THE new legislation will neither correct the Title Deeds problem per se nor all its inter-related problems because it cannot do so, owing to its limited scope and its inherent defects. It is, in effect, nothing more than another planning amnesty designed to protect developers who have failed to obtain proper planning permission.
In particular, the new legislation will not address the following critical factors:
- The developer mortgage debt bubble hanging over Cyprus, estimated at €5.9bn in March 2009 and now probably €7bn, which, under the present flat market conditions and one-third drop in property prices, will deter the authorities, banks and developers from closing existing mortgages and issuing long overdue Title Deeds.
- Compliance with any requirements on developers will be essentially voluntary with no enforcement mechanism and minimal or no penalties for non-compliance i.e. the legislation will be unenforceable.
- The banks will not be barred from continuing their current practices of issuing or extending developer mortgages against properties that have already been sold; property buyers will still be expected to indemnify the bank if the developer goes bust; there is no automatic protection against errant banks that collude and connive with errant developers and their lawyers.
- The issue of rogue and negligent lawyers and the ineffectiveness of the Cyprus Bar Association in (a) setting and policing strict property conveyancing standards and (b) disciplining and removing errant members. (See Gavin Jones’s open letter to the Attorney General, for example).
- Perversities in the justice system, with the police generally barred by the Attorney General from investigating allegations of property fraud (a recent rare exception being the K & M Famagusta Developers case where Cypriot rather than foreign buyers were the alleged victims, implying that Cypriots are treated more fairly than foreigners).
- The tardy and ineffective justice system in which alleged property fraud victims are forced to take long-winded and costly civil cases against alleged perpetrators.
- The long standing gross inefficiency of the numerous government departments and municipal functions involved in the processing of all the many stages required before Title Deeds are issued; a system clogged with new applications and a huge pre-existing backlog may prove to be the main practical downfall of the new legislation.
- No obvious anti-corruption mechanisms are included.
- The legislation will not be retrospective; therefore the current backlog of buyers of 130,000+ properties (some 40,000 estimated to be British) still awaiting their Title Deeds typically 5-15 years so far, will receive no protection; if a developer mortgage exists on the land and the developer goes bust or is unable to service his mortgage debt, they could be subject to bank repossession.
- The new tiered system of Title Deeds is doomed to failure; for example, as only a fool would buy a property that did not have full, clean and unconditional Title Deeds, how will developers be able to sell their properties including their huge glut of unsold properties? This will put extra pressure on their gearing and liquidity and in turn on the banks. Also, many buyers who bought in good faith some years ago may suddenly find that their property has been devalued owing to the issue of an imperfect Title Deed. Who would want to buy their property with such a curse on it?
Buyer protection? It will still be virtual, not real.