Management of NPLs – what do financiers know?
Referring to loans for housing and real estate development or having mortgaged such a property, it is sad to see that few in the financial sector realise that it will be to their benefit to help provide a solution to the borrower, as, at the end of the day this helps them as well. No one is alone in this crisis and everyone – the borrower, lender, buyer – is in the same boat. Anyone who thinks he has the upper hand is simply out of place and has not yet gotten wind of what is going on.
• The first act should be a review or assessment of the borrower. The key question is what is the quality of the property and whether it can be regarded as such, the clear statement of the lender’s charges (there is a huge issue with overcharging), verification of existence of any outstanding debts to privateers, local municipalities, Inland Revenue, etc.
• The second operation is to evaluate the mortgaged property and estimation for the purpose of disposal, with particular emphasis on the availability in the medium term, now that the demand and the rate of supply are very limited. Low demand is particularly seen in the case of plots and farmland, while other land for coastal units, sports facilities, luxury villas and holiday homes or apartments have an increasing demand. Office complexes employing modern technology and rented to serious tenants are enjoying a steady demand from foreign investors with an expected return of 5% -6% of the purchase price.
• The third stage is the verification of the legal aspect of the units that are mortgaged. Have they obtained a permit, at what stage of the issue of title deeds is it at, are there are insurmountable problems or not? These questions are directly related to the prospect of disposal, even at a future date, and should include specific timeframes regarding the anticipated date of issue of a title deed.
• Another element is to review buildings are half-finished or abandoned.
It is in the interest of all parties involved that these properties are protected or safeguarded as too often they are subject vandalism. On some projects, bathroom ware and kitchens have been removed while in others even cables have been removed, especially copper used by electricians. As a result, the value of the mortgaged collateral is reduced, while the exposure of the building over time to weather conditions probably also risk the structural status of these buildings. To be more specific, despite our office’s intense efforts to have a housing project of 60 units in Paphos fenced off in order to protect it, this was not done and the next year almost all that remained were the columns and shells of buildings, with visible signs of moisture and exposure of the iron frames. In another case, a supermarket in Nicosia came close to losing its escalators.
Therefore, the protection of the mortgaged property would at least retain a certain value, by protecting the property against time, weather and vandals.
• Similarly, the building maintenance costs should be treated as a priority during an extended period of offer and lack of buyers.
With the new laws for the issue of title deeds to the buyer’s name, it is obvious that lenders are now worse off, prompting them to speed up the administration of assets held as collateral. At the same time, some have not yet realised that the supercharges of 8% -13% may seem positive on the lenders’ balance sheets, but in reality it is quite the opposite as they are causing the rapid sell-off or disposal of the mortgage of the borrowing customer.
The whole argument lies in the quality, status and honesty of the borrower and lender and the common understanding by all to reach the ultimate goal, that is to reduce the loan even if at the end all sides may lose out.
We are now in a period where a national economic recovery, of some rate, is expected from the year 2016/2017, while for some properties it seems that the recovery has already started, or at least the rate of fall has stopped. Some financiers have resorted to an exchange of property for debts held, but this does not solve the problem on its own. If there is a condition in the contract of exchange for a grace period of at least 1-1 1/2 years, for there to be no interest charge and that the repayment will start after the 2016 to 2017 when the anticipated recovery is expected, this should enable the borrower to sell or dispose of the property. Otherwise it is unthinkable how the interest can exceed 4.5% when the normal the deposit interest is now 1.8% (or below).
It seems that there is no common understanding of the whole issue and how debt should be reduced for everybody. Arguing all of the above is pointless if there is no strategy or plan, while the involvement of the Central Bank is essential in order to ascertain the implementation of the roadmap for loans, and whether these are implemented within the spirit in which they were submitted.
Finally it would be wrong not to give credit to the incentives offered by the present government, both in terms of visas/passports to third-country investors, as well as the elimination or reduction of transfer fees and capital gains taxes, as well as other incentives which altogether constitute a firefly of hope for a way out from the prevailing darkness.