THE CENTRAL Bank has reduced loan financing for property purchases to 60 per cent in order to protect banks from a worrying increase in loans, the Central Bank Governor said yesterday.
Speaking before the House Commerce Committee, Athanasios Orphanides explained that the continuous and worrying demand for property loans in Cyprus had forced the Central Bank into reducing financing from 70 per cent of the cost of a purchase to 60 per cent.
He added, however, that banks would continue to finance 80 per cent of first-time property purchases, a decision made to encourage young people into buying their first home.
AKEL Deputy Stavros Evagorou, who submitted the matter for discussion, requested that Parliament be informed on the consequences of the Central Bank’s decision to alter its financing conditions, pointing out that the holiday home sector had seen great developments over the past few years, reaching seven to eight per cent of Gross Domestic Product (GDP) and attracting significant investments from abroad.
Orphanides explained that the Central Bank’s July 12 decision to reduce financing to 60 per cent was taken because the economy was showing strong risks of overheating with inflationist tendencies.
He added that the rate at which loans had increased in 2007 had doubled from the year before, pointing out that in the first eight months of 2007, 28 per cent of the increase in loans was in the property sector and if it continued at the same rate, it would surpass 40 per cent by the end of the year.
Orphanides told deputies that dangers for banks were continuously increasing, mainly due to the dire developments in the property sector internationally, and they needed to be restricted. A Finance Ministry spokesman agreed with the Central Bank’s decision, saying he understood the dangers banks were facing with the accumulation of loans and inflationist pressures.
Responding to deputies’ questions, Orphanides explained that any EU citizen could acquire their first home in Cyprus and receive financing under the same conditions as Cypriots.
He added that immoderate growth along with immoderate property price increases could not continue if the economy was to develop healthily.
“We want reasonable growth,” said Orphanides, adding that he did not know when prices were going to return to normal standards.
The head of the Land Registry Office pointed out that the increase in property prices was due to increases in land value. He explained that by the time a plot of land reaches the land developer, it has been sold three and four times, which contributes to property prices hitting the roof.
He added that there had been a decrease in land purchases since the Central Bank’s decision to reduce the rate of financing and suggested that financing be reduced to 50 per cent for land purchases.
The European Party’s Demetris Syllouris pointed out that property investments from abroad had decreased by 50 per cent and continued to drop.
He added that if property sales had dropped since the Central Bank’s decision, then the measure was not just wrong but tragic.
Committee Chairman Lefteris Christoforou of DISY said after the meeting: “The government’s has once again been exposed, in the absence of a complete housing policy.”
The committee called on the Central Bank governor to keep financing for land purchases at 60 per cent, or reduce it to 50 per cent and increase financing for property purchases.
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