PHILELEFTHEROS, the Greek language newspaper, published the full text of the revised Memorandum of Understanding between Cyprus and the Troika earlier today in an exclusive report. You can read the full text of the Memorandum in English by clicking here.
The key points in the MoU relating to property are as follows – updated 4th April 2013:
Regulation and supervision for banks and cooperative credit institutions
Strong efforts should be made to maximise bank recovery rates for non-performing loans, while minimising the incentives for strategic defaults by borrowers. The administrative hurdles and 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 within a maximum time-span of 1.5 years from the initiation of legal or administrative proceedings. In the case of primary residences, this time-span could be extended to 2.5 years. Based on a report commissioned to an independent expert, the necessary legislative changes will be submitted to Parliament by [mid-2014] and implemented by [end-2014], macroeconomic conditions permitting.
Non-performing loans are threatening bank profitability and need to be properly monitored and managed in order to safeguard the banks’ capital buffers. The Central Bank of Cyprus’ guidance on the classification of loans as non-performing will be amended to include all loans past due by more than 90 days. This amendment will be introduced by [30 May 2013]. The time series for non-performing loans will be published including historical observations reaching back as far as possible.
Ensure additional revenues from property taxation of at least 75 million by: (i) updating the 1980 prices through application of the CPI index for the period 1980 to 2012; and/or (ii) amending tax rates and/or (iii) amending value bands.
Revenue administration, tax compliance, and international tax cooperation
The authorities will propose a comprehensive reform plan to improve the effectiveness and efficiency of tax collection and administration by [Q4 2013], for implementation as of the budget year 2014. The reform shall encompass the following elements:
Strengthen powers by the tax authorities to ensure payment of outstanding tax obligations, e.g. by having authority to seize corporate assets, prohibiting alienation or use of assets including property and bank accounts by the taxpayer;
Harmonise the legislation among tax types so that not paying taxes is a criminal offense regardless of the type of tax and that there is an administrative appeals process for all of these taxes before going to the courts;
Immovable Property Tax Reform
The following measures will be taken to increase revenue and to improve the fairness of the tax burden by levying the recurrent property tax on current market values. An additional objective is to reduce overhead cost in tax base administration.
In view of this, the authorities have agreed to implement the following measures:
Implement a property price index that establishes the average property market valuation in 2013 by square meter of habitable surface and land plot. This index shall be operational to provide imputed market valuations for each non-agricultural cadastral plot [Q2 2014], in time for its application in the calculation of the immovable property tax in 2014. The index shall vary according to location and zoning as well as other building- and plot-related characteristics. Moreover, propose and implement a methodology for annual updates of such imputed market valuations;
Implement the recurrent immovable property tax based on imputed market valuations of land plots according to a unit tax base established by this property index [Q3 2014]. The tax rates shall reflect the progressivity and revenue of the preceding property tax. For co-owned land plots, individual owners shall be taxed according to ownership proportions as provided in the cadastre;
Establish the legal basis for a mandatory annual adjustment of the property unit tax base by a competent executive authority [Q3 2014]; and
In order to retain a stimulus to property demand and reduce distortions in property prices, provide for an extension of the reduction in property transaction fees until 2016 [Q2 2013].
In addition, the following studies should be initiated by [mid 2013], and their recommendations implemented at the latest from [1 January 2015] onwards:
A study on refining the parameters of the imputed property market value index within the bounds of administrative and legal simplicity. In particular, the study shall assess the feasibility of a unit tax base for individual dwellings. Moreover, the study shall report on a mechanism to dampen cyclical variations in the index.
A further study on the scope of consolidating the collection and administration of the municipal recurrent property tax and sewage tax. The study will also review existing exemptions and derogations from property taxation. It will also report on the scope of shifting revenue from transaction fees and taxes to recurrent taxation [early 2015].
Housing market and immovable property regulation
The authorities will take the following measures to ensure market clearing of the property market, allow for efficient seizure of property collateral, and for market-based assessment of property prices, as well as alleviating the factors deterring both domestic and foreign demand. A particular risk arises from legal disputes, which may be due to incomplete documentation of ownership and property rights and the slow pace of judicial procedures.
The authorities will:
Provide for mandatory registration of sales contracts for immovable property by [Q2 2013]. By [Q4-2014], eliminate the title deed issuance backlog to less than 2,000 cases of immovable property sales contracts with title deed issuance pending for more than one year. The authorities will enhance cooperation with the financial sector to ensure the swift clearing of encumbrances on title deeds to be transferred to purchasers of immovable property, and implement guaranteed timeframes for the issuance of building certificates and title deeds;
Publish quarterly progress reviews of the issuance of building and planning permits, certificates, and title deeds, as well as title deed transfers and related mortgage operations throughout the duration of the programme;
Implement electronic access to the registries of title deeds, mortgages, sales contracts and cadastre for the financial sector and government services [Q4-2014]. Personal data privacy legislation shall be reviewed and amended to alleviate legal impediments to such electronic access, in particular concerning the procedures for proof of legal interest [Q2-2013];
Introduce legislation on amending the procedure on the forced sale of mortgaged property to allow for private auctions as under the rules for immovable property recovery under bankruptcy regulations. The authorities shall enact regulations to provide for the conclusion of such private auctions within shortest feasible timespans (see 1.5) [by end 2013]; and
Better target the rules of court to improve the pace of court case handling. The authorities shall assess the need for additional measures – including if necessary legislative reforms – to eliminate court backlogs by end of the programme. Moreover the authorities shall provide for specialized judges akin to the rules for criminal case handling in order to expedite the handling of cases under commercial and immovable property laws [Q4-2013].
Memorandum of Understanding on Specific Economic Policy Conditionality between Cyprus and the Troika.