ALPHA Bank is seeking to repossess some 70 homes bought from the developer Yiannis Liasides (now bankrupt) and is the latest twist in the Cyprus Title Deeds and property fraud mess.
This article raises some important questions for the Interior Minister Mr Neoclis Sylikiotis.
The New Bills and Developer Mortgages
Clearly from your public statements, Mr Sylikiotis, you firmly believe that they will solve the Title Deeds scandal. However, many people have grave doubts and accuse you of simply ‘rearranging the deckchairs on the Titanic’. For example, you have made it possible for a buyer whose developer has defaulted on his own mortgage to get the deeds by paying off the developer’s debt but who in their right mind would do this and, indeed, why should a buyer have to underwrite someone else’s debt?
The government did assure the EU that the new legislation would address the iniquity of developer mortgages making hostages of innocent buyers. Has that assurance been honoured?
On 22 July 2009, you issued an official statement on the Title Deeds scandal in which you said “…..the ownership status of a buyer-owner of immovable property in Cyprus is definitely secured and cannot be challenged, as long as the buyer-owner has submitted the buying-contract to the Department of Lands and Surveys”. A few days later, in a letter to Graham Watson MEP, you stated “….. buyers of immovable property are protected, once they deposit the Contract of Sale at the appropriate District Office….”.
How does Alpha Bank’s recent action, to liquidate a large number of Liasides properties already paid for by buyers who had lodged their contracts as you advised, square with your 2009 assurances? Alpha are still pressing ahead with the repossession process and your assistant Mr Andreas Assiotis now seems to be saying that properties bought before the new amnesty bills are not fully protected. So, were your 2009 assurances worthless even at that time? Are you reneging on your past assurances and now favouring bank creditors at the expense of innocent buyers? If so, what do you imagine the reaction among potential property buyers and other inward investors globally will be? Do you expect that they will be more or less likely to favour Cyprus?
How many properties bought by foreigners have developer mortgages encumbering them? Of the estimated €6bn+ developer mortgage debt held by the banks, what is the current proportion in default? Presumably, in your position, you must know. We have seen Froiber and SNK Developers collapse and now the fallout from the Liasides collapse. We are reliably informed that many ‘big name’ developers are in hock to the banks variously for sums ranging from €200m to over €500m and, with virtually zero sales for the past 2-3 years and no prospect of any uplift before at least 2014, their annual capitalized interest repayments are simply beyond their capacity to service. In the event of further developer foreclosures, do you anticipate a spate of repossession activity against innocent buyers, as in the Alpha Bank/Liasides case?
EU Unfair Commercial Practices Directive
Why has there been such reluctance to implement the EU Unfair Commercial Practices Directive which very few people in Cyprus knew about and which at one stage the government was stating wrongly does not apply to immovable property? The CCPS took quite some time to address the issue but a significant number of buyers have lodged complaints with the CCPS under the Directive. It is understood that complainants may well going on to lodge complaints against Cyprus at the European Court of Human Rights. Such has been the avalanche of complaints to MEPs from aggrieved constituents that the European Commission is also investigating more seriously, having previously been fobbed off by blandishments and fake assurances from the Cyprus government.
Will the banks already carrying mortgages on properties with defective deeds under your new scheme take a hit now that market values are dropping? Isn’t the very act of issuing a less than perfect Title Deed a breach of the EU Unfair Commercial Practices Directive? Do you believe that buyers will be more or less likely to buy in Cyprus now?
Unique Complexity of Cyprus Title Deeds System
Cyprus is probably the only country in Europe, if not the whole of the developed world, that (a) does not require by law that Title Deeds are handed over within 7 days of purchase completion and (b) has such a monstrously complex ‘system’ for issue of such deeds, still taking most people 7-15 years which may not be seriously reduced by the new bills as the basic bureaucratic procedures and resources are not changing. Why could you not, as many have demanded, just dispense with the current monster and adopt the simplicity that all other countries enjoy?
Why Should Buyers be Liable for Developers’ Unpaid Taxes?
Prior to implementation of the new bills and the resulting changes, developers (and other vendors) were required to provide a ‘Tax Clearance Certificate’ to the District Lands Office to enable the transfer of ownership of the property to take place. Up to now, if the developer/vendor were unwilling or unable to pay his own outstanding tax bill, the only option available to buyers was to pay the vendor’s tax liabilities themselves to secure ownership of the property.
Has this changed under the revised legislation? If not, do you believe that it is reasonable to expect those buying property to pay the vendor’s tax bill to secure ownership? Why cannot the Inland Revenue Department pursue tax debtors independently rather than trying to burden the innocent parties? Do you believe that making buyers liable for a developer’s taxes increases or decreases the likelihood they will buy in Cyprus?
Why is Property Fraud Treated as a Non-Criminal Offence?
Many people are perplexed by how in Cyprus property fraud is not regarded by the state as being a criminal offence yet Cyprus claims to follow English law and precedents. At the Attorney General’s instruction, the police will not even record complaints from alleged victims let alone carry out an investigation. As far as I know, in all other countries claiming to follow English law, property fraud allegations are automatically treated as criminal offences and subject to police investigation. Why has the government taken this peculiar stance, which in the eyes of foreign buyers and their governments makes it look as if our government is condoning and backing fraudsters and punishing victims of crime?
Cyprus Reputation and New Foreign Buyers
As you yourself have admitted, the scandal over the past 5 years of Title Deeds and various frauds has severely damaged Cyprus’s reputation internationally as a safe and secure place to buy property. For example, MEPs in the UK who have been inundated with complaints from constituents about property problems in Cyprus have demanded that the European Commission take action against Cyprus and the British government take action against Cypriot developers and agents acting illegally in the UK. The Scottish MEP Alyn Smith has gone further and told them not to buy property in Cyprus at all. Is it not the case that your argument that the new bills will cure it all is just not seen as credible by them and increasingly by the EU, as well as by potential new buyers?
In conclusion, I fear that if the Land Registry (which reports to the Interior Minister) decides to back bank creditors in claims against defaulting developers by approving repossessions at the expense of luckless home buyers, it will finally kill any prospect of market recovery for decades to come. Will you act decisively now to stop the rot, Mr Sylikiotis? A public statement from you is in order.
©2011 Alan Waring
About the author
Dr Alan Waring is an international risk management consultant with extensive experience in Europe, Asia and the Middle East with industrial, commercial and governmental clients. His next book Corporate Risk & Governance will be published in 2012.
Contact info@dralanwaring-riskconsultants.com.
from the pages of the Financial Mirror December 7, 2011
@Anthony Maloney – Get in touch via the ‘Contact’ link at the top of the page and I may be able to advise.
I am writing out of frustration, being a ‘ luckless apartment owner ‘ in southern Cyprus. Just an individual owner lured into ownership by a confident and persistent salesman. Once convinced that ownership would mean an easy situation in a buoyant market, deposit paid and a deal with Alpha bank set up by the developer, the truth slowly unfolded. There is no buoyant market. The original price in Greek Cypriot pounds went to Euros and finally the mortgage was set up in Swiss Francs. This resulted in an inflated mortgage which being interest only means that there is no chance of ever ‘owning’ the property, merely borrowing huge amounts of money at high interest in order to pay the bank until I can pay no longer( when the ‘deal ‘ changes to repayment in a couple of years. Yes, I feel totally stitched up and angry that the original salesman /developer/ Alpha bank seem to be working together to get foreigners to finance their property market. My question is “what is the way out of this for me” ? – yours sincerely Anthony Maloney
@Peter – we know for a fact that developers build without planning and building permits and this results in serious problems.
We also know that developers do not repay their bank loans. And this results in more serious problems.
The industry is not regulated; anyone can set themselves up as a property developer. Many of the ‘new’ developers who jumped on the bandwagon have no idea of how to run a property development company – or any sort of company for that matter.
I agree with you that there are many people who acted foolishly – but there are many more who did not. They took legal advice, as they would when buying a property in their home country, only to find later that their lawyer failed to represent them properly.
@Mike and the rest.
Background info on the Cyprus developer driven real estate market. A developer finds a plot. He decides to build 10 houses to sell. He applies for building permits, gets approved, gets the loan from the bank with the plot as collateral, sells, starts build, sells, buys another plot, once completed applies to the land registry department to issue the 10 tittle deeds.
For the bank to release the deed, they need to get paid. Usually with another loan and the profits from the sell of the 10 houses. (30-60% margins for developers, the more dubious the larger the margin).
Once the bank is happy, the Land Registry takes about 10 years to issue deeds for developments with multiple houses because (a) the public employees are lazy and (b) the legal system does not cater for the exception of 1 of the 10 houses having covered a veranda once the owners moved in.
This is because developers usually apply for permits as 10 linked houses instead of 10 separate houses because it is cheaper. The reason is that if they apply as separated houses they have to split the land per house and they do not want to pay the fees to do that before they actually sell the houses.
Additionally, sometimes if they decide to go with separated houses they could probably get a permit for 5, so they apply for 10 linked and then the plot is divided based on an understanding among all owners of who owns what. Additionally, separated houses will also require them to build green spaces and so on.
Personally, I am of the opinion that those who speculated and bought houses to sell later on so they can have free holidays and make a profit, just got what they deserved. Before, you start flaming me, I would suggest that you review the conditions on which you bought the house and the “too good to be true” promises made.
As far as Sylikiotis is concerned, you should fry him for his statements and take him to court and ask damages from him.
@Andrew – the ‘Mike’ who commented at 4:45 pm is not the same person as the Mike who commented previously.
It’s confusing I know – but I can see from where the comments originate.
@Mike. You understand the situation here in Cyprus alright.
The problem occurs when the independent lawyer that you choose, deliberately fails to exercise due diligence, in order to disguise the fact that developers have mortgages. If lawyers did warn prospective buyers of these mortgages then there would be little or no sales of new build property here in Cyprus.
My advice to you is DO NOT BUY IN CYPRUS!
@Mike – Title insurance is not available in Cyprus – can you imagine what the premiums would be if it were?
A developer can obtain a guarantee from his bank although not many people are aware of this. And, with the exception of a handful of developers, a developer will expect the purchaser to pay. And of course there is no guarantee that a bank will accept the risk.
Mike asks how so many people could have bought without title transfer. Answer: a conspiracy involving the government administration, crooked developers, banks and lawyers supposedly acting for the buyers but failing to do proper searches,sometimes failing to reveal hidden mortgages, sometimes conniving with the developer, sometimes forging signatures but all telling the buyer that:
(a) deeds will take only 2 years to issue,
(b) this is standard in Cyprus and is no risk.
If your own lawyer tells you this, and you hear from other buyers that their lawyers say the same, who among us would ever imagine that it was a gigantic systematic lie being operated on a nationwide basis?
Well, now we do know and the word having been spread far and wide there will thankfully be perhaps only a handful falling for this con from here on.
As an outsider looking in, not having yet purchased a property in Cyprus, it is inconceivable to understand the legal system in Cyprus, an EU member state. It sounds like they are either trying to re invent the wheel. They should implement the same laws as exist in other EU member states. I just don’t understand how one can buy a property, pay for it in full either in cash or taking out a mortgage from the bank and not end with a transfer of title. In the west, a deal simply would not close if titled is not transferred.
In addition there is a mechanism called title insurance to guarantee title. The seller, in this case the developer has to make arrangement with his bank to remove the sold property from any collateral which the bank holds. It is not a hard concept. If a developer cannot do this, then the deal simply does not close. I just feel that we are dealing with mickey mouse laws of a third world country.
Is this what Cyprus wants to be known as? The majority of the country’s GNP is derived from foreigners, whether it is tourism or construction demand by foreigners. I also don’t understand how someone would hand over money to anyone without getting title in their hands. Am I missing something or does the situation seem ludicrous?
Short of their adopting a whole-hog ZANU-PF type response, its difficult to anticipate what the Cyprus gov might imagine is a sensible way forwards.
Surely there must be the strongest smell of corruption in ROC government and legal circles? Yet where are the investigative journalists to blow the lid on this scandal or are they also involved or too scared of the repercussions to publish what they must know is going on?
When will the ever darkening clouds of the financial disaster looming over the outstanding debt owed by developers to the banks, clearly worthless yet still on their credit sheets as capital, going to burst?
Clear, concise, unambiguous and to the point. In essence a perfectly legitimate series of questions eloquently put and, at the very least, would require an answer, in writing, as clear, unambiguous and to the point as each question.
Does Mr Sylikiotis have the capacity or ability to answer plainly and simply? That remains to be seen, but I would imagine the dilemma of protecting the colluded and fraudulent interests of developers, lawyers, bank practices and debt’s versus the interests of natural justice, human rights, the nations integrity and the nations future prosperity is one which will preclude any response.
The preference may be to adopt the often practised Ostrich approach and hope the problem goes away and trust that the European Commission does not ask too many questions in spite of what hardships and burdens that policy might place on the innocent citizens of this Country.
Nice one Alan. Your heading says it all.
Should we expect a reply? Stupid question forget that.
This incisive article puts the Interior Minister, Mr. Neoklis Sylikiotis, very firmly in the dock. Dr. Waring asks the Minister a myriad of questions in relation to the title deeds scandal. However, I rather suspect that it’ll be business as usual vis-a-vis addressing these pressing issues, the Minister doubtless employing the time-honoured Cypriot government tactic: say and do nothing. It would be good if he proved us wrong but none of us will be holding our breath.
As is universally known, the heart of the problem is the approximate 6 billion euro indebtedness of the developers to the banks, precluding any likelihood of tens of thousands of property buyers obtaining their title deeds as the land upon which their houses were built, unbeknown to them, has been mortgaged.
Mr. Sylikiotis would earn a modicum of respect if he came clean and stated that because of successive governments turning a blind eye to the subterfuge of the unholy trinity of certain developers, banks and lawyers, there’s precious little that they can do about it. In addition, he should cease habitually tinkering with existing laws and cooking up new ones, something which does nothing to get to the root of the problem: our intelligence has already been insulted too many times.
Well said SIR. Can’t fault a single word.
Quite agree Costas, absolutely SPOT ON
and yes it should be published, not only in the UK but worldwide.
Spot on.
This should be published in all of the UK National Newspapers so that everyone in the UK can read the truth about Cyprus and its scandalously corrupt, unsafe property market.