Firstly deposits, then housing. Cypriot property will be withdrawn for debts

Firstly deposits, then housing. Cypriot property will be withdrawn for debts

Three international creditors agreed to continue supporting Cyprus financially, but with one condition: government of the island should adopt laws allowing banks to withdraw housing from buyers who delayed in payments on the mortgage. In the morning we give you the law, in the evening we give you money. And Cyprus needs money as air. The new rules should come into force in 2015.

 

In the same boat. Three creditors impose a harsh law upon Cyprus

The three creditors, the European Union, the European Central Bank and the International Monetary Fund found their feet in all sorts of demands to the government of Cyprus. In March 2013, when the country was in a state of pre-default, and the authorities were thinking how much interest they can expropriate from bank accounts, the three creditors signed a Memorandum of Understanding, which in fact saved the country from financial collapse.

Then the creditors agreed to provide €10 billion in exchange for liquidation of the problem Laiki Bank, the adoption of anti-corruption laws, improvement of the budget to reduce deficit, the privatization of state property, and so on. In general, even before providing the first installment, the three creditors firmly caught Cyprus by the throat. And they decided to stretch installments to three years to put new conditions before each one.

Firstly deposits, then housing. Cypriot property will be withdrawn for debts | Photo 1 | ee24
Cyprus agreed to comply with the three creditors half a year ago. Larnaca

To get the next portion of the money, this time Cyprus has to adopt a law, which significantly simplifies and reduces time of withdrawing property procedure from debtors who do not pay loans. The saga of this law extended from summer: firstly, it was adopted, then the three creditors did not like the text, and then they recognized it as unconstitutional. In the meantime, money in Cyprus is over, and there is no sign of new installment.

 

Cypriots are ready to kill for housing

Before the elections, appointed in the Parliament on September 6, the country was in turmoil. In front of the presidential palace there was a demonstration of opposition forces, who expressed their objections to the head of the state. The president listened to delegates from the crowd, but he did not stop supporting the law after their argument.

Firstly deposits, then housing. Cypriot property will be withdrawn for debts | Photo 2 | ee24
In the meantime, money in Cyprus is over, and there is no sign of new installment. Limassol

At least two deputies received letters in August, where they were threatened not to vote for. "We are not terrorists and murderers, but if necessary we will protect our property and our children's future till the very end," it was said in the text.

The authors advised politicians not to spend money on the guard, who cannot help anyway: avengers are not in a hurry and can wait for years to strike.

 

Fearless deputies voted for the lesser evil

By summer the sum of non-payment in Cyprus reached €21.7 billion, or 45% of all loans. These are large sums – twice more than three-year aid from Europe. The main task of the creditors is to restore the economy, for Cyprus to be able to pay back. There are no sponsors in the trio. Hence there is the requirement for the law.

Firstly deposits, then housing. Cypriot property will be withdrawn for debts | Photo 3 | ee24
Property withdrawal will be a matter of months instead of years. Protaras near Aiya Napa

"Banks receive a tremendous amount less than due, so restoration is out of question," thought the creditors and decided that if they seize property and sell at an auction, it will return some funds to the banking system. Now for the debts of alienation takes from 10 to 20 years (!), but under the new law, adopted on September 6, the process is reduced to a few months. In addition, rules of real estate valuation and auction procedures have been established in the text.

The head of the Democratic Party Nicolas Papadopoulos: "We must not allow withdrawal of property, we have to protect people's homes. But if we let the economy collapse, and then there will be no homes to protect. Taking care of homes, but ruining companies, we will not get anything". Averof Neophytou, leader of the Democratic Association, which has 20 of 56 seats in the parliament, agrees with him: "Cypriot deputies are forced to vote for the lesser evil".

 

Will money come before Christmas?

In September 2014, the deputies adopted 6 laws at once, but the European Commission did not like them as they contradict the requirements of the Memorandum of Understanding. Moreover, 4 of the 6 laws were sent to the Supreme Court to determine their compliance with the Constitution. They could not pass this test and on October 31 they were declared void.

But the remaining 2 laws, which contain important provisions, remain in force and will enter into force on January 1, 2015. 200,000 people risk to lose property in Cyprus – it is the number of properties that are not paid on time.

Firstly deposits, then housing. Cypriot property will be withdrawn for debts | Photo 4 | ee24
200,000 houses and apartments in Cyprus are under the threat. Marina in Limassol

Since the conditions have been met, the Ministry of Finance said that the long-awaited installment will be received on December 15, just before Christmas that the Cypriot Orthodox Church celebrates on December 25. €350 million will be a good and well-deserved gift.

Once money comes, the parliament will consider opposition parties' offers. The latter want the law about accelerated withdrawal of property to come into force not on January 1 but in June 1, 2015, for the deputies to have time to prepare and adopt a law on insolvency, designed to protect debtors somehow. In other words, the law has been adopted, money "for it" will be received, and then they can delay the law for six months. Let's see if Cyprus can "trick" the three creditors.

 

Paved with good intentions. Will there be crisis in the real estate market of Cyprus?

Bank property in Cyprus, despite adopting the law, is unlikely to be the same phenomenon as a similar model in Spain. For a variety of reasons, analysts believe that the banks are unlikely to suddenly rush to withdraw property from the debtors.

Just look at the directory of real estate in Cyprus in order to understand that there are enough offers for every taste and budget. If the banks start to withdraw housing massively and flood the market with properties, it will be no good. Buyers, of course, will benefit from it, but the sellers and the banks will suffer seriously: the more properties are available the cheaper they are. Prices of houses and apartments in Cyprus are falling anyway, and for one year and by the third quarter of 2014 the decline was 9.6%.

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Flooding the market with banking real estate will lead to a sharp decline in prices. The Finikoudes beach in Larnaca

Banks prefer counting bills, not walls, windows and doors. The latter need to be sold. And while a property is waiting for a buyer, and it can take some time in the supersaturated market, it must be maintained and taxes must be paid. So it is more profitable to restructure a debt, than to take away customers' home.

Text: Kirill Ozerov, ee24.com