- Cyprus Property News Magazine - http://www.news.cyprus-property-buyers.com -

Banks not pressuring developers to service their loans

ON THURSDAY we reported that residential property prices had fallen for six consecutive quarters according to the Central Bank of Cyprus’ latest Residential Property Price Indices.

However, speaking to the Sunday Mail, economist and ex-banker Symeon Matsis said that the fall in property prices would have been worse if the banks pressed developers to service their loans by reducing property prices still further to encourage sales.

According to Mr Matsis developers’ arrears are on the increase and the banks are bracing themselves for a further haircut on their Greek bond holdings.

(Eurozone finance ministers agreed that banks should accept bigger losses on their Greek bonds but have not said how large these losses should be. In July, banks tentatively agreed to take a haircut of around 21%. But analysts are now saying that they may have to accept losses of between 50% and 60%).

In his interview with the Sunday Mail, Mr Matsis said that “The banks are not putting pressure on construction companies as they fear this would have further side effects. If the companies were pressed into selling their assets, this would cause a drop in the value of collaterals”.

Mr Matsis statement confirms widely held suspicions that property developers are receiving insufficient income from property sales to service their loans – and that the banks are not pursuing them for payment.

Clearly this situation cannot go on indefinitely and some property developers must be close to bankruptcy. The banking sector too must be very worried about the situation; but what can it do?