A dan­ger­ous de­vel­op­ment

Financial Mirror (Cyprus) - - FRONT PAGE -

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.

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