A dangerous development
During the discussion, the main issue raised was about the inequality of valuations with relatively large differences for the same property by different valuers. This is partly understandable as we are in a bear market that has limited sales (or not at all in some areas) and therefore it is difficult to base an estimate on data that do not exist. So, in most cases appraisers adopt data from previous years and reach a conclusion by deducting various rates that, for example, depending on the date of the existing sale, etc. The fact that there are no sales or sales are limited, does not necessarily mean that the property in question has no value. All properties have a certain value, but the question is how much of this is based on the lack of information. This is a difficult case to resolve, even impossible, to determine the value under such conditions (in the absence of several comparative sales in the last 2-3 years). The situation gets worse in rural areas especially where sales are almost zero. This problem is particularly obvious in the Cypriot market as this is one which should not only take into account the current economic situation (which is unprecedented), but also the seizure of deposits and the fear that exists in the general public, of a new haircut on deposits being repeated (right or wrong, this is the opinion that prevails).
Now, the lenders have started to take as collateral against debt various properties and the debt exchange of properties (swap deals) and disposals of property have begun.
It is assumed that under the above conditions the prices declared to the Land Registry under such circumstances would be at forced-sale levels, or around 70% -75% of the market value regardless of where this is. As these transactions will dominate in the coming years, the prices that will be recorded in the Land Registry records and available to valuers will be these discounted prices.
As a result and following the best known, comparative estimation method (ie. how much similar properties were sold for based on the Land Registry data) it is clear that valuers will adopt these forced-sale prices as the going market value and will further reduce them by 20% -25% to reach forcedsale value that is usually adopted by the lenders. Therefore, at the end of the “new” forced-sale estimation the value will be 75% of 75%, or around 55%. So, if your plot for reasons of example is worth EUR 100,000, in the end it will end up at EUR 56,000. This level will affect most borrowers, it will affect the broader market (of free transactions) as the data will indicate prices being 20%-30% lower, and will also affect the lenders themselves – as based on the above, the value of their collateral and even those that will be required in the future will be greatly reduced.
So, we will have a that impacts everyone.
Our firm suggested, at the meeting, that “the forced-sale” transactions receive some sort of clarification in the Land Registry files (eg. with an asterisk) so that the estimator / owner / lender knows where this valuation came from.
This may be difficult, though, not only because it may violate the privacy rights of the original owner, but the market will have two valuations, one for the forced-sale transaction and the other from an openmarket transaction.
As boring as this article may be, as it involves certain technical issues, rest assured that it is very important not only for the public to know, but also for the lenders themselves and even the Ministry of Finance,
self-destructive cycle which might, in the case of a new reassessment, be surprised as regards the quality / value of their collateral, causing degradation and perhaps (God forbid) a new haircut.
Despite my years of experience on the issue of the real estate and property valuations for more than 36 years and despite all our concerns, I have not yet managed to find a solution to this problem. Perhaps a joint meeting with the Land Registry and lenders, appraisers, the Privacy Commissioner and Attorney General can help with some new ideas. As it is known, under the ECB directives property should be reassessed every 2-3 years depending on the type of property. Now, massive revaluation are underway by lenders to conform with the new guidelines – we will wait and see the results – while in forthcoming years and with the foreclosures, we might find ourselves before new major surprises.
I appeal to the Minister of Finance, despite the many that he certainly has to deal with, to consider this matter very seriously.