THE property sector served successive governments well as it formed a stable source of income and employment for a number of years. The sector’s importance grew from 2002 – 2007 as increased overseas demand was further fuelled by a general feeling of euphoria and by the parallel credit expansion of all local financial institutions.
The decrease in transaction volume in 2008 and the subsequent fall in prices since 2009 were both dismissed by government, banks and other “experts”. The game was lost then and there, as instead of acknowledging that the island had a problem the “collective” choose to pretend that all was well. The calls for reforming the Land Registry’s system of issuing title deeds was dismissed as being “just some English guys complaining”, the lack of due diligence in granting loans and overdraft facilities as “in Cyprus we know our clients”, and the need for increased transparency and accountability in rules and regulations by “if it works – in our favour – don’t fix it”.
The “spoils” were consumed by all as property related companies became prized clients of banks, financed football teams, and provided employment for an increased number of subcontractors and overseas workers. Frankly, no one is to blame for “taking a cut of the action”. In retrospect however we should have been more sceptical, prudent, and ethical as to where and how “the action” was taking us.
The worrying is the handling of the crisis since. There has been no reform of the Land Registry’s system of issuing title deeds (out of 430,000 residential units, a reported 130,000 do not have one), the planning regulations have become even more, and there continues to be a complete lack of enacting and enforcing regulations. There is a continuing dismissal, mainly by bankers, of calls to improve due diligence processes and an on-going questioning of the level of decrease in prices. How can anyone who works for an organisation whose share price has decreased by more than 95% in two years wonder why real estate prices decrease is truly beyond me.
The “extend and pretend” scenario has become the staple of the current government, with a continuing discussion as to who is to blame for the crisis. Frankly, no one cares. If I am unemployed (12.2% unemployment rate and rising), in negative equity (prices are down 30-40%), and the cost of living and taxes are rising (and further tax hikes in the New Year), I have more immediate concerns than to ponder why I reached that point. I need a vision, a plan and hope. Not moaning.
The recent “storming of parliament” by government workers is simply a result of politicians lacking the necessary leadership skills to explain to their constituents that because we had such a great time from 2002-2008, now it’s time to pay the bill. The easiest way to explain what that means is for you to think of your life in 2000. That’s where we, society and businesses, need to adjust to in terms of income and spending.
The country needs to decide if it’s going to going to be Greece or Ireland (in handling the crisis. Both countries are in a similar mess, but in Greece the birth rate is down as couples worry about affordability whilst in Ireland it’s up as couples spend more time together. Same problems. Different attitudes.
A note about the recent euphoria relating to the Chinese and others buying property in Cyprus. If you are hungry you can order take-away; but if you do it too often then you end up lacking nutrients.
Unless the system is reformed the country cannot move forward. Already the first signs of discontent have been heard with Chinese complaining that they are being sold overpriced properties.
During a recent valuation, we reviewed transaction prices in a project in Peyia, Paphos. Transaction prices in 2007-2008 were at €180,000 and in 2010-2011 at €130,000. There were two entries for 2012 – at €300,000 and €320,000 respectively (the minimum to apply for a residence permit is €300,000).
Another chicken is being primed.
About the author
Pavlos Loizou MRICS is the lead consultant at Leaf Research
Leaf Research is a real estate consulting firm, providing high quality real estate market research, strategic consultancy, valuation, and financial modelling.