ON MANY occasions this paper has written about the Title Deeds problems in Cyprus and the need for the authorities to resolve it once and for all. Apart from some half-hearted attempts by deputies to find a compromise and the odd, vacuous announcement by the Interior Minister that the matter would be tackled, nothing has been done.
This is because there is no quick fix. To find a solution, the authorities would have to undertake an in-depth study of the effects any proposed measures would have on the banking system, the property market and, inevitably, the economy. They would then have to look at ways of minimising any potential harm on these vital sectors. It is not an easy undertaking, which is why the authorities would rather not have to deal with it, in these difficult times for the economy.
Neither developers nor banks are complaining about this do-nothing approach, as the existing legislation suits them fine. Developers can carry on using property, which they have sold, as collateral for loans that finance other projects, while banks have the adequate security needed to provide said loans.
Only the homebuyers are out on a limb; there are 100,000 waiting for Title Deeds, according to estimates by deputies, but as long as they are not complaining the government is happy to ignore the problem. Only a few British expatriates have been protesting about the situation, but nobody listens to them as they do not have voting rights.
For as long as the economy was in good shape and developers were selling holiday villas to foreigners and new apartments to Cypriots the risk of homeowners without Title Deeds being left in the lurch was minimal. The system was far from perfect, but as long as there was demand for properties and developers were making enough money to service their loans, its glaring weakness was never exposed.
But the situation has drastically changed now and this regime is much more vulnerable under the current conditions. Europe is in recession and the Cyprus economy is heading in the same direction.
Demand for property has already taken a nose-dive and sales are down, given a push by the higher interest rates, which could last well into next year. Everyone agrees that inflated property prices were due for a correction but the big question is how this will come about. Will the bubble burst and cause a collapse in prices or will the correction be a smoother process, with prices gradually falling over the next 12 months?
In the latter case, banks would probably be able to manage the situation, but in the instance of a collapse the consequences would be devastating. Inevitably, there will be developers who are unable to service their loans and go bankrupt; the banks would take ownership of buildings even though the flats would have already been paid for by the buyers living in them.
Legally speaking, the properties would belong to the banks which hold the Title Deeds and people would be living in homes which they have paid for in full, but are owned by the bank.
The only way the bank could recover its loan to a bankrupt developer, is by reselling the properties, which legally belong to it but have already been bought by someone else.
This disturbing possibility may seem remote and everyone hopes it never materialises, but the sad truth is that it cannot be ruled out, as bankers, speaking privately, admit. What would happen then? Would banks show public spirit, by taking the losses and give the buyers their Title Deeds or would they throw people out of their homes and try to re-sell them in order recoup some of their money?
It would probably depend on the scale of the possible collapse and the exposure of the banks. Would the government step in to protect home-owners and if it did, where would it find the funds to do so?
Everyone hopes that the nightmare scenario will be avoided, because its consequences would be devastating. These are the dangers posed by an irrational law which looks after the interests of banks and developers and gives honest homebuyers the status of candidate victims.
Why is the government, which boasts about its people-centred policies, doing nothing to protect people, before it is too late?
Copyright © Cyprus Mail 2008
