Online property auctions to combat NPLs

AN ONLINE e-auctions platform was launched by a subsidiary of the Cyprus Banks Association in an attempt to boost the sale of mortgaged properties belonging to defaulted borrowers.

The process allows banks to auction properties of defaulted borrowers without a prior foreclosure taking place, which has raised critics’ eyebrows.

The first auction on the e-platform will be conducted on 18 December, enabling Cypriots and citizens of an EU member state, or Cyprus registered companies to participate in home sales, thus eliminating the need of a physical presence at an auction procedure.

Cyprus banks are now able to sell-off foreclosed properties online after the Minister of Finance Harris Georgiades issued a decree allowing electronic auctions, earlier this month.

Online auctions were a key demand from the banks to help them reduce the large volume of real estate accumulated in their portfolios from foreclosures.

The decree foresees that bidders must submit bids higher than the one previously submitted.

Bank executives expect electronic divestments will eventually lead to more real estate sales, just as in Greece, where data shows a record increase in auctions and sales after the introduction of online auctions.

The Association of Cyprus Banks said that online auctions were a demand put forward not only by Cyprus’ banks but also from international lenders, known as the Troika.

The ACB’s Andreas Costouris told the Financial Mirror that the creation of a state-controlled online auction platform was one of the Troika demands in approving the sale of the Co-op to Hellenic in July 2018.

Ever since the government had been working to overcome any legal obstacles in issuing a decree allowing for the creation of such a platform.

He said this is seen as a measure to reduce the banking system’s exposure to NPLs while banks demanded the online platform to add another tool in their struggle to bring down toxic debt.

“An online auction platform had been introduced in Greece recently with great success. Sales of properties under foreclosure went up by 300% with banks reducing their NPE significantly,” said Costouris.

“Currently just 5% of foreclosed properties are being sold in auction procedures. If we get that percentage up to 10% that would help to relieve banks from a chunk of their NPLs,” he added.

Costouris said banks intend to put pressure on strategic defaulters rather than aiming just to foreclose properties of struggling families.

“It is another tool. Our policy will not be different than it has been until recently. We will not be seeking to kick people out of their homes for the sake of it. Nor do we want to be overloaded with properties.”

Costouris noted that borrowers have a safety net with the state scheme ESTIA which is there to bail out borrowers who have defaulted on their mortgages following difficulties they faced during the crisis years.

Unconvinced the e-auction platform will go far in helping to speed up procedures, Chairman of the Cyprus Property Owners Association, George Mouskides said the platform will face significant problems, as potential bidders will not have a clear picture of the state the property is in.

“Even if the bidding process has the approval of the borrower/owner of the property, bidders will not physically be there to inspect the property.

Hostile owners

“In cases where the owner is hostile towards the procedure, then potential buyers may be in for another problem as the current owner will not be willing to leave the premises of the property,” said Mouskides.

Cyprus International Institute of Management (CIIM) finance professor George Theocharides told the Financial Mirror that bidders will have the disadvantage of not physically being able to view the property under the hammer and will hesitate to bid high.

However, as he argued, online auctions are a step in the right direction as it will, to some extent, expedite procedures.

“Right now, the pressing matter is to lower the banking system’s exposure to non-performing loans so that banks can finally get around to carrying out their role, which is to fuel the economy and finance businesses.”

He said banks have been focusing almost solely on bringing down their NPEs for the past six years and this has to come to an end. Borrowers could also benefit as they would get rid of loans which held them back.

Independent MP Anna Theologou argues that the online auction procedures were introduced to bypass safety valves in the legal framework protecting homeowners who have fallen onto hard times.

In comments to the Financial Mirror, the MP argued that if a bank decides to enter the property of a defaulted borrower for online auction then it is no longer obliged to come to any other form of mutual understanding to prevent the borrower losing their home.

“With the introduction of the online platform, banks can basically do what they want. Once a bank decides to register a property on the platform, then the owner/borrower will have 30 days until the auction date to file an appeal in court. This is next to impossible, which means borrowers are stripped of their right to seek justice.”

Theologou argued that the platform is less than transparent as there is scope for a bank to manipulate the bidding process.

“A Bank will be able to see if a borrower has registered with the system in an attempt to buy his property, but the borrower will not be able to make sure that a bank employee is not behind a screen trying to push price upwards. So, there goes transparency out the window.”

In response, the Bank Association noted that there are limitations to who can join the procedure, which exclude employees of lending institutions from participating in the procedure.

The system will be administered by ACB E-auctions, a subsidiary of the Cyprus Banks Association. It is responsible for the maintenance, control and operation of the Electronic Auction System through which the sale of properties takes place.

Bidders may participate in electronic auctions through the website upon registration with the system. To do so, bidders need to be listed on the Civil Registry of Cyprus or with the Registrar of Companies.

A wide range of properties will be available for auction, such as private residences, commercial spaces, parking lots, storage units and industrial plots of land.

Currently, there are 18 properties up for grabs during the first pilot auction to be held on 18 December, while banks are expected to add more properties at the second auction to be held on 10 January.

The properties are displayed in the system with their main features as well as the reserve selling price. Currently, properties on offer for auction are agricultural parcels with a price tag ranging from €17,000 and €777,000.

Interested parties can visit the platform’s website at https://www.eauction-cy.com/