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Will NPLs sale affect the Cyprus property market?

Assessing the impact of the sale of non-performing loans (NPLs) will have on the Cyprus property market is not straightforward as George Mouskides, Chairman Cyprus Property Owners Association, explains.

Will NPLs sale affect the Cyprus property market?FORECASTING the degree to which the sale of Non-Performing Loans (NPLs) will affect the real estate sector is not an easy task.

The debate originates from the decision of the Bank of Cyprus to sell 14,024 NPLs to investment funds managed by the international company, Apollo Global Management LLC.

The borrowers of the NPLs in the transaction owe around €5.7 billion. The Bank of Cyprus in its books, after provisions, showed them at €1.5 billion.

Loss

The Bank of Cyprus will get €1.4 billion cash from the transaction, leaving it at a loss of €135 million.

It is evident that the amounts of money involved are quite substantial, both for the Cyprus banking sector loans as well as the NPLs and the real estate sector.

These loans are secured by mortgages on 9,065 properties, which is equal to the number of property sales in Cyprus for a whole year.

It is easy to understand that if all these properties are placed for sale in the real estate market simultaneously, at low prices, they will create a huge downward force on prices.

Is the above to be expected? Can it materialise?

We believe that these thousands of properties will not end up in the market at the same time and at low prices.

What will happen will depend on the plans and intentions of the fund management company.

How will this procedure actually evolve?

Settlement

Initially, borrowers will be approached to reach a friendly settlement, with the possibility of a substantial loan reduction for immediate or scheduled loan payment.

If not successful, the fund management company might proceed with a sale through auction.

It is believed that past delays in the auctions procedures will be a thing of the past since legislative amendments have been made recently.

The first auction minimum price will continue to be based on the 80% of the market value, as established by two valuations.

It is interesting to analyse the nature and type of the 9,065 properties which might go under the hammer.

Buying power

The next question that begs for an answer is if there is the buying power to generate the sale of these properties. The answer is most likely not.

Even though there is a lack of official data, we believe that the vast majority of these properties (over 80%) are unattractive properties which will be nearly impossible to sell at market prices.

In view of all the above negative factors, we expect the Fund managers to place the biggest emphasis on reaching friendly settlements. If not possible, they will be probably forced to exchange loan to property.

While any prediction is risky, we expect these funds to place the properties in the market in stages, thus limiting the pressure on the market and avoiding a sharp drop in property values.

Readers' comments

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  • rita stevens says:

    George Georgiou, are you seriously congratulating the banks for their actions? Alpha Bank was found guilty for their actions of mis-selling the swiss franc mortgages in Sept 2016 and fined 250k. Albeit a small amount for a bank who charges up to €50 for a letter, they were nevertheless found guilty. My mortgage went up by 40%, like all others paying CHF. When my case goes to court (filed almost 5 years ago) and my mortgage is reduced to what it should be, I’ll happily sell..but not until then.

    Ed: I’m afraid I’ll have to correct you Rita. The CCPS imposed an administrative fine of €250,000 on Alpha Bank Cyprus for breaching the Unfair Commercial Practices of Businesses to Consumers Law (NOT for mis-selling Swiss Franc loans.)

  • Aggis Demetriou says:

    @George Georgiou; It’s in the Banks benefit to do nothing they simply rack up the interest, the Banks change the rules when they want, some years ago the BOC UK changed the terms of contract as and when they wanted only to be faced with a heavy fine by the UK courts, here the Banks think they are above the law.

    In Other countries like say, such as the UK, yes a non payer will have their property repo’d within 9 months and the bank will auction it to the highest bidder price and will sell, here the Banks want more than you can buy on the open market. The UK Banks are Banks not property investors like here.

    You can run to the Banks here try to have a deal, and your guaranteed to waste your time, as they want to corner you and pull the trigger, Lucky for most we have the upper European courts to rely on when needed.

  • George Georgiou says:

    Aggis why must some pay and some not. Bank is 100% correct. I think they were more than patient. In any other part of the world it would not take so long. Let the cleints run to bank now and get a discount why must the bank beg for money.

  • Aggis Demetriou says:

    Shame the Bank of Cyprus couldn’t strike a deal with its clients and give them the huge discounts for settlement of loans, they prefer to stab the client in the back.

    BOC a nasty bank to deal with!

  • MartynG says:

    Many Thanks, Nigel, for explaining all this – many of us were wondering what impacts a ‘Blitz’ of, likely cheapo, properties onto the market will cause. And, as stated, many of the properties will likely be of low quality, maybe the impacts of all this may not affect current market conditions too radically.

    Still a radical overall impact – and one likely to upset certain sectors of the existing, quite buoyant, current overall market. I recall the turmoil and weird dynamics in little ol’ Ireland, post the 2008 Crash, that took about 5 years, probably more to stabilise after the huge global impacts of that Leman Bros. Et Al, crash globally and particularly on a relatively small country.

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