SINCE the Cyprus Supreme Court rejected four bills designed to mitigate the impact of the foreclosures bill as unconstitutional, rumours of mass repossessions have been spreading like wildfire.
These rumours allegedly emanate from opposition political parties who seem intent on spreading fear, uncertainty and doubt amongst those who can no longer afford their home loan repayments in efforts to gain support/votes.
But looking at the situation logically the banks have little, if anything to gain, from seizing people’s homes and mass repossessions are unlikely for a number of reasons:
- Banks need capital (not property) and they are much more likely to restructure the loans of those unable to maintain their loan repayments rather than repossess their homes.
- Anyone with property in Cyprus will know that homes need constant maintenance to preserve their value. If banks repossess homes en masse, the cost of maintaining them in a marketable condition will be significant and deplete the bank’s capital reserves until a buyer is eventually found – and the banks will also be liable for Immovable Property Tax and other related taxes on those properties.
- Mass repossessions will flood the market that already has a serious stock overhang. This will drive property prices down even further, erode collateral values, and place more borrowers in negative equity. This, in turn, will put the banks in a position where they will need further injections of capital to stay afloat.
No-one seems to have considered who is going to buy these repossessed homes. Today, the property market is a shadow of its former self and it is going to take many, many years for the banks to sell ‘mass repossessions’.
But that is not say that the banks will not repossess properties, but in my opinion the banks will focus their attentions the ‘low hanging fruit’ first. This will include property development companies with non-performing loans that have completed/part completed but unsold developments – and I suspect there are large investors waiting for these assets to be seized and sold at a discount by the banks.
The change in the law also will help the banks put pressure on ‘strategic defaulters’ – i.e. those who can afford to repay their debts but are refusing to do so due to inadequacies in the law that enable them to delay their property being repossessed – sometimes for decades.
Of course I may be wrong – but if the banks do go ahead with mass repossessions it will probably lead to civil unrest and the annihilation of the island’s property sector.
They will start with low hanging fruit and then climb up the tree until they obtain the last.
Frank is correct to highlight the plight of the many buyers who have paid in full, but are still denied their title deeds.
No one will be spared. Those who think they are safe because they have their contracts lodged prior to any mortgage will also be held to ransom.
This situation was planned years ago. As Janner points out where else does a system like this exist.
Why have the elected Cyprus MPs and Euro MPs allowed this to happen.
Indeed a war chest is needed to fight this evil but it looks like it will be a very un equal battle. Those lawyers bankers and politicians who allowed this to happen have a very big war chest and an arsenal to match.
I hope Nigel is right and justice or common sense prevails. Today of all days we can see that this does not always happen. We are speaking of financial loss while millions have lost their life fighting injustice. Lest we forget.
I agree with MH, if there are mass repossessions then property prices will fall across the board not just for the repossessed.
Developers will also have to go back to sensible prices.
It may be a bitter pill to swallow but it is a realistic pill, even without repossessions property prices must fall back to realistic levels.
It was always our intention to buy but when prices reached the levels of 2006/8 we backed off and were very glad to do so.
@ Peter Howard
I actually agree with MK 100%. He makes sense. I agree that many will not want this scenario, but it is better to get it over and done with and start the healing process than death by a thousand cuts.
With regard to the liquidator, His job is to secure funds for the Bank who put him in place. His fees are the first to be paid, so there is no concern about the eventual outcome on his part.
With regard to the Banks. They want their money, part of which will come from the ‘Fire Sales’ and the remaining amount from the luckless punter(s) who bought. Banks are not interested in the price of houses or the knock-on effect only that they get paid and their balance books look good.
Why people think the banks won’t want to depress the housing market is a mystery to me. All they want is to get their money. So I don’t think they care about the market. I don’t think the developers care either, because they have scruples?
We put our values and our interpretation on the market, and hope for your sake your are right and I’m wrong. But I doubt it. I’ve seen banks and repossessions in the UK do you think they cared about the occupants who were thrown out, or the jobs lost in the factories being closed or did they just wanted to get their share of the cake?
I would, like you, like to think the organisations are business savvy in Cyprus, and the people with the power have scruples, but then if they had, we wouldn’t be in this position would we?
Lets see what happens as with high NPLs the banks will be forced to sell distressed properties to recover revenue. This will have a major impact of property prices in Cyprus as still to high for the domestic market and no real interest from overseas investors as the rental return is low.
Nigel once again you have made an honest assessment of the situation.
It is obvious to any normal person that the banks will be responsible in their treatment of outstanding property loans. It is not in their interest to make mass repossessions and devalue the property market – their loans secured against property values will substantially depreciate giving them even more problems.
Most people on this forum have property problems, mortgage problems, and difficulty selling their properties – so I find it unbelievable when people like MK get really exited about a property collapse – and just creating more problems for property owners.
I honestly believe that this government is slowly dealing with outstanding problems which are slowly being corrected, and that hopefully the property market will improve, as well as the legal situation, and allowing many people on this forum to solve their problems.
Even if many property ‘purchasers’ in Cyprus have been badly hurt by the Cypriot banks; there must be a substantial number who used the proceeds of selling their UK (or other country) home, their pension lump sum, a second mortgage on a property outside of Cyprus or other funds to pay the developer outright for the purchase of ‘their’ Cyprus nightmare.
These unfortunates are also threatened: not directly by the banks per se; but by the parlous financial state of the developers who have retained the legal ownership of such a ‘buyer’s’ fully paid Cyprus property. If a developer becomes insolvent (and many cannot meet their obligations); the threat comes from the liquidation process. All that it takes to start the process is for one creditor who is owed €899.01 or more to deliver a signed demand for payment within three weeks at the company’s head office and not receive satisfaction. (Experience suggests that you don’t even get a reply within three weeks: much less satisfaction.)
The developer’s assets would include all properties (sold or unsold) for which Individual Title Deeds remain unissued. Initially, the Official Receiver would be appointed as Liquidator, until a Liquidator was appointed. During the tenure of the Official Receiver, nothing really happens. Eventually a Liquidator is appointed and the bleeding commences. His remit is to turn assets into cash in order to pay the creditors.
Lord knows how he would try to turn Cypriot property into cash; as any new source of cut-price property would virtually destroy what is left of the market. I would not be surprised to see the Liquidator target fully-paid ‘owners’ with an offer to ‘allow’ them to remain in ‘beneficial possession’ on payment of perhaps 40% of ‘their’ property’s value. The option would be ‘repossession’ of something which had never legally been possessed. Certainly, I would expect such action to be the simplest way of raising a substantial sum as quickly as possible: far easier than trying to re-sell such properties.
Shed no tears for your poor developer. He is protected; not by the breastplate of righteousness; but by his limited liability company, holdings via other companies and third parties and his offshore cash pile. His only liability would be via Tort Law and you can bet that he doesn’t have a bean to his name (despite actually having more beans than Heinz).
@ Richard
What you say is very true.
I have often said that those involved should have a fighting fund. I understand that class actions are not allowed in Cyprus (unlike the UK), but that does not prevent a single test case against a bank by a lone individual which could be financed by an association.
The Orams in the North used a high profile name, Cheri Blair to fight their corner. So ‘WE’ could fight the corner in the South with someone equally as high profile. If nothing else it may make the Government look inept.
It would not be right, and it would be beyond the finances of any one individual, but there are 120,000+ without title deeds and many more who would contribute for justice. Standing together there is less chance that individuals will get picked off one by one.
Nigel as banker or the money I would say?
I do not believe it. An honest person works hard and save money to pay for the education for his kids and for any other reason the government take the money and this people are laughing the keep the house and put their money under the bed, do not forget of course the cash economy….
This the most unfair country.
For me it all boils down to legal action. Is it common practice in the EU to sell a property and lend money for that purchase knowing that there was existing debt on the land which would prevent a title deed being created for the property and issued to the purchaser? If it is common practice then we would have all known in advance and there would be bold capital letters across our paperwork informing us if this risk. If it is not common practice then we have to ask ourselves why and follow the money trail to see who has profited from these dodgy dealings. Where else is this system in place?
As for repossessions. Most of us don’t own the property anyway due to the quaint Cypriot system they clearly want to hang onto! Repossessions for something we don’t own, how odd. Again, where else is this happening within the EU?
@Janine. I wouldn’t let ‘mh’ (or anyone else on the forum who probably works for a developer or a bank – or is just – well, delusional) raise your blood pressure.
You are quite correct – many of us DID approach the banks and ask for loan re-structuring and help early on in the process (around early to mid 2009). And yes – their stock answer was: “we were not your advisors”. It was a script they were reading from. Banks have statutory duties of care (to some degree) to ALWAYS be advisors.
But this is the trap we all fell into. We judged all of the ‘professionals’ we were involved with (the brokers, the lawyers, the development companies and the bankers) by our own standards. That was clearly a BIG mistake. They were sharks. As more and more fell innocents came into the water – they had a feeding frenzy.
It’s all down to greed, corruption and incompetence. Banks will never be trusted again like they were before 2008. Many will never buy “off plan” again. Brokers reputations for quality advice and integrity are in tatters. Lawyers can have as many plaques and certificates on the wall as you like – but if they don’t look after the client’s interests – you may as well be giving your money to the mafia.
What matters now – is we bind together as one voice – and keeping shouting about what has happened to us – and refuse to go away.
On this ‘post remembrance weekend’ Monday – now that the civic pride has come and gone – the wreaths laid and the ceremonies are over – what really matters around this world is doing right to people who are alive BY people who are alive. If we don’t – then ‘remembrance’ is nothing more than ‘poppy hypocrisy’ – something I know some are more than well-versed in.
Back in 2007 plus, the banks were giving out loans like they were going out of fashion, there was no checks being run, nothing at all. Everything was based on a valuation! And we all know they were straight to start with! Nothing was discussed on interest rates, margins were ridiculous at the time and the currency of course was another major mistake… When you go to a bank you expect them to look in the best interest of the customer and this simply was not the case at all, not for anyone. When the cracks were showing and customers were asking for help the banks closed the doors. You would email them and request some form of fixed interest for a period of time, the bank would not respond, in the end the customers would give up with no choice but to stop paying.
My question to everyone would be ‘the banks as intelligent as they are suppose to be, why could they not see this coming? Why would someone continue to pay a loan bigger than the purchase price?? This should have rang alarm bells that something went wrong from the onset of taking out the loan? Yes, the developers were selling too high!, the evaluators were valuing the properties too high in order for the customer to absorb a higher loan and put less money down! It was like a vicious circle of corruption. All it would take is someone of authority to pick up some customers files to investigate and question why they permitted this to proceed!!! It’s so clear to see!! Repossession should focus on those on this position first!!! The ones that have lost out completely!
A well reasoned argument Nigel as to what should happen. The worries are, when did Cyprus Governments or Cyprus Banks make sensible, logical decisions?
Have they suddenly changed their cultures, business/lending cultures?
They, the banks, will know those borrowers who have been making ‘strategic defaults’, the worry is, will they make serious efforts to ‘sort’ loans for friends, relations, corporate ‘buddies’?
Whatever, there are going to be pile-ups in due course of repossessed properties which will further bloat the the already massive stocks of unsold and unfinished properties across the island, further depleting values of most if not all existing properties.
The Cyprus situation is similar to, but not the same as, where Ireland were 5/6 years ago – and the Irish government and banks there have generally earned praise in adopting sensitive and sensible approaches to Foreclosures/repossessions, supporting those mortgagees who had the will and the means to ‘work their way out’ of ‘difficult’ arrears situations. Property values generally fell back of course from, a la Cyprus, seriously overblown residential property markets but many deserving borrowers kept their homes and in a way this helped ‘stabilise’ otherwise plummeting markets.
How Cyprus banks deal with the dreaded ‘prior charge’ developer loans – an almost unique situation within the Eurozone – remains to be seen, of course. Even the Troika folks and banking Regulators seem to be ‘dancing around’ these unique Cyprus lending characteristics. There have to be serious and early ‘days of reckoning’ on these if medium-longer term stability is to be regained in this country..
Precisely what is required for whom? Predatory investors? Corrupt bankers who played a big part in creating the mess?
If those who are to be given responsibility for overseeing which foreclosures are warranted and justified were honest, decent people I might agree with you. Sadly, this is unlikely to be the case.
MH – you make my blood boil – you must be working for the banks, as only the banks would favour such a stupid and short-sighted policy of invoking mass repossessions. What a lunatic policy that would be! It would destroy so many real people’s lives – and for what or whose benefit – an easier to read bank’s balance sheet, or bigger banker’s bonus?
I warned one of the banks in 2009 that raising interest rates and not responding to the collapse of the euro exchange rate vs CHF, and rejecting all pleas and reasoning to assist borrowers maintain their repayments, would lead to the annihilation of the property market, and in so doing, the loans would be unpaid, and banks even worst off.
Sorry, but this catastrophe was not only entirely predictable, it was preventable. It is the banks that should pay for their crackpot policies, and total lack of understanding of even the most basic economic models. Lets repossess the banks to start with, shut them down, write off the losses with all that bail out money, and bring in some honest, ethical and competent bankers and start a fresh. (Ok, not easy in practice, but at least we can wish!)
It makes repossessions so much less painful when its done on a drip, drip basis. That way you never know when it’s your turn.
We can’t have the good name of Cyprus tarnished or the locals upset by ‘Fire Sales’.
So much more civilised in a civilised country to pretend we don’t have a problem involving money, title deeds and things we’d rather pretend didn’t exist.
Sorry but this is precisely what is needed! Mass repossessions and immediate auction with title deeds and not responsible for any other debts. Anything will sell at the right price.
Short term pain for long term gain otherwise this is going to drag out for decades.