Bankers and property management
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).
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
will have the responsibility to complete the project.
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.
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.