The truth about the Troika memorandum and real estate

The memorandum /bailout deal is a simple 42-page agreement between our government and the Troika with abundantly clear and specific clauses.

As various individuals have made comments left and right about the deal, creating confusion, let’s look at the clauses concerning real estate, so that everyone knows what to expect.

In the first chapter (1.28) concerning reform of the banking sector, under the heading “The Legal Framework for the Restructuring of Private Loans”, (bank loans) there is the following reference:

The legal framework in relation to foreclosures and the forced sales of mortgaged property will be amended in consultation with the Troika, and adopted by end-June 2014, with immediate effect for all mortgaged properties except primary residences (for which provisions will enter into effect by endDecember 2014, in line with the adoption of the insolvency act), to allow for private auctions to be conducted by mortgage creditors, without interference from government agencies. Foreclosure time for primary residences can be extended to 2.5 years, whereas for other properties to 18 months.

In the third chapter (3.6), concerning “Fiscal-Structural Measures” under the heading “Revenue Administration, Tax Compliance and International Tax Cooperation”, the following is specified:

To reinforce the effectiveness of revenue collection the powers of the tax authorities must be strengthened, giving them authority to prohibit the alienation of assets, including property (we are specifically concerned with property tax payers), and bank accounts by tax payers. Regarding bank accounts, no previous court order is needed to block funds, but the taxpayer is given a brief grace period during which they can contest the decision.

The issue becomes abundantly clear. More specifically, in the same chapter, headlined “Immovable Property Tax Reform”, the following remark is made:

Tax authorities must restructure the property tax so that the breakdown is more fair and simpler and with a lower administrative cost for the state. For this reason, the following measures must be taken:

A new general valuation of properties must come into effect by 30/6/2014 so that the real values are reflected (values as of 1/1/2013).

Property tax for 2015 (does not specify for 2014) must employ the new general valuation and secure an income at EUR 75 mln over and above the amount collected in 2012 by altering the existing tax brackets (i.e. about EUR 100 mln in total).

By the beginning of July 2014, new legislation must be adopted in cooperation with the Troika, ensuring the frequency of revisions of the valuations according to international norms by 31/3/2015. A communication strategy must be established by 30/6/2014 to inform and enlighten the public of the aims of the tax restructuring.

Another strategy to be agreed would be that of how to handle objections regarding the new valuations

Also, by 30/6/2015 the suggestions of the study for the collection and management of communal/municipal property taxes must be adopted

A study must be carried out to determine the usefulness of shifting the collection of some taxes and fees from the real estate transactions to an annual property tax (holding tax).

Finally, the possibility of reducing the transaction cost for forced sales of nonperforming loans must be studied by 30/6/2014.

The fifth chapter (5.3) headlined “Goods and Services Markets” regarding the “Housing Market and Immovable Property Regulation”, the following observation is made:

The authorities must take actions to restore demand for property, the efficient seizure of collateral and the swift issue of permits and transfer of properties. Special mention is made to the dangers from legal procedures arising from incomplete documentation of ownership and the slow pace of judicial procedures. More specifically: By 30/6/2014, authorities must set time limits for the issue of title deeds, if final certificate for completion exists.

Furthermore, by 30/9/2014 a time limit must be set for the issue of completion certificates by the supervising engineers.

By 31/12/2014 we must safeguard that the number of properties without title deeds, for which the procedure has been ongoing for more than a year, are less than 2000.

In the middle of July, and every three months, the number of properties without a title must be announced.

All state departments and financial institutions must have electronic access to records of title deeds, mortgages, sales documents and Lands & Surveys Dept plans by 31/12/2014.

Finally, court procedures regarding property disputes must be accelerated.

In conclusion, there’s ample work to be done by the government, with the contribution of the House of Representatives and the Attorney General’s office, so that new legislation is simple and easily enforced.

We should have resorted to the above measures at our own initiative to aid the Cyprus economy and ourselves. They are now forced upon us by the Troika.

Let us not forget that people in key positions (government, political parties, MPs) had only to gain from all the mess and continue to resist these changes. Are we going to let them?