Pay­ing for prop­erty com­pen­sa­tion

Financial Mirror (Cyprus) - - FRONT PAGE - By Tom Lawrence

The Cyprus prob­lem ne­go­ti­a­tions are deep into the is­sue of prop­erty. This is one of the most com­plex is­sues of the ne­go­ti­a­tions for a num­ber of rea­sons.

First, it is highly emo­tive, as it reignites mem­o­ries of con­flict and dis­place­ment for both com­mu­ni­ties. Ac­cord­ing to (some­times con­flict­ing) of­fi­cial sources, be­tween 142,000 and 180,000 Greek Cypri­ots and 42,000 Turk­ish Cypri­ots were dis­placed in 1974. Around 25,000 Turk­ish Cypri­ots, 200 Greek Cypri­ots and 500 Ar­me­ni­ans were dis­placed in 1963-64 and another 20,000 Greek Cypri­ots af­ter 1974.

Sec­ond, there are the le­gal as­pects. The Euro­pean Court of Hu­man Rights (ECHR), through the Loizidou case, has es­tab­lished the con­tin­u­ing own­er­ship of those dis­pos­sessed. How­ever, in the more re­cent De­mopou­los judg­ment that up­set many Greek Cypri­ots, it also put a dent in the no­tion that own­ing the prop­erty trans­lates into a “blan­ket pol­icy of restor­ing prop­erty to own­ers with­out tak­ing into ac­count the cur­rent use or oc­cu­pa­tion of the prop­erty in ques­tion”.

Third, and most tricky in prac­ti­cal terms, it in­volves eco­nomic and so­cial chal­lenges. If all Greek Cypri­ots who were dis­placed in 1974 moved back with their off­spring to their orig­i­nal homes, what would you do with all the Turk­ish Cypri­ots and oth­ers dis­placed as a re­sult of this? Do you send them back to Paphos? And if you do, are their homes still stand­ing? What hap­pens to their cur­rent jobs, their school­ing and so on? Even in an An­nan-style sce­nario with full re­in­state­ment in ter­ri­to­rial ad­just­ment ar­eas and par­tial re­in­state­ment in the Turk­ish Cypriot con­stituent state, the hous­ing need cre­ated could be very large. The UN es­ti­mated in 2003 that about 67,000 peo­ple would be dis­lo­cated through ter­ri­to­rial ad­just­ment and re­in­state­ment. That’s just un­der one-third of the en­tire pop­u­la­tion at the time.

Are there enough places to house them? And what if the re­in­stated Greek Cypri­ots do not ac­tu­ally move in? Do we spend EUR 2 bln build­ing 22,000 new homes for dis­placed Turk­ish Cypri­ots or do we in­cen­tivise re­in­stated Greek

Cypri­ots to rent or lease to them?

At the other ex­treme, if no Greek Cypri­ots get their prop­erty back, who will pay for the com­pen­sa­tion? Ac­cord­ing to re­search by the Univer­sity of Cyprus, Greek Cypriot pri­vately held and Church prop­erty in the north was worth EUR 68 bln in 2009-2011. One can ar­gue with the method­ol­ogy: it is based on ap­ply­ing in­fla­tion rates to decades-old data. Any­one who has worked with long time­series knows that this is likely to pro­duce large sta­tis­ti­cal dis­crep­an­cies.

Another way of es­ti­mat­ing the com­pen­sa­tion value of the prop­erty in the north is ex­trap­o­lat­ing from the com­pen­sa­tion paid by the Im­mov­able Prop­erty Com­mis­sion (IPC). The ECHR de­clared in the Loizidou just sat­is­fac­tion rul­ing that the amount that would have been of­fered by the IPC con­sti­tuted a “fair ba­sis”, which sug­gests that it is happy with the method­ol­ogy. How­ever, it is com­mon for Greek Cypri­ots to say that the IPC is not pay­ing enough.

Yet even at IPC rates, the bill is big. The IPC has to date paid com­pen­sa­tion of GBP 208 mln for 15,380,508 square me­tres or 1,538 hectares. That’s about GBP 135,000 per hectare. There are 188,000 hectares of Greek Cypriot prop­erty in the north, so that puts a “com­pen­sa­tion value” of Greek Cypriot pri­vate prop­erty in the north at GBP 25 bln. At to­day’s ex­change rates that is well over EUR 30 bln.

You can cut this by around one-third by swap­ping the 54,000 hectares of Turk­ish Cypriot land in the south with a sim­i­lar amount on the north. Through ter­ri­to­rial ad­just­ment and/or re­in­state­ment you might cut it by another third.

But that still leaves us with EUR 10 bln, which is half of all-is­land GDP. We need to be hon­est with our­selves and ad­mit that no coun­try is go­ing to get this kind of fund­ing past their par­lia­ments.

Re­mem­ber that EU lead­ers were un­will­ing to fork out less than EUR 8 bln to re­cap­i­talise the bank­ing sec­tor in 2013, and in­sisted in­stead on the in­fa­mous hair­cut on bank de­posits. Even if poorer east Euro­pean mem­bers were pre­pared to pour that kind of money into wealth­ier Cypriot pock­ets, it would be highly in­fla­tion­ary, lead­ing to a mas­sive loss of com­pet­i­tive­ness.

If com­pen­sa­tion is not go­ing to bust the state, there­fore, the Prop­erty Com­mis­sion will have to find in­no­va­tive ways of rais­ing fi­nance from all the af­fected prop­erty on its books, and com­pen­sa­tion will have to be paid out slowly, over time, and in mainly non-cash forms.

That is as much a po­lit­i­cal chal­lenge as an eco­nomic one.

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