IF POSSESSION is nine-tenths of the law, then possession of Title Deeds is surely nine-tenths of immovable property law. Property law in most countries requires that immediately on completion the seller must hand over to the purchaser the Title Deeds. Any transgressor would be liable to arrest and criminal charges of fraud. So, what about Cyprus?
Where property fraud is not a crime
Cyprus developers who withhold Title Deeds are not arrested and are actively encouraged by government policy and an archaic processing ‘system’ created by the local Planning Offices and Land Registry Offices. Moreover, during years of delay, some developers take out mortgages against properties already purchased and some also commit tax frauds against the purchaser. Developers have even sold the same property to second or multiple buyers and pocketed all the monies. The Attorney General and the Interior Ministry have both decreed, however, that all such matters are non-criminal civil issues between purchaser and seller.
Fully paid-up property purchasers are kept waiting typically 10 years or more (some over 30 years) for their Title Deeds. The Cyprus Property Action Group (CPAG) puts the number of properties awaiting Title Deeds at over 100,000 (see Editor’s comment below). Of these, 30,000 have been bought by foreigners, largely British. The Land Registry completes only around 1,600 Title Deed transfers per year. During the years of delay, tax fraud, unannounced mortgages and potential loss of the asset if the developer goes bust are all real threats. The Inland Revenue is also thought to have an estimated 1 billion deficit in cumulative Immovable Property Tax caused by developers foot-dragging on Title Deeds.
Unacceptable by any standards
Angry foreign purchasers in Cyprus, mainly British, have lobbied very effectively British MPs, MEPs, the Prime Minister, the Foreign Secretary, the European Parliament, GRECO and other relevant power bases. The Cyprus government seems to have no defence to the deluge of criticism and demands for action.
Enter the fray Cyprus MEP Dr Marios Matsakis, who has been confronted on the scandal by fellow MEPs in Brussels. Dr Matsakis wrote a stinging and widely publicised e-mail to Mr Neoclis Silikiotis, the Interior Minister. He went on, ‘The matter is quite unacceptable by any standards of justice or fair play and it must come to a speedy and satisfactory conclusion soon …… I demand that the Cyprus government takes effective remedial action urgently‘.
Questions on the scandal have been tabled in the House of Lords of the British parliament. In answer, the British government said it is closely watching the situation and that the Cyprus government had given assurances that it would introduce legislation to solve the problem. A more pointed statement from the British Foreign Secretary David Miliband soon followed. The significance of the Cyprus government assurances is crucial, as discussed later.
A rogue state beyond the fringes of civilisation?
Several questions on the Cyprus Title Deeds scandal E-6513/08EN, E-6793/08EN and E-0110/09EN have been tabled in the European Parliament. The questions centre on breaches of EU law, EU/UN Charters on human rights and Article 23 of the Cyprus Constitution regarding property rights. In answer, the EU Commission has stated that it has asked the Cypriot authorities for detailed information on the legal provisions and practices regulating and operating in this sector and that ‘The Commission will take the necessary measures if it can establish the existence of infringement of EU law‘,
One outraged MEP, Mr Nigel Farage, registered his disgust to the Cyprus Justice Ministry as follows: ‘Is Cyprus a rogue state beyond the fringes of civilisation? Does it have no laws, no impartial courts and no responsible government? How could this practice of retaining Title Deeds, after the sale of the properly, be condoned in a state which pretends to be worthy of the name and is not merely a bandit stronghold?‘
Consequences for property buyers
There are three main consequences for buyers. First, the Title Deeds delay encourages rogue developers to commit tax frauds, especially grossly inflated Immovable Property Tax (lPT). The Inland Revenue only receives the legitimate amount while the developer pockets the difference. Only after CPAG publicity have some developers suddenly reduced fantasy IPT charges from 000’s and often by 90% or more but this fraud is still flourishing thanks to the police declaring that such fraud is not a criminal matter!
Second, lack of Title Deeds makes resale of property much more difficult, especially as so many buyers are now aware of the trap and particularly in a properly slump.
Third is the serious prospect that a Cyprus developer will go bust and leave the Title Deeds collateral in the hands of his mortgagor. The purchaser, who has already paid in full, may still lose the entire asset In boom times, this was most unlikely but the 2009 Financial Crisis and properly market slump have changed all that. Curiously, the government and others seem to be in denial. The fact that it has not happened in Cyprus before does not mean that it can’t happen now.
Consequences for Cyprus
Cyprus has a small population and a modest economy heavily dependent on tourism and property, Therefore, Cyprus simply cannot afford to alienate buyers, especially foreign buyers, or to damage its image abroad.
On the surface, the Title Deeds assurances given to the British government seem reasonable: the Cyprus government will introduce new legislation to fix the problem, although no timetable was given. However, official sources now deny any knowledge of such legislation, either in draft or even being planned.
Perhaps the assurances to the British government were made as a desperate fobbing off, without any real plan or commitment behind them. Even if such legislation does eventually appear, it is likely to be far too late to protect people at risk now. Moreover, will it simply relax the Title Deeds issuance procedures for new purchases and do nothing to protect the backlog of tens of thousands of existing buyers?
Misleading a friendly foreign power is unwise, for the Cyprus government can neither afford to antagonize its allies nor alienate all those foreign buyers and investors. The Title Deeds issue has been racing up the UK domestic political agenda – the incumbent government has a General Election to fight soon and ‘Cyprus being Beastly to Brits’ is a great media and political football. The British government needs vote-winners. So, the pressure on the Cyprus government to resolve urgently the whole mess will intensify,
Furthermore, Cyprus has a very just case regarding Greek Cypriot property rights in north Cyprus controlled by Turkey, The Cyprus government cites fundamental human rights to demand support from the international community. Yet, it seems to be unwilling to protect those same rights in respect of property buyers in the government-controlled areas. The Title Deeds and properly protection situation here appears to totally contravene the Constitution of the Republic of Cyprus, Article 23, and also equivalent EU and UN charters.
Who runs the country?
Questions about state governance arise. Why would any government be so reluctant to sort out the mess? Put the interests of developers ahead of its own tax coffers? Risk damage to Cyprus’ market reputation internationally and its relations with friendly powers? Declare that property fraud is not a crime?
CPAG has a disturbing answer “There are 4 billion reasons. Developers’ outstanding loans amount to 4 billion and developers are, in effect, strong-arming the government to do their bidding, by holding up the spectre of economic collapse. Further, developers and their lawyers are so strongly connected with MPs and Ministers that any attempt to normalize the Title Deeds and property protection system is squashed flat.” Even if the stranglehold by developers is sorted out, there remains the operational matter of poor management within the Land Registry which adds to the delays.
Long-overdue solution a golden opportunity
The whole property protection system in Cyprus needs radical modernisation. As this is unlikely soon, CPAG and others are demanding that the Government of Cyprus urgently (a) guarantees Title Deeds to buyers who have lodged their sales contracts with the Land Registry, and (b) develops a strategy to exit this risk-laden situation. This is a real test of Cyprus’s right to consider itself a full European state, What a coup for the Cyprus government as it heads towards the EU Presidency if it were to solve the Title Deeds mess in the south! For this would prove to the international community conclusively that it has the unquestionable moral superiority on property rights. Its hand regarding the north would be strengthened immensely. The world is watching.
Dr Alan Waring. international risk management consultant, is Adjunct Professor at the Centre for Corporate Governance & Financial Policy, HKBU Hong Kong. Contact mailto:email@example.com
©2009 Alan Waring
from the pages of Financial Mirror www.financialmirror.com March 25 – 31, 2009
The figures concerning the number of foreigners who had bought property and are awaiting Title Deeds were released by the Cyprus Land Registry in October 2008 and were subsequently announced in Parliament – see Title Deed delays affect 30,000 non-Cypriots.