Man­age­ment of NPLs – what do financiers know?

Financial Mirror (Cyprus) - - FRONT PAGE -

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.


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