CYPRUS and its international lenders have agreed an updated 42 page Memorandum of Understanding (MoU) following the troika’s fourth assessment of the island’s economic adjustment programme.
A summary of the key points relating to property are as follows:
The authorities established a Task Force to prepare a study assessing the magnitude of registered, but untitled, land sales contracts and underlying mortgages and to develop recommendations by end-June.
The legal framework in relation to foreclosures and the forced sales of mortgaged property will be amended in consultation with the EC and the IMF and informing the ECB and the ESM, and adopted by end-June, with immediate effect for all mortgaged properties except primary residences (for which provisions will enter into effect by end-December, in line with the adoption of the insolvency legislation), to allow for private auctions to be conducted by mortgage creditors, without interference from government agencies.
Immovable property tax reform
The Cypriot authorities will reform the immovable property tax with the objective to improve the fairness of the tax burden and to increase the efficiency of the tax administration.
To this end, the authorities will:
- implement a General Valuation (GV) for all immovable properties. The new values of immovable properties shall be determined on the basis of tangible building- and plot related characteristics by Q2-2014;
- implement the recurrent immovable property tax based on the updated valuations for the tax year 2015, at the latest. The design of the immovable property tax shall ensure progressivity and proceeds consistent with measure I.27 of Annex 1.
Necessary legislative changes should be adopted by the House of Representatives by early July 2014, following consultation with programme partners. Legislation specifying the frequency of the mandatory update of the values in line with international best practices should be enacted by Q1-2015, following consultation with programme partners.
In order to ensure a smooth and timely implementation of the new immovable property tax and to minimise the operational risks, the authorities will present to the programme partners by end-June 2014:
- a communication strategy aiming at informing of the goals of the property tax reform, the implications for citizens and the procedures of the new reform;
- a comprehensive objections’ management strategy to effectively and timely deal with possible valuation complaints.
The strategies need to be clear and practical, explicitly defining the required steps and resources, and the envisaged timelines.
In addition, the authorities will:
- by Q4-2014, conduct an assessment of the relevance of the parameters used in the Computer Assisted Mass Appraisal (CAMA) model for the GV and identify possible missing parameters. Refine, if needed, the CAMA in light of this assessment by Q2- 2015;
- conduct an assessment of the variance between GV assessed values and market price by Q4-2014; and
- implement by Q2-2015 the recommendations of a study on the scope for 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 for shifting revenues from transaction fees and taxes to recurrent taxation. The study will also provide an initial review of the tax regulations relevant for the foreclosure process, with a view to minimising the cost of foreclosure and subsequent sale of foreclosed property by Q2-2014.
Housing market and immovable property regulation
Action is required to ensure property market clearing, efficient seizure of collateral, and restoring 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 Cypriot authorities will:
- define binding administrative deadlines for the issuance of title deeds upon receipt of the certificate of final approval by Q2-2014. Moreover to ensure the enforcement of the deadlines for issuance of certificates of completion by the supervisor engineers, an amending bill concerning the Street and Building Permit Law will be submitted to the House of Representatives by Q3-2014, after consultation with the programme partners;
- prepare a joint action plan to streamline the processes within the DLS and between the DLS, the Local and District Authorities and the Ministry of Interior Technical Services by Q2-2014; This plan should detail the resources required across authorities, streamlined processes if needed, set clear deadlines for any consultations required for issuing a certificate of final approval, as well as means to enforce those deadlines;
- ensure that the title deed issuance backlog drops to less than 2,000 cases of immovable property units with title deed issuance pending for more than one year by Q4-2014 (backlog refers to (i) applications, (ii) units that are eligible for the “ex-officio” issuance of title deeds, required certificates and permits). The ex-officio cases will automatically be counted in the backlog from the date the certificate of final approval is being issued by the respective Local or District Authority. To that end, by mid-July, provide to programme partners granular data on the stock of backlogs of permits, deeds, and certificates and a strategy identifying ways to reduce this backlog and continue publishing the quarterly progress reviews, starting in Q3-2014;
- implement electronic access to the registries of title deeds, mortgages, sales contracts and cadastre for the monetary financial institutions and for all government services by Q4-2014; and
- improve the pace of court case handling, in order to eliminate court backlogs by Q1-2016. To that end, provide detailed statistics on court backlogs and duration of court proceedings to programme partners on a quarterly basis starting in Q4-2014, submit a draft action plan for the elimination of court backlogs, including the electronic filing of new documents by end-October 2014, and enact legislation to establish an Administrative Court by Q4-2014.