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Cyprus draft bailout conditions leaked

The draft MoU between the government and the Troika is in the public domain. We summarise the specific points in the Memorandum of Understanding relating to the housing market and immovable property regulation & taxation.

EARLIER today, the Memorandum of Understanding between Cyprus and the Troika came into the public domain. The complete 29 page document, which includes the timetable and target dates for implementing the measures, can be viewed by clicking here.

Here is an abridged summary of the key points relating to property regulation and taxation:

Provide for mandatory registration of sales contracts for immovable property.

Eliminate the title deed issuance backlog to less than 2,000 cases of immovable property sales contracts with title deed issuance pending for more than one year.

Publish quarterly progress reviews of the issuance of building and planning permits, certificates, and title deeds, as well as title deed transfers and related mortgage operations throughout the duration of the programme.

Implement electronic access to the registries of title deeds, mortgages, sales contracts and cadastre for the financial sector and government services.

Introduce legislation on amending the procedure on the forced sale of mortgaged property to allow for private auctions as under the rules for immovable property recovery under bankruptcy regulations.

Better target the rules of court to improve the pace of court case handling. The authorities shall assess the need for additional measures – including if necessary legislative reforms – to eliminate court backlogs by end of the programme.

Provide for specialized judges akin to the rules for criminal case handling in order to expedite the handling of cases under commercial and immovable property laws.

Implement a property price index that establishes the average property market valuation in 2013 by square meter of habitable surface and land plot.

Implement the recurrent immovable property tax based on imputed market valuations of land plots according to a unit tax base established by this property index.

Establish the legal basis for a mandatory annual adjustment of the property unit tax base by a competent executive authority.

Provide for an extension of the reduction in property transaction fees until 2016.

Property pledged as collateral can be seized within a maximum time-span of 1.5 years from the initiation of legal or administrative proceedings. In the case of primary residences, this time-span could be extended to 2 years.

Ensure additional revenues from property taxation by: (i) updating the 1980’s prices by applying the CPI index over 1980 to 2012; and (ii) amending tax rates for the value bands. The new rates, which will apply to the updated values, are as follows:

For values of EUR 0 – 150,000 coefficient of 0‰
For values of EUR 150,001 – 500,000 coefficient of 6‰
For values of EUR 500,001 – 1,000,000 coefficient of 8‰
For values of EUR 1,000,001 and above coefficient of 10‰

Further reading

Memorandum of Understanding on Specific Economic Policy Conditionality between Cyprus and Troika

Readers' comments

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  • @Elizabeth CPAG – two questions have been raised in the European Parliament on this subject:

    Question for written answer E-010075/2012
    to the Commission

    Rule 117
    Auke Zijlstra (NI)

    Subject: Secret German report on money laundering by Russians in Cyprus

    1. Is the Commission aware of the reports on alleged money laundering by Russians in Cyprus ? Can the Commission say whether these reports are accurate?

    2. If so, does the Commission consider it defensible that Cyprus may receive €10 bn from the EU to recapitalise its banks, thus also guaranteeing the Russian deposits? If so, on what basis? If not, what alternative does the Commission propose?

    3. According to Carsten Schneider of the German SPD, it is inconceivable that German tax-payers’ money should be used to guarantee illegal Russian money in banks in Cyprus. Does the Commission agree with him? If not, why not?

    4. It is said that the agreements to combat money laundering in Cyprus are not being sufficiently complied with. Will the Commission take action to remedy this situation? If so, how? If not, why not?

    Question for written answer E-010331/2012
    to the Commission

    Rule 117
    Andreas Mölzer (NI)

    Subject: Protection of illicit funds thanks to EU aid for Cyprus

    Regarding the possibility of Cyprus receiving billions of euros in EU aid, concern is being expressed that this may also serve to protect illicit Russian funds deposited in its banks. According to a confidential report drawn up by the German Foreign Intelligence Service, Riussians have made bank deposits totalling $ 26 billion in Cyprus. Furthermore, Cyprus reportedly makes no difficulties about granting citizenship to wealthy Russians.

    1. As far as the Commisson is aware, do savings account deposits held by Russians in Cypriot banks actually exceed the country’s annual economic output?

    2. If so, what are the implications of this for possible EU aid?

    3. What view does the Commission take of allegations that Cyprus is failing to implement properly the agreed measures to combat money laundering?

  • @Andrew – the troika are not in a position to force through building permits, etc. I suggest that you read the full 29 page document.

  • Andrew says:

    Will they force through subdivision even though building permits and all other process etc, are not in place.

    If so Cyprus gets the money. The developer gets subdivision without having to pay his dues and the buyer gets left with an encumbered plot which he has to then pay taxes on. Long live the Troika!

    Does no one listen to the plight of the buyer who has been systematically lied to by Lawyers, Banks Developers and real estate agents.

  • janner says:

    I think (hope) Nigel and others are correct in that the money will not be handed over unless the conditions are met. Look at the effort Greece had to make to secure their next tranche of funding.

    I do not think it will be enough for the Cypriot politicians to say to the TROIKA, “Well, we’re working on it, but this is Cyprus, things take time and the unions have to agree. We are an exception to the rule” etc…….

  • andyp says:

    Why would anyone in their right mind pay more money for their title deeds if they are burdened with a developers mortgage they new nothing about?

    Would this not be the buyer, in reality, assuming responsibility for that mortgage and the developer being encouraged to walk away?

    If the buyer did this I would think that they would be in a far poorer legal position to subsequently defend any action raised by the bank if they decide to call in the developers loan.

    Madness in my opinion.

  • @MarkD – Unless the conditions are met, the money will not be handed over.

  • MarkD says:

    @nigel. Sorry what I meant to say was. Who will continue to enforce these conditions once the money has been handed over?

    Agree, troika are not concerned with the consequences of these measures they just want the debts repaid! I can’t help thinking they won’t though.

  • @Andrew – When a development is sub-divided and deeds issued for each property, they will be in the name of the developer (assuming he owned the land before the sub-division).

    If the developer has mortgaged the land, the bank will have a claim (an encumbrance) lodged against the title.

    This bailout is designed to enable Cyprus to repay its debts – nothing more.

  • @MarkD – “How will they enforce these conditions?”.

    Simple – If Cyprus doesn’t implement the conditions, it will not receive money.

  • @Denton – It’s 0.6% (6‰):

    46,500 * 3.4 – 150,000 / 1000 * 6 = 48.60

  • MarkD says:

    How will they enforce these conditions?

    Once Cyprus has the cash what will be its incentive to tow the line? Looks like its a line that can’t be towed anyway.

    I know that Troika aren’t stupid but aren’t they imposing conditions that simply cannot be adhered too?

  • Andrew says:

    “deeds can be issued even though they are burdened by mortgages and other encumbrances – but title cannot be conveyed until those encumbrances have been removed”.

    So what is the benefit to the person who has paid their developer in full, not knowing that the developer had previously encumbered the land? How will this protect the hapless buyer. Who will receive the title deed when it is issued. Will it be the buyer, the developer or the bank?

  • Denton Makrell says:

    @Nigel. Thanks for steer. Having followed your calc, the 1980 value on the deed is Eu 46,500 which when multiplied by 3.4 gives Eu 158,100 i.e. in the Eu 150,001 – 500,000 bracket with a 6% coefficient.

    Applying 6% to Eu 158,100 gives Eu 9,486. Surely this cannot be the new annual IPT!!! What am I missing?

  • @janner – deeds can be issued even though they are burdened by mortgages and other encumbrances – but title cannot be conveyed until those encumbrances have been removed.

    (Also, I this will probably apply to applications being processed by the Land Registry. If this is the case, it will not speed up the submission of applications by developers).

  • @Denton – As for the first question, this may relate to cases where houses/buildings have not been registered on the deed – and what the troika is saying is that the value on which Immovable Property Tax is calculated in these cases will be based on the property index.

    (A well-known authority on local property matters said he suspected that 50% of private buildings/houses were not registered (on the Title Deed) in his newspaper column.)

    As for the second point, many more people will pay Immovable Property Tax. For a rough calculation, multiply the 1980 value shown on your Title Deed by 3.4 and this will give you the figure on which your Immovable Property Tax will be calculated.

    (In my own case my wife and I will each pay around €150/year).

    Interestingly the document says “For co-owned land plots, the tax individual owners shall be taxed according to ownership proportions as provided in the cadastre”.

    This is different to the way the tax is calculated at present, which is:

    “For co-owned land plots, the tax individual owners shall be taxed according to value of their share as provided in the cadastre”

  • Denton Makrell says:

    @Nigel. Please could you put into plain English the meaning and effect of the following two provisions:

    1. Implement the recurrent immovable property tax based on imputed market valuations of land plots according to a unit tax base established by this property index.

    Will IPT now become payable by all on an annual basis?

    2. Ensure additional revenues from property taxation by: (i) updating the 1980′s prices by applying the CPI index over 1980 to 2012; and (ii) amending tax rates for the value bands. The new rates, which will apply to the updated values, are as follows:

    For values of EUR 0- 150,000 coefficient of 0‰
    For values of EUR 150,001- 500,000 coefficient of 6‰
    For values of EUR 500,001- 1,000,000 coefficient of 8‰
    For values of EUR 1,000,001 and above coefficient of 10‰

    Does 2 apply only to Property Transfer Taxes or what? How does it differ from the current rates?

  • Geo says:

    We have been trying to give our property back to the Alpha bank for some 4 years now so they can sell it at their “forced sale valuation” we paid for.

    THEY DO NOT WANT IT nor any other properties, all they want is money form UK assets.

    Whether you make it 1 year, 2 years they will not “seize” collateral property.

    They will, like all other banks, take the bailout and just lose it in their accounts, instead of using it to help the people they screwed up with sales/mortgages.

  • steve says:

    Nigel – It is nearly mid-day in the UK and no comments have been posted. Can we assume that you are having a deserved weekend off or have you been arrested for leaking this document. Hope its not the latter. Interesting document and I will be downloading the 29 pages for some interesting weekend reading

  • janner says:

    I don’t understand how title deeds will be issued when, I imagine, most have developer debt attached to the land. In addition to this Cyprus is supposed to create a mechanism to effectively auction off property used as collateral within 1.5 – 2 years after legal proceedings are initiated.

    This alone appears to be huge task. Forget all the other requirements from the TROIKA. We all know that it can take many years just to get relatively routine issues through the courts. I just cannot see Cyprus being able to modernise so quickly. In terms of issuing title deeds, how are they going to do this without wiping the developer debt.

    I am not overly optimistic. They will drag their feet, make excuses and resist all change. This is going to be painful and will only highlight how outdated their procedures are. When the TROIKA rock-up to review progress I don’t think that much will have been done.

    The task is simply too big for Cypriot politicians and more importantly, I do not think there is a will to change.

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