TROIKA’S draft proposals entitled “The economic adjustment program for Cyprus” contain several suggestions that will have a significant impact on the island’s property market.
One of their key proposals is the establishment of a “Cyprus Asset Management Company” (CAMC). This sounds very similar to Ireland’s “National Asset Management Agency” (NAMA), which was set up to address the serious problems that hit the country’s banking sector as the result of excessive property lending. NAMA acquired land and development and loans with a nominal value of €74 billion and is currently on-track to repay €7.5 billion of bond debt by the end of next year.
Troika proposes that CAMC will ‘buy’ non-performing and non-core assets at their real (long term) economic value and its objective will be to maximize the recovery value of those assets over the medium term.
As part of its funding strategy, CAMC will have the capacity to issue bonds that are guaranteed by the State. In exchange for the assets, the banks will receive a suitably small equity participation by CAMC, bonds issued by CAMC, cash and/or high quality securities.
Nonperforming loan recovery
The Troika also proposes that Cyprus should amend its legislation to maximize bank recovery rates for non-performing loans and that the legislative framework currently constraining the seizure and sale of loan collateral will be amended such that the property pledged as collateral can be seized and offered for sale within a maximum time-span of 18 months.
It also calls of the island’s Central Bank to immediately amend its classification of nonperforming loans to include all loans past due by more than 90 days.
Property taxation
Regarding property taxation, the Troika wants to see additional revenue of at least €20 billion. (The Interior Minister, Eleni Mavrou, has stressed that small-time property owners will not be hit by this tax rise in her recent statements to the media).
Title Deeds
The Troika suggests that Cyprus:
- Strengthens existing enforcement procedures and, if necessary, plans for additional legal measures to ensure the issuance of the remaining outstanding Title Deeds by Q4-2013.
- Provides a monthly review of the town planning amnesty, and plans for additional incentives to reduce the majority of pending building permit certificates that are required for the insurance of Title Deeds by Q3-2012.
- Implements consolidated electronic access to the registries of Title Deeds, mortgages, sales contracts and cadastre by Q3-2013.
- Reports on a possible legal basis and regulation to produce a unified land registry (of immovable property sales contracts, Title Deeds, and mortgages) and a registry of indefeasible property rights [Q4-2012].
During its investigation, the Troika concluded that many of the problems in the island’s banking sector are home-grown and relate to over-expansion in the property market (as the case in Ireland and Spain).
A formal government response to the Troika proposals is anticipated in the coming days.
Further Reading
The Troika draft proposals “The economic adjustment program for Cyprus”
“Can Cyprus Benefit from the Irish Experience” by Denis O’Hare
I said before that I don’t like the way the Troika are supporting the Town Planning Amnesty, where the new owner pays for the planning transgressions and can sue the developer for the money later. Where are the guaranteed title deeds that some developers were offering as recently as four years ago?
Also, the non-performing loan recovery has a wider implication than loans to developers. What happened to debt counselling for ordinary borrowers, included Swiss Franc mortgagees? Seize and offer for sale within 18 months doesn’t allow for much discussion.
In the case of developer mortgages on a property already paid for in full, I think we are about to see a new definition of “paid for in full” If the bank loan to the developer takes precedence over the sale agreement, then the property will be seized unless the poor victim “pays in full”.
@Pete – there are many questions that need to be answered (including yours):
What will happen if a buyer has paid the developer for his house in full but the developer has failed to repay his mortgage and it is classed as nonperforming?
What will happen if someone is buying their house with the aid of a mortgage and are maintaining their mortgage repayments – but the developer’s mortgage is classed as nonperforming.
We don’t know yet how (or even if) Cyprus will accept and implement these proposals – we don’t even know the level of nonperforming loans because Cyprus has used it’s own unique method to determine these rather than using the IMF standard.
I’m sure that lots of these questions will be answered as things (hopefully) move forward.
“amended such that the property pledged as collateral can be seized and offered for sale”
Yes Nigel, but does it matter who’s pledging the property as collateral? Certainly in part of our case it appears one of the directors was granted a loan using the development company as guarantor and thus using our homes as collateral without our knowledge or approval so what would the troika have planned for the likes of us I wonder?
Seizure and sale (if remotely possible) of property pledged as collateral for non-performing loans overdue by more than 90 days should guarantee the social unrest and anti-austerity demonstrations already rife in Greece and Spain. The Cyprus government will certainly have little appetite for the effect that would have on their island’s tourist industry.