ONE of the earliest Risk Watch articles when the column started in 2004 concerned the worrying state of the Cyprus property market. To be sure, the market was very buoyant but there were already clouds on the horizon.
As the years progressed, Risk Watch felt compelled to raise stronger and stronger warnings about a range of serious issues that were having a damaging impact on the market and the country’s reputation: withheld title deeds, fraud, physical assaults on buyers, government bureaucracy etc.
Regrettably, very little has been done by the government and the industry over that period to rectify the bad state of affairs. Many, if not most, of the predictions made in Risk Watch regarding the likely consequences of failing to correct things have also, sadly, come true.
Good news!
Regular readers may be surprised, therefore, that on this occasion I have a good story to report. At long last, after 8 years, my wife and I have paid the transfer tax and are finally getting our fully clean title deeds to our home. Taking a cue from the popular British tabloid newspapers, my personal headline expressing our good fortune has just got to be ‘Gotcha, gotchiani!’
Let me give some credit where it is due. Ours has not been a tale of dodgy developers ensnaring us in double selling fraud or hidden mortgages or delivery of sub-standard building work. We had no such problems. It is much more a tale of a relatively modest scale local developer (A&K Developers of Oroklini near Larnaca) and, over the years, the perseverance of its principal Mr Kyriakos Kyriakou to get the deeds issued. We were also blessed with sterling support and professionalism throughout from our lawyer Eleni Papacharalambous of Papacharalambous & Angelides LLC in Nicosia.
In our case, there were no real technical issues or no-conformities to deal with. The last 8 years have really been Mr Kyriakou slogging on relentlessly through the archaic government bureaucracy that is the Title Deeds issuance system in Cyprus.
The government’s inability and unwillingness to disentangle title deeds issuance from planning regulations and the multiple, repetitive inspections, authorisations, certifications and ‘dead time’ in their respective offices is a major factor in there still remaining some 130,000 dwellings without their deeds. Most if not all other developed countries issue title deeds on full payment for the property as per contract.
Less good news
Following years of pressure from buyer groups, MEPs, international media, TV ‘holiday homes from hell’ programmes and Internet campaigns, in 2011 the Cyprus government finally introduced a series of laws which they claimed would solve the Title Deeds Problem once and for all. The Interior Minister at that time, Mr Sylikiotis, even boasted that the problem had now been solved and that soon the huge backlog of non-issued title deeds would be cleared.
Eighteen months later, what is the picture? While there has been a discernible increase in deeds issuance in recent months, at the current pace it will probably take at least 5 years and maybe longer to clear the 130,000 backlog. Thus, a 7-15 year wait for one’s title deeds still appears to be the prevailing situation.
Moreover, whereas the new laws introduced some welcome protection for buyers against hidden developer mortgages, much of the protection is not retrospective. Thus, the bulk of the victims who are among the 130,000 backlog are still exposed to the depredations that occurred before the new laws came into effect.
But fear not! Buyers have the ‘opportunity’ to pay off the developer’s mortgage debt and his tax liabilities as their only means to obtain their title deeds! Why are banks punishing innocent buyers who were not party to the mortgage, instead of pursuing the developer personally and his guarantors? Why does the Inland Revenue, in effect, make innocent buyers liable for a developer’s own tax liabilities? Such official delinquency will certainly deter new buyers.
Since 2009, there have been a number of significant developer collapses, including A&G Froiber, SNK Venus/SNK Exclusive and Liasides. Banks have not been shy in seeking to liquidate and pursue buyers (who have already paid in full).
In the Froiber case, for example, it was reported that buyers received threatening letters from the banks, which stated that they would not receive their title deeds until and unless they contributed a ‘symbolic amount’ of €8,000 per property towards the outstanding debt of the liquidated developer. A larger sum was also demanded to help pay off his tax liabilities.
It was also reported that in December 2011, Alpha Bank sought permission from the Land Registry to auction eight plots of land it had repossessed from the bankrupt developer Yiannis Liasides. The land included some 70 homes (over 100 residents) which had been bought and paid for from Liasides before he went bust. When he ceased trading in 2007, some 250 people across 14 sites had bought properties from him but had not received their title deeds.
Alleged victims of the Liasides/Alpha Bank debacle are among a number of property cases of alleged contravention by Cyprus of the EU Unfair Commercial Practices Directive now lodged with the European Court of Human Rights.
Any corrective action afoot?
No new impetus from the new Interior Minister is evident to radically speed up the bureaucracy on title deeds issuance and thereby also speed up the collection of much needed taxes, so that is disappointing. Moreover, the developers are not helping themselves by revealing that their priority proposals for market recovery do not include anything much on the title deeds problem.
At the recent AGM (23 April) of the Cyprus Land and Building Developers Association (CLBDA), the focus was mainly on a tax amnesty for repatriated capital and tax incentives favouring developers so that they would be encouraged to start new construction, moderate their property prices and stimulate buyers.
As the respected property analyst Pavlos Loizou has noted on Cyprus Property News, unfortunately the CBLDA view of the market’s problems and the urgent priority requirements excludes the title deeds problem. This is one ‘elephant in the room’ but it also has a close relative which is also being ignored: developer mortgage debt.
Sooner or later, the banks, who have been a tad reckless in their lending policy to developers, will have to take action. Non-Performing Loans can no longer be hidden by sleight-of-hand re-designation of the account, which in itself is fraud as it misleads shareholders as to the true extent of the bank’s debt exposure. I am aware of one case of a small developer who was allowed to rack up nearly €40m in bank loans and mortgages, which remain non-discharged and with every prospect of them becoming NPLs or even non-recoverable. If this case is indicative of bank behaviour across the country, even if on average a developer has borrowed only €5m-€10m, it provides a crude estimate of the total developer debt at somewhere between €10bn and €20bn.
A recent New York Times article on the Cyprus economy put the Cyprus banks’ outstanding debts and liabilities at €152bn or some 8 times GDP. If, as many predict, Cyprus applies for a bailout from the EU, what will they uncover in the accounts of the banks and the government?
The economic difficulties facing Cyprus, and those of countries whose citizens have traditionally bought residential property here, are to some extent overlaying and masking the pre-existing problem of withheld title deeds, property fraud etc.
Looking to the future, when this current economic crisis period has passed, hopefully new property buyers will enter the market, but this is most unlikely if the old problems have not been fully cleared up, including all those previous victims not covered retrospectively by the 2011 laws. Most potential buyers do Internet searches now and the Internet has an awfully long memory.
In years to come, searches on Cyprus property will still be awash with the horror stories and investigation reports from recent years. It is therefore imperative that the industry uses this current doldrums period to clean up its act and start afresh.
About the author
For over 30 years, Dr Alan Waring has been 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 ISBN 978-1-4094-4836-5 will be published by Gower later in 2012. Contact waringa@cytanet.com.cy
©2012 Alan Waring
First published in the Financial Mirror
Well written. As a relation to ex pat owners, I have witnessed first hand the transgressions of the land title deed sleight of hand and it’s terrible financial fallout to others we know.
To support change locally, get involved by contacting your local Green Party representative in Cyprus where you live. They have been instrumental in driving political change and adherence to EU principles for not only respecting and addressing the concerns of ex pats and changing this land title mess, but also to environmental concerns and wide reaching issues on the island all ex pat resident owners know to be concerned about.
Make a change. Start today.
@Peter – Some people have waited a year (13 months actually) to receive a refund of their Immovable Property Tax overpayments.
Don’t hold your breath.
I paid by cheque in the morning it was cleared by the afternoon same day but I was told a minimum of 8 weeks for cheque and 4 for cash.
In fact it took nearly 10 weeks.
I’m trying to recover some of the money I had to pay in tax to my developer, but 3 months later I’m still no further forward although I have completed all the necessary forms and submitted them to the tax office.
Any suggestions as to how I can get the tax back?
Enjoy the moment Alan. Bit of good news for a change.
I am sure Denton’s concerns whilst well founded should not worry you Alan and you will get your deeds.
Like others I too did my research but did not count on The Stigette. It never crossed my mind that my contract would deliberately not be registered until AFTER the developer took a mortgage on the property notwithstanding written confirmation that it had. The mortgage has now been cleared I am delighted to say. This was a particular situation that you could not predict.
Until the corrupt in the property industry are dealt with and shown to be dealt with appropriately and quickly there will always be concerns about buying property in Cyprus and securing the deeds that are rightfully yours.
Many people employed and put their trust in Cyprus Bar registered lawyers and they too were duped by the “system”. I doubt very much that many people just handed over their life savings to a dodgy developer. The whole property market in Cyprus is laden with pitfalls and chicanery.
@Martyn – Clearly, you fully researched the subject and managed to avoid the numerous pitfalls and problems.
And in buying a resale property that had it’s Title Deed you increased your chances of a successful purchase significantly.
Sadly, many people are prepared to accept what they are told without question and hand over their life’s savings to ‘crooks’ masquerading as property developers and estate agents without giving it a second thought.
We pretty well all know these days about the various weaknesses in the Cyprus system,which seem very largely related to new-built properties and overlapping mortgages etc, and can sympathise with those that suffer, and boy how many of them suffer!
My wife and I will be in a relatively small minority who didn’t have any problems when we bought on the island some 6.5 years ago. Firstly, we had read widely, read about some of the traps and potential pitfalls. We had met and talked with ex-Pat Advisers about ‘what to look out for’.
Fortunately we wanted an existing house and through the established ex-pat network in our selected area chose a property that had been in ex-pat ownership for some 15+ years, and thankfully had been nicely maintained and modernised by the then vendors: next we chose very carefully established Solicitors, recommended by three different e-pat contacts (existing owners), and from the vendors established exactly how the Cyprus ‘system’ works. We did have one ‘hiccup’, made the mistake of expecting a UK trained, Cyprus based RICS Surveyor to act, report in ways similar to a UK one! But thankfully we overcame the differences.
The Solicitors performed well, with all documentation well presented for signature and explained. The 2 Cyprus banks efficiently enabled the funds to quickly move from our account to the Vendor’s, in less than an hour. We had arranged appointments – the Vendors, their Agent and us – at times very close together at the Larnaca District Registry, and OK it took the 4.5 hours wait that we had been told to expect but we paid our Taxes, Fees at the scale amounts – and Hey, received our Title Deed, a decidedly unimpressive document but friends and advisers assured us ‘that is it’, well within the stipulated 4-6 weeks.
The Insurance company covered the property from the transaction Date’ We had a farewell drink with the Vendors and amicably ‘took possession’ the same day. And, so far, have lived ‘happily ever after’ since. OK, perhaps we were ‘Lucky’ but from years of practice we took all necessary precautions, worked out exactly what to expect – and it all worked – worked Well!
@Yianni. My speciality is corporate risk not personal finances but Yes I did carry out as much due diligence as was reasonable and realistic at that time. All the statements from developers, agents, lawyers etc at that time was that deeds would take 2 years but could take longer given the huge upsurge in new properties. Frankly, I took a gamble ‘on the balance of risk’ based on the information available at that time.
@CostasApacket. The contract price was taken as the value for transfer fee calculation.
@Pete. As I understand it, many Cypriots don’t transfer the deeds as they believe that they are as protected as if the transfer had occurred, whereas all they have is still a registered financial interest. Of course, at any time up to transfer the developer could go bust and, even if there are no encumbrances on the actual land, if he has other bank borrowings the banks can still foreclose on ANY/ALL OTHER ASSETS if the loan includes a ‘free and floating charge’ element for default. I doubt that many buyers are aware of this trap.
@Denton Mackrell – legal completion of the purchase occurs when the property is registered in your name at which time you become its legal owner.
If you pay the transfer fees by cheque, the cheque will have to be cleared before the property is registered in your name.
I guess the registration will take place a short time before the paper Title Deeds, showing you as the registered owner, are printed and sent to you.
What do you do if they fail to meet their deadline – chase them up.
It took some years for me to get my title deeds but did and transfer done at my contract price. I had many visits to Paphos land registry apart from a long delay with the surveyors department (surveyor was developers uncle) the other departments were very good.
What I fail to understand is the amount of title deeds issued which are not transferred.
Why does the Cyprus government not make it law that once deeds are available they should be transferred. There must be millions of Euros in unpaid tax waiting to be collected.
Never understood why people ever bought without title deeds. Surely an international risk manager would see the risk involved ? ;)
Congrats on receiving your TD’s, Alan.
Hopefully the authorities didn’t try to artificially inflate the value of your property to extract more transfer tax from you than you were expecting.
Regards the rest of your comments I concur that the property systems in Cyprus are one un-holy lash up!
Well done! I note a certain caution in the phrasing ‘getting the title deeds’. So, you’ve paid the transfer tax but by what means? Our local Land Registry tells buyers making the transfer to expect the deed document to be sent (by post or fax; personal collection no longer allowed) in either 2-4 weeks if paid by cash or 4-8 weeks if paid by cheque with banker’s cheque guarantee letter.
Nigel or anyone, at what point is the transfer legally made and complete? when the money (cash or cheque) is handed over? if by cheque, when the cheque to the Land Registry has cleared the buyer’s account? or only when the title deed document is received by the buyer?
Has anyone experience of how reliable the Land Registry offices are in honouring even the exceptionally generous 2-4 or 4-8 weeks they grant themselves to deliver up the title deed document? What does one do it they fail to deliver it even to their own timetable? Remember, this is Cyprus not a normal EU country.