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Revised Cyprus EU bailout terms leaked

Update 4th April 2013 – The revised Memorandum of Understanding between Cyprus and the EU has been leaked to the press and appeared exclusively in today’s edition of the Greek language newspaper Phileleftheros.

PHILELEFTHEROS, the Greek language newspaper, published the full text of the revised Memorandum of Understanding between Cyprus and the Troika earlier today in an exclusive report. You can read the full text of the Memorandum in English by clicking here.

The key points in the MoU relating to property are as follows – updated 4th April 2013:

Regulation and supervision for banks and cooperative credit institutions

Strong efforts should be made to maximise bank recovery rates for non-performing loans, while minimising the incentives for strategic defaults by borrowers. The administrative hurdles and the legislative framework currently constraining the seizure and sale of loan collateral will be amended such that the 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 2.5 years. Based on a report commissioned to an independent expert, the necessary legislative changes will be submitted to Parliament by [mid-2014] and implemented by [end-2014], macroeconomic conditions permitting.

Non-performing loans are threatening bank profitability and need to be properly monitored and managed in order to safeguard the banks’ capital buffers. The Central Bank of Cyprus’ guidance on the classification of loans as non-performing will be amended to include all loans past due by more than 90 days. This amendment will be introduced by [30 May 2013]. The time series for non-performing loans will be published including historical observations reaching back as far as possible.

Revenue measures

Ensure  additional  revenues  from  property  taxation  of  at  least  75  million  by:  (i) updating the 1980 prices through application of the CPI index for the period 1980 to 2012; and/or (ii) amending tax rates and/or (iii) amending value bands.

Revenue administration, tax compliance, and international tax cooperation

The   authorities   will   propose   a   comprehensive   reform   plan   to   improve   the effectiveness and efficiency of tax collection and administration by [Q4 2013], for implementation as of the budget year 2014. The reform shall encompass the following elements:

Strengthen  powers  by  the  tax  authorities  to  ensure  payment  of  outstanding  tax obligations, e.g. by having authority to seize corporate assets, prohibiting alienation or use of assets including property and bank accounts by the taxpayer;

Harmonise the legislation among tax types so that not paying taxes is a criminal offense regardless  of the type of tax  and  that  there is  an  administrative appeals process for all of these taxes before going to the courts;

Immovable Property Tax Reform

The following measures will be taken to increase revenue and to improve the fairness of the tax burden by levying the recurrent property tax on current market values. An additional objective is to reduce overhead cost in tax base administration.

In view of this, the authorities have agreed to implement the following measures:

Implement  a  property  price  index  that  establishes  the  average  property  market valuation in 2013 by square meter of habitable surface and land plot. This index shall be  operational  to  provide  imputed  market  valuations  for  each  non-agricultural cadastral  plot  [Q2  2014],  in  time  for  its  application  in  the  calculation  of  the immovable property tax in 2014. The index shall vary according to location and zoning as well as other building- and plot-related characteristics. Moreover, propose and implement a methodology for annual updates of such imputed market valuations;

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 [Q3 2014]. The tax rates shall reflect the progressivity and revenue of the preceding property tax. For co-owned land plots, individual owners shall be taxed according to ownership proportions as provided in the cadastre;

Establish the legal basis for a mandatory annual adjustment of the property unit tax base by a competent executive authority [Q3 2014]; and

In order to retain a stimulus to property demand and reduce distortions in property prices, provide for an extension of the reduction in property transaction fees until 2016 [Q2 2013].

In addition, the following studies should be initiated by [mid 2013], and their recommendations implemented at the latest from [1 January 2015] onwards:

A study on refining the parameters of the imputed property market value index within the bounds of administrative and legal simplicity. In particular, the study shall assess the feasibility of a unit tax base for individual dwellings. Moreover, the study shall report on a mechanism to dampen cyclical variations in the index.

A further study on the scope of consolidating the collection and administration of the municipal recurrent property tax and sewage tax. The study will also review existing exemptions and derogations from property taxation. It will also report on the scope of shifting revenue from transaction fees and taxes to recurrent taxation [early 2015].

Housing market and immovable property regulation

The authorities will take the following measures to ensure market clearing of the property market, allow for efficient seizure of property collateral, and for market-based assessment of property prices, as well as alleviating the factors deterring both domestic and foreign demand. A particular risk arises from legal disputes, which may be due to incomplete documentation of ownership and property rights and the slow pace of judicial procedures.

The authorities will:

Provide for mandatory registration of sales contracts for immovable property by [Q2 2013]. By [Q4-2014], 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. The authorities will enhance cooperation with the financial sector to ensure  the  swift  clearing  of  encumbrances  on  title  deeds  to  be  transferred  to purchasers of immovable property, and implement guaranteed timeframes for the issuance of building certificates and title deeds;

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 [Q4-2014]. Personal data privacy legislation shall be reviewed and amended to alleviate legal impediments to such electronic access, in particular concerning the procedures for proof of legal interest [Q2-2013];

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. The authorities shall enact regulations to provide for the conclusion of such private auctions within shortest feasible timespans (see 1.5) [by end 2013]; and

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. Moreover the authorities shall 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 [Q4-2013].

Further reading

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

Readers' comments

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  • Pete says:

    Unfortunately John, you appear to be one of many. The lawyers, developers etc have at best a sloppy attitude to the way they go about things and at worst, they know full well there is no practical way any of us can gain redress. OK, we might be able to get them into court at some distant future date but what then? Their cousin, uncle, brother, nephew etc will see to it that Johnny foreigner gets shafted again. What’s needed is that the law, ALL LAWS, are enforced with penalties in place to ensure those who ignore or break them pay dearly in cash or custody. Will it happen in Cyprus? My backside has more chance of knitting a pair of gloves!!

  • john weston says:

    My wife and I have a property that we live in, since Oct. 2007 and we still have no Final Completion Certificate. Despite very many attempts over this time to shame the Developer to fulfil his contract of obtaining our Certificate and Land Division, he evades the issue. Nor does he answer our enquiring e-mails.

    A further problem disclosed to us, involved an earlier developer, who had not fulfilled a contract with the Town Planning–made in 2004, which has been also cited as an impediment to obtaining our FCC. This developer (declared “Broke”) has since been made Mukhtar of our village!

    Our first solicitor deceived us into believing that, after 3 years it was normal to acquire our Completion Certificate. When instructed to pursue this acquisition, he refused to correspond and also ignored our e-mails asking him for progress. We had to abandon him and our 1200 Cyprus Pound fee for obtaining all documents to our House Deeds.

    We have learned from Paphos District Council that, we should not be living in our house, until the Final Completion Certificate was acquired.

    We are loathe to use our present solicitor, while so many anomalies prevail, since we could be throwing more good money after bad. Nor do we know, how “surely” to bring these people to account.

    We have become prisoners in our home, because we are now told by the Paphos DC, that we are forbidden to sell our property.

  • Alpha Papa says:

    How about the banks having to reimburse all victims of misselling of properties in Cyprus.

  • PLEASE NOTETHIS ARTICLE HAS BEEN UPDATED TODAY TO REFLECT CHANGES RESULTING FROM LAST MINUTE NEGOTIATIONS.

  • Maxwell Raymond Hannah says:

    Hi All
    I personally think that Janner is Right, when He says “The Problem IS the Law Enforcement” No one really takes the Law Seriously, If THEY can quite blatantly Motor Bike THROUGH RED Lights and when Policemen can also do this even when there is real risk of an Accident Happening. what chance do we have, when it comes to “REAL LAW ENFORCEMENT”. The Cyprus Government Themselves, HAVE to abide by the Rules and Law, Otherwise Forget it, The trust has gone BUT will come Back I`m sure if people Feel that this is the Case. Title Deeds to be Issued / would be Nice, Trust, that’s the Key. We will have to wait and see !!
    Regards
    Maxwell

  • Martynxx says:

    No Surprise that no-one on here seems, yet anyway, to see any reasons to be cheerful.

    @Janner, you explain the real ‘baked-in’ underlying problems in Cyprus very well.

    So, someone with a nice existing, structurally sound property with full Title Deed (even a new, sexy, Digital one that, to be honest, puts the UK Registry documents to shame), all purchase and ongoing taxes paid and, importantly still LIKE living on the island, as does the family, should continue to Enjoy, recognise that our property’s value, like all others, will fall still further but hope that the overall Quality of Life doesn’t diminish.

    Then, one day, when the Cyproperty markets finally bottom, (guessing about 2020, that really would be 2020 vision if we can get that one right!!) get in and buy a couple more, maybe!, always providing some of the silly, sloppy and sometimes downright fraudulent practices of the past have been ‘put to rest’. Maybe the MedGas will be flowing, perhaps the ill-fated Euro will have emerged in a more practical (2-tier) form and ‘austerity’ may have become a thing of the past.

    Oh, well, here’s hoping!

  • Costas Apacket says:

    OK thanks Nigel, I’ll let you know if this is how it works for me when I’m finally offered the golden fleece!

  • @Costas Apacket – The market value of a property is what someone is willing to pay for it, regardless of whether it’s bought off-plan or not.

    If there is a demand for property its value (i.e. what people are willing to pay for it) will rise. And when demand falls, its value will fall.

    You can see this in commodities such as crude oil, sugar, tea, coffee, etc.

    The DLO plays no part in valuing property. The Land Registries know what prices are paid for properties from the contracts of sale deposited with them. And using this information they can assess the market value of a property based on similar properties sold in the same area at the same time.

    Let’s say you buy a property at €150,000 and two identical properties in the same area are sold for €175,000 and €200,000 at the same time. The market value of the property will be €175,000.

    So you may be asked to pay Property Transfer Fees based on a market value of €175,000 – but the person who paid €200,000 will pay Property Transfer Fees on the price he paid (because that’s the way the Land Registry seems to work.)

  • Costas Apacket says:

    Nigel, Thanks for the link.

    So for an off-plan property purchase, it would appear to me that there is no ‘official’ valuation process before the property is built, and it appears that someone, (The Developer?), just decides what they can sell the property for and this is the price that is shown on the Sales Contract?

    In my own case it would appear that once the Certificate of Final Approval was issued there was a ‘Site Meeting’ involving the DLO and local officials, which may have been used to value the property?

    Who Knows, it’s all very opaque?

  • Janner says:

    @Martynxx. The problem seems to be enforcement of the law. You can have as many laws and directives as you like but if the Cypriot Government and the EU do not want to enforce them there is very little anyone can do. I am sure Cyprus will resist any measures to modernise. Lets face it. By breaking the rules there are easy bucks (or rather euros) to be made. It also seems that there is a lack of will from the top down to class any complaint regarding property as the criminal offence of fraud. This speaks volumes about their intentions.

  • Martynxx says:

    I don’t know any thinking non-Cypriot person who doesn’t believe it is HIGH time the entire Property Purchase, Financing and Property Taxation processes in this country should be completely overhauled, with a Massive clear-up of the various sloppy systems, situations that have been allowed to develop over recent ‘boom times’. If this new MoU via its complex vocabulary insists that this happens then its clearly a Good Thing – start in earnest clearing the many problems of the past, set out a detailed set of laws and allied Codes of Practice, strictly regulated from the start to ensure anything like this horrendous situation never happens again.

    Will the new MoU achieve a clean, clear and progressive set of rules, boundaries and severe penalties in the event people here and their overseas ‘associates’ think they can simply, slowly fall back to past habits?

    Personally I have vey little confidence at this stage that all – or even most – of what is demanded by the Troika, is certainly needed, actually happens, if it doesn’t then massively increased awareness elsewhere of the cons, ‘double indemnity’ banking practice, unregulated sloppiness and downright frauds that have occurred in the past will ensure that the Cyprus property markets never blossom again!

    In which case many of us who remain here will be the losers, in terms of a further sharp decline in property values, a much lower level of Cyprus economic activity, even the loss of large tracts of what had seemed a ‘solid’ tourism base in the face of ever-increasing competition elsewhere.

    Anyone see any Reasons to be Cheerful?

  • @Costas Apacket – It’s explained on my website at Property transfer fees

  • Costas Apacket says:

    Nigel- when you say, ‘the assessed value of the property at its date of sale’, who would have assessed this value plus how and when would they have done this?

  • @MarkD – “What will need to be done to make this happen?”

    A comprehensive re-engineering of the whole process I would imagine.

  • @Dee Vickery – Property Transfer Fees are based on the assessed value of the property at its date of sale. The MoU has not changed this.

    The revaluation relates to Immovable Property Tax, which is currently based on the 1980 value of a property.

  • Dee Vickery says:

    Does this proposed re-evaluation mean that I will have to pay transfer tax on today’s evaluation rather than on the price I actually paid in 1990 (C£32k)?

  • John Swift says:

    But this is Cyprus.
    You don’t expect clear truth surely.

  • Andrew says:

    Hmm, so developers will be asked to repay their loans then they will throw their arms in the air and say they have no money. This will be true because they will have spirited away the money paid to them by home buyers. These same developers will declare bankrupt and a fire sale of homes, already paid for, will begin. The bankrupt developers will start up again under a different name and so the cycle continues.

    Maybe this is wrong and the powers that be will issue a statement to say that anyone who has used the Cyprus legal system in good faith and has paid in full for their home will certainly never lose it?

  • MarkD says:

    “The authorities will: Provide for mandatory registration of sales contracts for immovable property by [Q2 2013]. By [Q4-2014], 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. The authorities will enhance cooperation with the financial sector to ensure the swift clearing of encumbrances on title deeds to be transferred to purchasers of immovable property, and implement guaranteed timeframes for the issuance of building certificates and title deeds; ”

    What will need to be done to make this happen?

  • Janner says:

    So what does that mean regarding developer NPL’s? Will the banks be forced to sell the properties to cover the NPL which used the land (and everything on it) as collateral? Or does it mean that they will just be forced to sell mortgaged properties with NPL’s without tackling the developers NPL linked to the land?

    I’ve heard that some developers loans have been non performing for years, so they must be bankrupt. I guess the banks will have to sell the land and the properties sat on it to try and recover this loss.

    Interpretation anyone?

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