IT’S A TABOO subject for all but those who could actually lose their homes. The property developers say it won’t happen. The banks are reluctant to discuss it, and the government is silent.
What will happen to home buyers without title deeds if the global crisis worsens and some property developers collapse?
Instead of working out a contingency plan, the powers that be simply say it could never happen in Cyprus. Once upon a time the Titanic too was deemed unsinkable.
In other countries banks foreclose when home owners are unable to pay their mortgages.
The difference in Cyprus is that there are 100,000 home owners with no title deeds – including 30,000 foreigners – who may well be paying their mortgages on time. Indeed, many have already paid them off completely. But according to law, they could still legally be foreclosed simply because they don’t have the title deeds in their possession.
It is the status of the developers’ mortgages that count, not that of the individual home owner. The developers who took out mortgages on those properties – either to build them in the first place or to finance other projects – remain, as far as the banks are concerned, the legal owners until those mortgages are paid off. In the meantime, the title deeds are kept by the banks rather than the people who actually bought the individual houses.
This means if developers default on their mortgages, the property is taken over by the bank whose main goal will be to recoup what it lent out.
Home owners would then have to join the list of creditors for whatever cash was left.
Irrespective of whether developers do or do not collapse due to the global crisis, the bottom line is that 100,000 home buyers and their families are exposed. The crisis has only served to highlight this decades’ old problem.
And to those who say the banks in Cyprus have a social conscience and would never turf someone out of their homes, the interest rates furore over the last few weeks has been an eye opener in that respect.
During the good times, banks can afford to have a social conscience but in the bad times, their liquidity and profit margins, not yours, is what will count.
The Cyprus Property Action Group (CPAG), which represents mostly British buyers is very concerned, so much so that they have asked the British government to get involved.
Cypriot property developers said last week that going public about the possibility of companies collapsing was alarmist.
But Lakis Tofarides, the chairman of the Land and Building Developers Association did admit that over the past 10 months, there had been a “discernible and worsening” fall in demand for real estate.
That real estate was still holding its own despite the credit crunch was down to a set of circumstances particular to Cyprus, “which nevertheless should not be taken for granted” he said.
CPAG’s Denis O’Hare said people had a right to know what would happen to them in a worst-case scenario. He said the government had already guaranteed bank deposits and he could not see why they could not guarantee the homes of people who had paid for them just because the state has not yet sorted out the title deeds debacle.
“The Cyprus newspaper pundits have been saying it (a crash) could never happen here because Cyprus is different from anywhere else. It certainly is different – dangerously and dishonestly different!” O’Hare said.
He said even though there has been a fall of over 40 per cent in property purchases this year, and the stock market has lost nearly 70 per cent, led by bank share-price losses, “the government is still in denial about the extent of the risk”.
“Developers currently have record mortgages of over €4 billion using their clients’ homes as collateral for these loans. Just how unethical is this lending?” he added.
“And if the developer goes bust, buyers can lose their properties because the banks who enter into this unethical lending have first priority on the land and everything built upon that land.”
O’ Hare said the the latest Land Registry figures show that still pending are 29,949 transfers of title deeds to foreigners and their families, which he said affects at least 60,000 people.
According to the same Land Registry figures, he said the going rate for title deed transfers over the last three and a half years averages just over 1,600 per year.
“So at this rate many buyers will be at risk for many years. Clearly, our Cypriot compatriots are in the same risk situation and their numbers much greater,” O’Hare said.
“However, our prime concern is with the potentially catastrophic risk we are facing over the next few weeks and months – and therefore it is clear that we must act now!”
Home owners are very worried that in the event of a property crash or global credit crunch potentially many of them, who have already paid for their property, could find themselves homeless.
“Stating that it has not happened in the past has no bearing whatsoever on these real risks,” said O’Hare, himself a retired banker.
“If the vendor has a mortgage on the property, the lending institution has rights which supersede the buyer’s,” he added.
According to one Cypriot bank this was true. “Money would be distributed among creditors,” said an official in the bank. However he said it was very rare for a bank to foreclose in Cyprus. “We have never faced such a problem,” said the official, who added that he could not say for sure how it would end for the buyers who may have already paid for their homes if it came to the crunch.
O’Hare said the banks had acted unethically all along by allowing developers to take out second mortgages on completed property developments in order to earn extra interest.
“The industry has been developed on massive loans from the banks, and unfortunately for the buyers, loans are largely underpinned by using the title deeds of properties which have already been sold. Yet legal ownership has been withheld. This means that in the event of a property crash or even significant slowdown, the homes of these ‘purchasers’ are at risk. The situation in Cyprus seems very precarious to say the least,” he said.
A second banker said the banks` approach was always to do their best to support the property industry, and also the buyers who don’t have title deeds.
He said once a buyer lodges a ‘contract of sale’ with the Land Registry it was as good as having a title deed as far as their rights were concerned.
“That in itself should give them a sense of security. Bear in mind that banks in Cyprus don’t have a history of putting people out of their properties,” said the banker. “Ask EU bankers – we don’t force people out of their homes. It’s not easy for someone to lose his home in Cyprus. Even if someone has no title deed they can’t take my home away from me. Cyprus is still the most secure market for buyers.”
O’Hare acknowledged that during times of economic prosperity, the banks did try their best to ensure the viability of a development in the event a of a company collapse.
“When one developer went bust last year the market was still buoyant and others took over the site under a bank rescue plan,” O’Hare said.
He said another developer went bust three weeks ago with 200 properties on two sites. He said there was a developer willing to take over the main site, but there was no rescue plan for the second. Luckily those homes had not yet been started, and depositors were likely to get a refund, he said.
“But in future development failings in the event the crisis continues, they may not be able to sell the sites off to pay their debts,” he said.
“Cypriot home buyers are in an even worse position but people here seem to accept it as being the norm. We don’t,” said O’Hare, referring to the foreign buyers. “Greek Cypriots should be protesting on the streets, because if losing your home doesn’t frighten you….”
