Bankers and prop­erty man­age­ment

Financial Mirror (Cyprus) - - FRONT PAGE -

Hav­ing stud­ied in the press the pro­pos­als of lenders to al­low the di­rect use of prop­er­ties that are ei­ther given to them in debt ex­change and / or from fore­clo­sures, seem to be rea­son­able, in gen­eral terms, be­cause th­ese will help banks to col­lect as much as pos­si­ble from the dis­posal or ex­ploita­tion of real es­tate and be­cause th­ese will help the Cypriot real es­tate mar­ket and at the end the day the bor­row­ers them­selves, who re­gard­less of the amount of the sale re­main in most cases per­sonal guar­an­tors.

It is ex­pected that when the bor­rower ac­quires the prop­erty he will have to pay trans­fer fees and cap­i­tal gains taxes, plus the prop­erty taxes. So, in ad­di­tion to the loan, the bor­rower will be bur­dened with an ad­di­tional 15-30% of the pur­chase value. There could be some rea­son that n some cases to re­lieve the lender and or bor­rower from such trans­fer fees, or even cap­i­tal gains (which as men­tioned above is bur­dened on the bor­rower).

Trans­fers -

3 years hold -

Lenders are obliged to of­fer into the mar­ket any prop­er­ties that they re­pos­sess or ac­quire be­cause they can no longer hold on to them for more than three years. Lenders want to ex­tend this pe­riod to five years, which again sounds rea­son­able and this may even be in­creased to 7-8 years as if hun­dreds of prop­er­ties are sud­denly dumped in the mar­ket dur­ing this pe­riod of cri­sis, not only would this trou­ble the real es­tate mar­ket even more, as well as lenders, caus­ing fur­ther de­clines in prices - some­thing that will even hurt the bor­row­ers as the value of their col­lat­eral would also drop with neg­a­tive i mpli­ca­tions for all. Sub­ject to a re­cov­ery of the mar­ket in five (or 7-8) years, the grad­ual sup­ply of prop­er­ties ac­quired by the lenders makes sense.

There is also rea­son in the lenders’ pro­posal to al­low the com­ple­tion of half-fin­ished projects, for ex­am­ple in a devel­op­ment of 30 plots that al­ready has 22 buy­ers, where the sep­a­ra­tion is not yet com­pleted as EUR 100,000 may still be needed for as­phalt­ing and pay­ment of elec­tric­ity fees to the EAC. What makes more sense is for the lender to com­plete the project as this will al­low the is­suance of ti­tle deeds, thus re­liev­ing the ex­ist­ing 22 buy­ers and maybe even in­creas­ing the pos­si­bil­ity of sell­ing or in­creas­ing the value of the re­main­ing eight plots avail­able, as th­ese will now have ti­tle deeds. Sim­i­larly, any un­fin­ished projects, such as res­i­den­tial homes, could be un­der­taken by the lender for com­ple­tion and sub­se­quent par­tial sale of units. Thus, the trans­fers of re­pos­sessed prop­er­ties could be made di­rectly to a sub­sidiary of the lender and this com­pany

De­vel­op­ments –

will have the re­spon­si­bil­ity to com­plete the project.

Rentals –

In a sim­i­lar fash­ion, the rental of con­structed projects should also be al­lowed, so that th­ese units, such as ho­tels, are not con­demned to wear, and to se­cure a ten­ant, even with a re­duced rent, to en­sure in­come to the lender. This is not wrong. Ten­ants, who for one rea­son or an­other, can­not meet the pro­vi­sions of their con­tract, should be im­me­di­ately evicted with­out be­ing sub­jected to the cur­rent lengthy court pro­ceed­ings where we also see some tricks, such as long-term con­tracts, in­sti­tu­tional ten­ants, etc.). This way, the lender will col­lect more and as men­tioned above the bor­rower will also ben­e­fit.

Main­te­nance and Man­age­ment - The lender should be able to main­tain the seized prop­er­ties and man­age them at least for the pe­riod of five years (or 7-8), so that the prop­erty can­not fall into dis­re­pair, while by man­ag­ing it, it may also col­lect rents, such as in the case of hol­i­day homes, un­til the prop­erty is dis­posed of.




Projects or prop­er­ties that have been seized would be bet­ter if they were to held or man­aged by groups, ei­ther bankers or oth­ers who know the sub­ject, oth­er­wise and in view of the lim­i­ta­tion of three years, they will be forced to pass on th­ese prop­er­ties to funds buy­ing dis­tressed debt which is the worst so­lu­tion both for lender and for bor­row­ers and cer­tainly the worst for the Cyprus prop­erty mar­ket. This is a very se­ri­ous mat­ter be­cause to date we have nor yet seen any good come out of such sales and man­age­ment of pos­sessed port­fo­lios. At present, lenders main­tain a web­site with­out any spe­cialised man­age­ment and with­out the proper re­sponse time, which could ex­tend to at least 10-15 hours or even over week­ends and hol­i­days, be­liev­ing that this way they will be able to at­tract buy­ers. How wrong they are!

To achieve their goal lenders need to do the fol­low­ing (apart from the afore­men­tioned sug­ges­tions):

• To clar­ify the prop­er­ties in terms of their legal sta­tus – whether there are build­ing per­mits, as they were erected, if not can the build­ing get a per­mit, where the proper im­ple­men­ta­tion of the town plan­ning amnesty must be in­dtro­duced.

• To clar­ify what is avail­able in the pos­ses­sion is­sue, ie. is the prop­erty rented to an in­sti­tu­tional ten­ant and they be evicted, or per­haps may have been rented by the lender de­lib­er­ately at low or even long-term rent con­tracts for, say, 12 years.

• The amounts due to the state by oth­ers and if the im­mov­able prop­erty taxes, mu­nic­i­pal taxes and sew­er­age fees have been set­tled.

• Fi­nanc­ing buy­ers – Un­for­tu­nately, in or­der to re­gain the up­per hand the lender must con­sider of­fer­ing to po­ten­tial and solid buy­ers, some form, of fi­nanc­ing. Dur­ing this pe­riod of ab­sence of any fund­ing, any longterm fa­cil­ity of­fer by the seller-lender will be a pow­er­ful prop­erty.




to mar­ket



We see with amaze­ment that most lenders out­source the man­age­ment and rental of prop­er­ties to ad­min­is­tra­tors who have lit­tle knowl­edge of the sub­ject, nor do they of­fer any com­mis­sion or finder’s fee to real es­tate agents to pro­mote their prop­er­ties and thus try on their own, by plac­ing some ad­ver­tise­ments, be­liev­ing that this way they will suc­ceed where oth­ers have failed. Un­for­tu­nately, most will be dis­ap­pointed and with them the lenders who con­tracted the man­age­ment to them, to the detri­ment of the ini­tial and dis­tressed bor­row­ers.

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