THE property sector served successive governments well as it formed a stable source of income and employment for a number of years. The sector’s importance grew from 2002 – 2007 as increased overseas demand was further fuelled by a general feeling of euphoria and by the parallel credit expansion of all local financial institutions.
The decrease in transaction volume in 2008 and the subsequent fall in prices since 2009 were both dismissed by government, banks and other “experts”. The game was lost then and there, as instead of acknowledging that the island had a problem the “collective” choose to pretend that all was well. The calls for reforming the Land Registry’s system of issuing title deeds was dismissed as being “just some English guys complaining”, the lack of due diligence in granting loans and overdraft facilities as “in Cyprus we know our clients”, and the need for increased transparency and accountability in rules and regulations by “if it works – in our favour – don’t fix it”.
The “spoils” were consumed by all as property related companies became prized clients of banks, financed football teams, and provided employment for an increased number of subcontractors and overseas workers. Frankly, no one is to blame for “taking a cut of the action”. In retrospect however we should have been more sceptical, prudent, and ethical as to where and how “the action” was taking us.
The worrying is the handling of the crisis since. There has been no reform of the Land Registry’s system of issuing title deeds (out of 430,000 residential units, a reported 130,000 do not have one), the planning regulations have become even more, and there continues to be a complete lack of enacting and enforcing regulations. There is a continuing dismissal, mainly by bankers, of calls to improve due diligence processes and an on-going questioning of the level of decrease in prices. How can anyone who works for an organisation whose share price has decreased by more than 95% in two years wonder why real estate prices decrease is truly beyond me.
The “extend and pretend” scenario has become the staple of the current government, with a continuing discussion as to who is to blame for the crisis. Frankly, no one cares. If I am unemployed (12.2% unemployment rate and rising), in negative equity (prices are down 30-40%), and the cost of living and taxes are rising (and further tax hikes in the New Year), I have more immediate concerns than to ponder why I reached that point. I need a vision, a plan and hope. Not moaning.
The recent “storming of parliament” by government workers is simply a result of politicians lacking the necessary leadership skills to explain to their constituents that because we had such a great time from 2002-2008, now it’s time to pay the bill. The easiest way to explain what that means is for you to think of your life in 2000. That’s where we, society and businesses, need to adjust to in terms of income and spending.
The country needs to decide if it’s going to going to be Greece or Ireland (in handling the crisis. Both countries are in a similar mess, but in Greece the birth rate is down as couples worry about affordability whilst in Ireland it’s up as couples spend more time together. Same problems. Different attitudes.
Postscript
A note about the recent euphoria relating to the Chinese and others buying property in Cyprus. If you are hungry you can order take-away; but if you do it too often then you end up lacking nutrients.
Unless the system is reformed the country cannot move forward. Already the first signs of discontent have been heard with Chinese complaining that they are being sold overpriced properties.
During a recent valuation, we reviewed transaction prices in a project in Peyia, Paphos. Transaction prices in 2007-2008 were at €180,000 and in 2010-2011 at €130,000. There were two entries for 2012 – at €300,000 and €320,000 respectively (the minimum to apply for a residence permit is €300,000).
Another chicken is being primed.
About the author
Pavlos Loizou MRICS is the lead consultant at Leaf Research
Leaf Research is a real estate consulting firm, providing high quality real estate market research, strategic consultancy, valuation, and financial modelling.
@ Paul Lambert.
Sorry Paul but I think you will find that the Cypriot legal system is now based on both the Russian and Chinese systems.
One day Henny-Penny (the Chicken) was picking up corn in the corn yard when–whack!– something hit her upon the head. “Goodness gracious me!†said Henny-Penny; “the sky’s going to fall in on the property market; I must go and tell the President before it’s too lateâ€Â
Question is, when Henny-Penny got to Catastro-Cocky Locky-fias just in time before the sky fell in, did he take any notice?
Probably not, and we can safely assume that Cocky Locky blamed everyone one else for the sky falling in, including Turkey Lurkey!
@Stuart. BSE also stands for Bovine Spongiform Encephalopathy (mad cow disease). Maybe that is what ails them all.
It would be a good idea if members on some Cyprus forums read this latest document.
We tried a move in 2008 and found out to our cost just how much wrong information had been posted on some forums.
We didn’t sell up in the UK and were able to return there, the result was that we were vilified for posting the things we’d experienced during our short stay, things that no-one ever posted whilst only looking through ‘Cyprus coloured glasses’.
Corruption invariably manifests itself as arrogance and invincibility – both characteristics of the present Cyprus government which imagines that the gravy train can never hit the buffers.
However, history demonstrates that what goes around comes around and the day of reckoning will ultimately arrive when the Cypriot economy totally collapses despite all the wake-up calls and reliance on foreign intervention.
The culture of BSE (Blame Someone Else) will ensure that little or no attempt will be made to address the fundamental problems of weak governance and the spiralling decent into fiscal chaos. There are none so blind as those that cannot see.
I’m afraid that Pavlos Loizou is but one of a possible handful of people in the Cypriot property business who dare to put their heads above the parapet and tell it as it is.
As for the rest, their silence in effect condones criminality and condemns their country to pariah status.
We had cause to speak with a Paphos barrister earlier this year about the banks and developer loans etc. Her firm belief was that because of the exploitation of gas etc, hordes of Russians will be queuing up to invest in the country. Her advice to us was to ‘go swim in your pool and enjoy the sun and wait for a Russian to buy the company and pay off the debt’. And this is supposed to be an educated, intelligent woman?
Of all the politicians in Cyprus, does anyone know how many were lawyers in a previous life?????
I just wonder if in very small Chinese and Russian print at the bottom of their contract for the property that they bought with a big under the counter cash payment it states ” you will receive your residency permit with your title deeds” then the cat will be in amongst the pigeons, sorry chickens.
I think the chicken comparison is a good one but of course we could also mention the ostrich as well ! Their collective heads stuck not only deeply in the sand but in many cases firmly up their backsides. The extent of corruption is now out in the wider domain. Cyprus is now in the European Union, usually a gravy train for everyone. ( do you like the link ? chicken, ostrich, gravy ).
Unfortunately for the government of the island, and those connected with the property business, there are some rules to be complied with! Rules? What are rules they say? We never had rules before and if we did we certainly ignored them completely. Rules are for mugs, particularly Brits who buy property. We are friendly to their faces but we despise them really.
Well wake up you Cypriots. Sure we can be a little bit too trusting but that’s a virtue not a fault. Most of us live in a different world where people are generally honest. Buying a property in Cyprus has been a nightmare wake up call for us but we are fighting back. You thought you could just ignore our complaints, fob us off with excuses whilst under your breaths saying ” who do these moaning Brits think they are ”
Well, the corrupt amongst you are being well and truly challenged, not only in your courts but where it matters, at the High Court in London and at an EU level. Yet another guilty party is being brought before proper justice next week and I will be there to see it happen. I promised Alpha Bank, Alpha Panareti and the Cypriot solicitor that I would never give in til I saw them in court and that is now happening. In a court where we can expect a fair hearing and honesty. I suggest the Cypriot legal system should look on and learn! Your system is NOTHING like the one in the UK, whatever the claims of those selling Cypriot property. Our time has come and those who have wronged us should be very worried.
What a true to rights article, send a personal copy to all the officials who helped to get us into this mess. It may make them take their head out of the sand and take more notice of what is really going on around them.
Regards.
@Denton – I have also been advised that Russians, Chinese and other non-EU nationals have been told as part of the sales pitch that once they get a residence permit in Cyprus, they can travel throughout Europe.
It will not take them long to realise that the truth is somewhat different!
The belief and expectation that Chinese buyers will save Cyprus’s bacon (at least on the property front) is utterly naive and preposterous. It lacks an understanding of the Chinese psyche.
I spent quite a few years working with Chinese in the Far East. They are globe trotters to be sure but will show no long-term patronage to any foreign land unless they obtain real, distinct and significant advantages by so doing. At the first hint of trouble, poor quality, overpricing, lacklustre returns or being generally cheated, they will be off like a shot to other places.
Think very clever but ephemeral and faddish.
Now look at the Cypriot approach to them as exemplified in Mr Loizou’s article: ah, another bunch of rich foreign nerds to be fleeced.
Ergo, the sweet-and-sour pork is going to be more sour than sweet for the Cyprus property market.
Not long returned from Cyprus after selling my property.
Re comments Chinese property buyers, I recently had a discussion with a Cypriot who is convinced the Chinese will save Cyprus, and in his opinion the English make too much trouble and no longer welcome.
I hope the Chinese get to understand the corruption that’s so evident.
Many of us have been highlighting this growing pile of weaknesses in Cyprus since 2008, amazed that the country, led by an incredibly weak government and President, was happy to remain in a complete state of Denial, even when the evidence was already emerging starkly in ‘Best Friend’ Greece that the price to pay for profligacy and slack control includes not only deep economic pain but also rapidly increasing levels of unemployment, social unrest accompanied by a rapid decline in national competitiveness. Now Greece is into its 6th year of all of this, whilst Cyprus is only just at, or close to, the very Beginning.
So, Yes an excellently detailed article by Mr Loizou. Those of us who have been predicting this nightmare scenario have been doing what we can to protect our own interests, assets, lifestyles but far too many have, sadly, been caught in the lethal cocktail of structural and moral weaknesses in and around the the realms of property, legal and banking in this country, overseen (but not acted upon) by a weak government led by a naive ‘blame everyone else but me’ president.
Only now might the long road to economic recovery begin – and yet the serendipitous nature of Cyprus character still seems to believe there will be some form of economic or divine intervention that will ‘get us out of this hole’ – meantime I fear they will decide to just keep on Digging – or maybe Drilling! – until the next anticipated Miracle occurs.
The problem seems to me to be the ‘Cyprus’ view of what other nationalities want. Sun, air and even better scenery can be found many places that caters better for foreign buyers and treat them equitably.
Why would anyone pay €300,000 for a property and wait 6 years for title deeds?
Chinese buyers, apart from residency, want things to do and easy travel access. With a national airline that does not support travel to Asia, it seems incredible that deals are being made with airlines that charge €900-€1100 for economy return fares to China, when many European airline charge €700 or even less for return from EU capitals.
The lesson to be adopted for success is to to ‘give’ buyers and visitors what they want and need ie easy travel access, plenty of things to do including Wednesdays, Saturdays and Sundays, fair legal protection for property buying and management, and much better building quality.
China buyers and investors generally have no time and patience in accepting ‘metered out’ services the way they are done in Cyprus.
How many years will it take for change? In the meantime many people’s lives will be ruined!
If the Chinese fuel the problem then when will it ever end????
A depressingly accurate commentary, which is matched by a piece entitled Cyprus Problem: Truth About Devastated Cyprus Economy Exposed at the overseas investors’ website. The latter is even more forthright about the property scandal.
I share Pavlos Loizou’s obvious frustration at the refusal to recognize the need for fundamental change in the face of a calamity. A recent paper on causes of man-made disasters cites the following combination of reasons for such failure:
Weak or non-existent management systems;
Weak or counter-productive risk culture;
Inappropriate beliefs about and attitudes towards risks;
Ignorance and bounded rationality;
Failures of hindsight and organizational learning;
Authority, conformity and group-think (Polyviou was very critical of these issues in the Mari disaster report);
Tendency to wait and react to crises rather than pre-empt and prevent them.
I detect all of these, both in the Cyprus property debacle and the general economic crisis in Cyprus.
Have the Chinese buyers been informed of the Title Deeds situations and malpractices in Cyprus?
I suspect the developers, bankers and lawyers will be booking a property road show in the Maldives rather than getting a grip on reality and resolving the problems.
In my opinion we will see no real change until the industry totally collapses. If the door is left ajar this lot will go for it to continue the now fruitless hunt for new victims.