Whose risk is it anyway?

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Whose risk is it anyway?

By Denis O'Hare (Cyprus Weekly, September 7, 2007)

I write in response to several articles in your publication regarding the new finance restrictions: one under "Developers Argue Against Loan Curbs" and the other under "New Finance Restrictions" by Antonis Loizou.

Antonis has provided a useful source of information for many grateful readers in the past, given the unique system in Cyprus and the dearth of proper information sources for buyers, and despite developers telling clients that the system is just the same as the UK.

Amongst his many other talents Mr Loizou is involved in property development and management and is also an estate agent selling property on behalf of developers.

As neither article gives any detail about the size of the problem please allow me to give some background.

In May this year under "Cyprus banks go into lending Frenzy – Advances Up 21%" it was reported in the local press that "Biggest advance in loans channelled into building and construction loans up 31% year on year to CYP 2.36 billion by contractors". (Note: the size of the total industry per annum is CYP 1 billion).

In July "Central Bank decision shocks property Market"; this article reported on a circular sent out by the Central Bank to the local banks, going on to state that "lending ceilings lowered from 70% to 60%, banks must readjust the loans they grant to developers".

Since August 16th of course the global financial markets have been in utter turmoil as a result of bad mortgage loans in the USA which has in turn infected the whole worldwide banking system.

This has caused a massive credit crunch with individual banks having to be bailed out by their Central Banks and banks even afraid to lend to each other, never mind real customers! Commentators say there is more bad news to come.

In summary, and despite the developers’ massive lobbying power in Cyprus, what the Central Bank did in July here was to introduce corrective measures to contain what was perceived as a risky credit situation even at that time.

Since then of course the whole level of risk to the worldwide banking system, including Cyprus, has been significantly multiplied.

We must now turn our attention to what the developers in Cyprus use as collateral to secure these massive loans. Clearly as most of their assets are in property they legally own, they can use the title deeds for this purpose.

This will be of little comfort to the many thousands of people waiting for their title deeds to be issued after paying good money for property, often years ago – something even Greek Cypriots have called a national scandal.

And also please consider, despite quoted safeguards would the banks really be lending their money out unless they had first call on these assets in the event of default by developers? – which could well happen if there is a slowdown or, God forbid, the bubble bursts.

We at the Cyprus Property Action Group (www.cyprus-property-action-group.net) are here to lobby government and the industry with the aim of making Cyprus the safest place in the Mediterranean to buy property.

So far no-one we speak to in this process disagrees with our aim.

We would therefore urge the Central Bank to proceed with great caution on this issue, especially as they may be potentially affecting innocent peoples’ lives.

We have a growing number of client cases reported to CPAG where purchasers cannot obtain their title deeds because the developer (see website case) has an outstanding loan on the property.

Finally, we will probably be accused of scaremongering in some quarters (shoot the messenger etc.) however, in this very risky credit situation we believe that we are fully justified in ourselves risking such criticism.

Furthermore, even with little publicity so far around 2,000 people have joined our initiative already and we invite purchasers, including those worried about title deeds to register with us.

Denis O'Hare,
Cyprus Property Action Group