Latest Headlines

Transfer fee reductions could increase public revenue

A number of simple and practical measures could be taken by the government of Cyprus that would encourage the timely transfer of property titles, increase public revenues, reduce tax evasion and support the property market.

THE PRESIDENT of the Republic of Cyprus has refused to sign the new Law on the abolition, for six months, of transfer fees, as, among other negative effects, according to the reasoning behind the refusal, the Law will deprive the public revenue of €40 million.

There are, however, ways, as I will try to explain, that will lead both to the reduction of Property Transfer Fees and the increase, by several millions of Euros, of public revenue.

In the last two years the Lands and Surveys Department has issued a large number (about 25,000) of new titles, even before the new Laws on Planning Amnesty took effect. Paradoxically, only one third of the purchasers of these properties appeared before the Land Registry for the transfer of titles in their name.

As a result the public was deprived of several tens of millions of Euros in Property Transfer Fees and probably in Capital Gains Tax or other taxes. There are several explanations about this.

The main reason is, no doubt, however, the lack of motive for the purchaser to complete the transfer of the property because of:

  1. the intolerable amount of the transfer fees,
  2. the fact that the Law allows the purchaser to complete the transfer at any time in the future, by paying the same amount as Property Transfer Fees, without any additional penalty for the delay and
  3. the possibility of tax evasion by the resale of the property through the procedure of a “Cancellation Agreement”.

The  trick of “Cancellation Agreements”, which  has grown significantly in recent years, is a procedure by which the payment of large amounts of Property Transfer Fees and taxes is avoided. More specifically:

  1. the original seller/developer and the original purchaser sign a Cancellation Agreement by which the original contract is cancelled,
  2. the original purchaser pays to the original seller a «cancellation fees»,
  3. a new Sale Agreement is signed between the original seller and the second purchaser,
  4. the original Contract of Sale is withdrawn from the Land Registry,
  5. the new Contract is deposited in the Land Registry and
  6. the title is transferred directly in the name of the second purchaser.

The practical consequences of this arrangement are:

  1. the first purchaser/developer receives an additional profit in the form of cancellation fees,
  2. the first purchaser/reseller avoids the payment of Property Transfer Fees and probably Capital Gains Tax or other taxes and
  3. the public revenue is deprived of many millions of Euros.

Although this procedure is obviously illegal, as it leads to tax evasion, there is no express provision in the legislation that prohibits it.

On the basis of the above, I have the strong view that the following measures should be taken immediately, by the amendment of the relevant legislation:

  1. reduction of the transfer fees rates,
  2. expressly providing  that the cancellation agreement procedure is illegal,
  3. the fixing of a deadline, after the issue of the title deed, within which the transfer must be completed and
  4. in the case of the non timely transfer of the title, an additional sum to be paid as  penalty, depending on the duration of the delay.

By these simple and practical measures, thousands of purchasers will be encouraged to appear promptly before the Land Registry for the transfer of the titles in their names, public revenues will increase by tens of millions of Euros, tax evasion will be reduced and the property market will be supported.

About the author

Andreas D. Symeou LL.B, M.Sc (U.L.A.) was the draughtsman of the original amendments to the Immovable Property (Tenure, Registration and Valuation) Law, which underwent many changes before being approved by parliament on 24th March 2011.

He is a property consultant and a Member of the Royal Institute of Chartered Surveyors (MRICS) and may be contacted at sym.andr@cytanet.com.cy

Readers' comments

Comments on this article are no longer being accepted.

  • Those who have made negative comments on this article should read An end to greedy developers extorting cancellation fees.

    Cancellation agreements are no longer an issue when selling a property which has yet to be issued with its Title Deed.

  • Mike says:

    My goodness the lunatics are seemingly certainly running the asylum. Where has my Cyprus gone and should I be making arrangements to welcome the Eurozone bailout mechanism officials seeing as we are incapable of coming up with any credible and workable fixes to our self made demise.

    I think EU officials are now much wiser and careful to double check all our proposals in our attempts to cover over developer loans and resultant exposure of our banks. Once bitten twice shy I think the English say.

  • Shambles says:

    Isn’t it a shame when searching to BUY a house, home, villa in Cyprus – Nothing negative pops up.
    Try it and see what results you get…

    Wouldn’t it be interesting if 100 people had their own 1 page website (All linked together) with information warning of the dangers of being RIPPED OFF in Cyprus.

    1 page website using Adwords, Pay-per-click, Website Search Engine Optimisation, Website Promotion etc..

    So when another unsuspecting VICTIM, sits down with a cup of tea and plate of biscuits and types in keywords for their Dream Home Abroad – your website appears on the first page of the search engine results.

    You’ve stopped another scam – Well Done You

    Cyprus Developers – Your Time is Up

    Cyprus Government – Time To Act Now

  • Costas Apacket says:

    Well Andreas, I hope that your article was written to take the ‘P’ because if it wasn’t I am seriously worried about the muppets in charge of this critical area.

    What is wrong with implementing a clear, transparent and equitable system where individual Legal Title Deeds are provided to property purchasers at the point of sale?

    This system, as practised in most civilised societies, would have the following benefits:

    1. Both the primary and secondary Cypriot property market would become very attractive to investors and home purchasers alike.

    2. The Cypriot Government would receive transfer taxes immediately after completion of every property sale instead of waiting for years as is now the case.

    3. The Cypriot Government would receive immediate payment of IPT, Capital Gains taxes and any other taxes / charges due from both Developer / Seller and property purchasers.

    4. The Cypriot Banks would have solid assets to underpin their loan books, rather than double lending on the same assets, as currently occurs.

    5. The international reputation of the Cypriot property and legal systems would be improved.

    So you see Andreas, by just taking some very simple and relatively easy legislative steps, it would be a Win, Win, Win, Win, Win situation for Cyprus.

    That is unless there is a ‘lose’ situation for some who would profit from the current obscure, opaque and unworkable systems currently in place in Cyprus?

    So, what’s it to be Andreas? Are you with the muppets and those who profit from others misfortune, or are you going to do something simple and relatively easy to correct the current shambles?

    As Denis so eloquently puts it – ‘Stop polishing and start flushing’.

  • Gavin Jones says:

    Nick Hills.

    In answer to your final sentence: nowhere.

    Denis O’Hare.

    As per usual, your erudite analysis blows out of the water all the usual attempts to mask the truth concerning the corrupt conspiracy involving government, developers, lawyers and financial institutions.

    Every new wheeze that’s cooked up by the above unholy alliance makes no difference whatsoever. This cabal’s machinations have been well and truly rumbled and anyone with half a brain knows that buying property in Cyprus is an occupation which will destroy your health, wealth and sanity.

    I’m afraid that a modern day Alexander the Great is nowhere to be seen to cut the Gordian Knot of title deeds and is unlikely to appear any time soon…..

  • Odd_Job_Bob says:

    Absolutely amazing wow!

    Let me get this straight: if you don’t transfer the property into your name (which you can’t do unless you pay off all the developers loans, taxes, fines etc) and do it quickly, you WILL NOT BE ALLOWED TO SELL YOUR PROPERTY (cancellation agreement) and you will be fined!

    So, the “selling up and moving on” exit channel may, if Mr Symeou gets his way, be blocked?

    “Just when I thought I was out…they pull me back in.”
    — Michael Corleone, The Godfather, Part III

  • mbEyes says:

    It would be difficult to disagree with any of the comments below.

    Andreas, it’s unlikely Cancellation Agreements are proving any sort of difficulty now, or will prove to be for sometime in the future, simply because there are no buyers.

    Polishing a turd is an excellent description of what anyone in authority has suggested so far. Making one-off changes won’t fix anything substantive, and would probably worsen the situation by creating even more unintentional loopholes for those who would seek to carry on very much as they currently do.

    How about our politicians instigating a full review into the whole system of bank lending on property, building, selling (including legals), mortgaging, registering, issuing title deeds, then paying any fees?

    ie. an all encompassing review and report into how the whole process can be properly set up starting with a fresh sheet. This to be carried out by an independent organisation or properly experienced and respected arbitrator, who comes from OFF the island.

    Just a thought, but probably one which the vested interests of the current set of politicians would find unpalatable.

  • Sarah says:

    Fantastic proposal Andreas – this would stop thousands of people from being able to sell their OWN property until title is issued!

    I agree with your proposal that transfer fees should be reduced but surely the bigger problem is that the titles are not there in the first place, even where there are absolutely no problems on the development.

    Please think again so all of us without titles can legitimately sell our homes!!!

  • Nick Hills says:

    Well said Denis !

    Extending your chosen metaphor, I suggest that any observer with half a brain can only come to one conclusion about the state of the Cyprus property market and the futile attempts by those in positions of responsibility to modernise its workings?

    The whole charade is ‘anally retentive’ and in desperate need of colonic irrigation to flush out all the c**p.

    Conducting ‘keyhole surgery’ on the entrails of a discredited and clumsy business model will not help the country rise above the effects of the worst (global) economic recession in living memory.

    The tragedy in all of this is the sheer waste of time, money and human energy. A buoyant and vibrant building sector – supported by an ethical legal and financial system – can be the powerhouse of a thriving economy. Where does that prospect lie on the horizon?

  • Denis O'Hare CPAG says:

    @Andreas

    Forgive me Andreas but we have a very crude saying in English – ‘You cannot polish a turd’ and boy does this unenforceable system of property law in Cyprus want flushing down the pan ASAP for the property market to have any chance of resurrection.

    The latest Amnesty, which you were one of the brains behind, as expected and as we have discussed previously, has turned out to be another shambles and the Minister of the Interior’s famous Gordian knot (caused mainly by developer mortgages) is still unfortunately left intact.

    The secondary reason for the Amnesty, the first being to try and fool the EU that Cyprus was attempting to fix the property pitfalls, was to try to shamefully move the illegal consequences resulting from the Government’s abject failure to enforce the Completion Certificate law from the errant developers and back on to the initial victims – the unwitting buyers.

    I am aware, as you probably are, of sites built by even the largest developers where there is still no Completion Certificate even after more than 15 years of occupancy and therefore deeds cannot even be applied for.

    As you are also aware the new/current laws still provide that the Completion Certificate must be issued before buyers can move into their properties.

    Will this important consumer protection law be enforced in future? – no chance whatsoever I would venture!

    Therefore, your suggestion for new laws re ‘expressly providing that the cancellation agreement procedure is illegal’ is absolutely impractical especially when the developer mortgages are also taken into consideration in the considerable delay of issuing deeds.

    That very notion that any purchaser will not be able to dispose of their property (through cancellation agreements) until they have secured individual title deeds, possibly after many years, will only add to the long list of the pitfalls of buying in Cyprus.

    Finally, I tried to find something amusing to add – ‘a shaft of wit’ if you will, but all I came up with was a ‘waft of sxxt’ – please stop polishing and get flushing!

    PS: As you have access to the information, will you perhaps tell us all just exactly how many buyers’ properties are encumbered by developer mortgages – or is this still a state secret?

  • out of the frying pan into the fire says:

    Here is a way to raise several million Euros. Clean up Cyprus property laws. Starting with developers, lawyers, banks, estate agents. No Deeds no sale.

  • The views expressed in readers' comments are not necessarily shared by the Cyprus Property News.

SELECTED REPORTS

Back to top