THERE COULD be as many as 50,000 unsold housing units in Cyprus according to the European Commission’s Country Report Cyprus 2016.
This figure of 50,000 is assessed on the difference between the number of authorised building permits and the number of contracts of sale deposited at Land Registry offices.
However, if the number of unsold housing units is estimated on the number of contracts of sale deposited at Land Registry offices minus the number of Title Deeds remaining to be issued, the number of unsold units is at least 18,000, which is still a significant number.
But if we assume that investment in houses each year is determined by the number of units sold in that year and that new houses take two years to go on the market for sale, over-investment can be estimated as sales minus sales two years previously. Adding this gap, between 2018 and 2015, gives about 28,000 unsold properties. (However, this calculation underestimates the stock of unsold houses if there were also houses left unsold before 2018.)
Over the five year period 2011 to 2015 an average of 5,300 contracts of sale have been deposited at Land Registry offices each year. So whichever way you calculate the number of unsold housing units, it will take some years to clear the housing stock overhang.
The report also notes that approximately one third of the housing units built and sold since 2000 are still legally owned by the vendor and, with over 40,000 such cases, this is a major problem.
Typically, the home buyer has paid the developer most of the sales price, or even its entirety, and has become a de facto owner. However, legally, the seller (usually a developer) still owns the property, as the transfer of the title deed has not taken place.
In some cases developers have failed to repay the mortgage loan for building the property, despite having received the proceeds of the sale. As a consequence home buyers who have not received their title deeds may have an incentive to default on their home loans, since the bank that granted the mortgage (or other creditors) cannot foreclose on their property. Instead, it is the bank of a non-performing developer who has the right to seek foreclosure on the property. However, that would lead to evicting the home buyer, who would be left with only a junior claim to the foreclosure proceeds.
Foreclosing on such de facto sold, but not transferred, property, though legal, would seriously undermine the attractiveness of Cyprus property market to foreign investors and would be politically and socially unacceptable.
The report highlights the significant problems with the issuance of title deeds, stemming from slow administrative processes and notes that although progress has been made on speeding up title deed issuance, the procedures are still lengthy and uncertain.
Since 2013, roughly half of the backlog in title deed issuance has been cleared. However, the still complex title deeds issuance procedures are not supporting a swift cleaning of the backlog, which still remains substantial, despite significant administrative efforts undertaken.
The Commission considers that the difficulties in issuing and transferring title deeds hamper competitiveness and deter international investors. The Cypriot property market has been very dependent on foreign investors, particularly as regards the most distressed assets (middle-class coastal holiday homes).
Foreign investment in the property market has dwindled with the crisis, and given the title deeds situation, has not returned to Cyprus. A return of foreign investment would support the recovery of the housing market, and thus would help improve banks’ balance sheets.
European Commission ‘Country Report Cyprus 2016’ (pages 32 – 35)