonesty of the Lawyer, so if they abscond with your money you are the loser. You can make a complain to the Association about a lawyer but it is pointless as that individual will just relinquish their membership (if they were a member in the first place). One Lawyer recently ‘did a flit’ to Bulgaria with over £1.5m of clients money. The client’s are the losers, so be careful to who the proceeds of your home are handed over to, you may have just given away your home for nothing.

  • andyp says:

    I agree with both Denis and Denton.

    The Lawyers are fully responsible for protecting their clients and the Government have done very little other than protect The Banks and The Developers.

  • Denton Mackrell says:

    It is correct that some buyers did not do much checking on the lawyers and their relationship with the developer. However, to suggest that it was a majority is incorrect. Many developers and the supposedly independent lawyers used by the purchasers were extremely ‘economical with the truth’ in answer to questions by sensible buyers. Deliberate falsehoods were uttered (and put in print), such as ‘the property laws in Cyprus are the same as in England’ and ‘you will get your Title Deeds in 1-2 years; this delay is normal and there is nothing to worry about’.

    If the industry, including the lawyers, made it such a badge of its honour that the system was ‘just like in the UK’, is it any wonder that so many buyers were duped? These deliberate misrepresentations regarding property transactions are outlawed by the EU Unfair Commercial Practices Directive but there is no evidence that the Cyprus government has any intention of enforcing this Directive in relation to immovable property. Indeed, at one stage it even stated (wrongly)that the Directive does not apply to immovable property! That may still be its position in practice.

    Is it really the buyers’ fault that they were not informed that in Cyprus there is no compulsion for your lawyer to do a proper search at the Land Registry as would be the case if it really were ‘just like in the UK’? Is it really the buyers’ fault not to know that unlike in the UK the lawyers’ professional body the Cyprus Bar Association and the Disciplinary Board of Advocates are there to protect the lawyer and not to offer protection to the client in instances of alleged negligence, malpractice or fraud? Is it really the buyers’ fault that they did not know that the Cyprus government turns a blind eye and a deaf ear to ensure that the industry can carry on their nefarious practices unhindered?

    BTW, a minor error in the letter. The Law Society, the UK regulatory body for solicitors, does not operate in Cyprus. In Cyprus, the nearest equivalent (but see caution above) is the Cyprus Bar Association and the Disciplinary Board of Advocates

  • Denis O'Hare says:

    This otherwise excellent letter gives the present government far too much credit.

    This government was actually forced into doing something about the property scandal by pressure exerted by the EU and British government following mass lobbying by supporters of the Cyprus Property Action Group. The gist of the complaints being about developer mortgages.

    The EU and UK and, obviously the buyers, were then deceived by the government into believing that the planned legislation would address developers’ mortgages, until the myth was well and truly debunked at a CPAG seminar in March 2009.

    Even in a Q&A interview with the CM dated Nov 15th 2009 the Minister of the Interior was asked ‘Question: But where does the problem of developers’ mortgages fit in? The laws create a right, but there are debts hiding behind that right.’ To which the Minister replied ‘That is irrelevant. Under the special execution order process, if the buyer can prove he has paid what he was supposed to, the Title Deed can be issued, and let the bank solve its problem with the developer.’ As we soon found out this was pure fiction.

    This latest legislation is basically to cover up for the sins of errant developers and the failure of this and previous governments to enforce planning laws which facilitated the developers to deliver illegal properties to unsuspecting buyers.

    These buyers will also now become victims for a second time as the government legislates to pass the developer’s mess on to them, and in some cases, a property they are forbidden from selling or mortgaging. Dodgy Deeds – consumer protection Cyprus style!

    Finally, in a statement published in CM dated 22nd July 2009 the Minister opined the following:

    ‘In that sense, the property market in Cyprus is stable and secure, and property buyers must be absolutely certain that their investments are safe here; indeed, property investment is much safer in Cyprus than anywhere else. Indicatively, I could mention that despite the global financial crisis and the collapse of the property market all around the world, and in much of Europe, the estate market in Cyprus is quite healthy and still in positive growth rate.’

    Tell that to the many buyers whose developer is in financial trouble, or has already gone bust, and who risk losing their homes Minister!

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