Great news if you're a Brit planning to buy a property in Cyprus this year! It's an excellent time to do so from a foreign exchange point of view, because the pound has hit its strongest versus the euro since September 5th 2012, or 22 months, at a whopping 1.2676.

What this means for you is that, when you exchange currencies to buy a Cyprus property, you'll receive more euros. In fact, were you to to exchange £125,000, you'd receive €16,300 more than if you'd done so in March 2013, when you the pound was at just 1.1371.

Why has sterling climbed? Well, it's because the UK economy is growing +3.2% a year at the moment, more than any other industrialised country. So as the UK shakes off the effects of the financial crisis at last, sterling is regaining all its old ground against the euro!

Will the pound continue to rise, further cutting the cost of Cyprus property? It might, because as the UK economy recovers, the Bank of England looks set to become the first major central bank since the financial crisis to lift interest rates, lifting the pound too.

By Peter Lavelle at foreign exchange broker Pure FX

Property prices have reverted to 2006 levels according to figures released by the Central Bank of Cyprus (CBC).

With the Q1 2014 decrease, property values have now been on a downward trend for the 16th consecutive quarter.

The CBC’s Residential Property Price Index indicates that property prices in Q1 dropped by 2.7% compared to 2.6% in the final quarter of 2013, while prices of apartments and houses both fell by 2.7%, compared to 3% and 2.2% respectively in the previous quarter. 

Annually, figures show a marked drop of 9.6% compared to 8.7% in Q4 of 2013, which reflects the cumulative reductions of the four quarters after the bail-out in March 2013.

House prices fell 9.4% on an annual basis and apartment prices by 10%, while prices overall have dropped 26.3% since 2008 when they had reached their peak. 

Despite the reduction in recent years, prices are 12.9% higher than the first quarter of 2006 and closer to prices towards the end of 2006.

Apartment prices decreased in all districts, save Paphos, with Nicosia and Larnaca prices having fallen 2.8% and 3.4% respectively, Limassol prices by 3.7% and Famagusta by 2.6%. Prices of apartments in Paphos increased 1.2%, marking the first positive change in prices in Paphos since 2010.

However, house prices fell most in Paphos (3.7%) and least in Limassol (2.2%), while in Nicosia, Larnaca and Famagusta, prices in the first quarter were reduced by 2.5%, 2.5% and 3.1% respectively. 

The largest annual drops were noted in house prices in Famagusta (18.5%) and apartment prices in Larnaca (12.4%).

The smallest annual reductions were apartment prices in Famagusta (6.4%) and house prices in Limassol (8%). Apartment prices in Nicosia, Limassol and Paphos fell 9.3%, 11.3% and 6.9% respectively on an annual basis, while house prices in Nicosia, Larnaca and Paphos also dropped 8.5%, 8.6% and 9.1% respectively.

By: Nigel Howarth

A last minute deal has been reached by Cypriot MPs on the Immovable Property Tax for 2014 and a bill has been passed with 53 votes in favour and just one against according to reports.

A BILL for the Immovable Property Tax to be levied in 2014 was agreed by the Cypriot parliament earlier today with 53 votes in favour and just one against.

Reports coming in say that the tax will be levied as last year (on 1980 property values). The property tax will be paid by those who have gained possession of the property, regardless of whether the property is registered in their name (i.e. regardless of whether they have its Title Deed).

However there is a provision in the bill that exempts those who have not obtained the Title Deed through no fault of their own. Hopefully this provision will apply to those who are unable to obtain their Title Deeds because: They have not been produced. They cannot be transferred to the purchaser due to encumbrances (such as developer’s mortgages and other debts) that prevent their transfer.

The buyer is unwilling to pay the extortionate fees that the more nefarious property developers tend to charge to release the deeds for transfer. But it looks as if those whose Title Deeds are freely available but who have not paid the Property Transfer Fees will be required to pay the Immovable Property Tax.

The bill also moves the payment date from October to the end of November as this will give the taxpayer more time to find the money – and this move will also allow the Land Registry to find more new properties, which will help to increase the tax revenue collected.

In addition, while the existing law provides a 10% discount for those who pay within 30 days of the deadline, the new law provides a 15% discount for those paying 30 days before that.

Mixed opinions having permeated the market regarding the why, when, and how of a potential capital increase by the Bank of Cyprus (BoC), the bank’s Board of Directors is meeting today in a crucial setting hoped to positively resolve the issue.

As fears intensify that further delays in generating the extra capital needed may simply endanger the survival of the bank, it is expected that the Board will today approve a €1 billion recapitalisation drive.

These measures complement the single bank supervision system, already in place, and take the EU far down the road towards banking union.

Both Central Bank of Cyprus Governor, Chrystalla Georghadji, and President of the European Central Bank, Mario Draghi have expressed their vehement resolve that facilitating a capital injection in a timely manner is necessary, as the impending stress tests – that will assess the health and liquidity of the EU’s major banks under times of duress– loom.

Indeed, Georghadji famously sent a letter to the BoC, asking that the recapitalisation process be completed no later than August 8, engendering a wave of both praise and criticism.

It is understood that Draghi concurs with the short time-frame, equating ongoing uncertainty with the further loss of trust and confidence in the island’s largest lender.

President of the Cyprus Investment Promotion Agency, Christodoulos Angastiniotis, expressed the same sentiment at the ‘Breakfast with the Minister’ meeting that took place yesterday morning, explaining that Cyprus must be mindful of how such incongruities are projected abroad, and that stakeholders mustn’t underestimate the degree of damage induced.

Voices of the opposition, meanwhile, fear that an ultimatum forcing the completion of the process may simply aggravate an already exacerbated situation. DIKO’s Nicholas Papadopoulos queried: “Why this hurry to wrap up the recapitalisation process by early August and not September? Actions of this kind will only lead BoC into a prolonged crisis.”

InCyprus reports that the recapitaliaisation strategy has been hampered by a power struggle at the BoC between the foreign and local business figures, as questions of the degree of control each should attain within the bank’s structure have come under the lens.

Of this, EDEK’s Nicos Nicolaides explained: “It is obvious that existing shareholders should have the right to participate in the capital issue, bearing in mind that it is their deposits which were turned into shares back in March 2013.

“On the other hand, we also understand the efforts to bring in new investors, since this would be a vote of confidence for our banking system.”

BoC Chairman Christis Hassapis has stated that he is confident of a positive outcome come the culmination of today’s meeting.

Applications by third country nationals for residency permits over the last two years have resulted property sales valued at around €270 million with another €27 million deposited in local banks.The rise in permits is in response to amendments in legislation, implemented on August 2012 and May 2013, making it easier for wealthy non-EU residents to get Cypriot citizenship Under the new legislation, non-EU residents have the opportunity to acquire a permanent residency permit with the purchase of a private home or apartments of at least €300,000 and deposits of minimum €30,000 in a local bank for three years. Last May the cabinet decided to add extra incentive, deciding that that residency would be extended to the applicants children, provided they were financially dependent on their parents or were students under the age of 25. Applicants – who need a clean criminal record – need to prove they have an annual income of €30,000 a year from operations abroad (each dependent person raises the amount by €5,000 a year). They also need to show they have paid up at least €200,000 for a property worth a minimum €300,000 before VAT. The numbers were announced during a cabinet meeting under President Nicos Anastasiades on Thursday. It is estimated that a sum of almost €300 million was injected to the local economy already. Around €270 million was paid for immovable property and another €27 million was deposited in banks for the next three years. Interior ministry officials characterised the steps taken towards ensuring a revitalising of the economy as beneficial, especially for the construction industry, which has suffered a severe blow due to the financial crisis. Cyprus Mail reported in August that the vast majority of applicants are Chinese and Russian. In 2012, some 29 Chinese nationals applied for permanent residency in Cyprus compared with 445 applications so far this year, according to data from the migration department.

Applications from Chinese also made up the bulk of some 744 applications in total filed this year by non-EU nationals. Russians, thousands of whom already live on the island, made up the bulk of the rest of this year’s applications although applications dropped from 267 last year to 173 this year. Over half of the 423 applications filed last year, came from Russians (267). Cyprus’ 2011 population census placed the Russian population on the island at 9,000. Some of them were among the depositors of what was the island’s second largest bank, Laiki, and saw their savings of over €100,000 disappear overnight when Cyprus was forced to shut down the bank

THE Bank of Cyprus new management said it feels ashamed over the bank’s past lending practices that brought Cyprus’ largest lender at the brink of collapse. As part of the €10 billion bailout financial assistance programme for Cyprus, 47.5% of deposits over €100,000 in BoC have been converted to capital to plug a nearly €4 billion capital shortfall until 2015 on the basis of a due diligence exercise carried out by Pimco. Furthermore, BoC absorbed the good part of Cyprus Popular Bank, the island’s second largest lender which will be wound down. The previous Board of Directors as well the Bank’s senior management, resigned under heavy criticism. Amid soaring non-performing loans (NPLs), notably among large companies in the housing sector, the bank posted a €1.8 billion loss for the first six months of 2013, with NPLs reaching 36% of the bank’s gross loans.

“We are ashamed over the past mistakes and vow as the new Board to do our utmost not to repeat these mistakes ever again,” Christis Hassapis, the new BoC President said during an Annual General Meeting, noting “we apologise to the country, we apologise to our shareholders and we apologise to our depositors.” Both Hassapis and the bank’s new CEO, Irish John Patrick Hourican vowed that the new board will work to regain the clients confidence and underlined the need to tackle the rising NPL’s, which is currently the bank’s major challenge. They both made clear that the lending policy from here on will focus on the borrower’s capacity to repay its loan and not on the basis of collateral value, which was the main practice in the past. “Lending policies and practises are being revised and the imprudent lending policy based on collateral value will be replaced with the prudent lending on the basis of the proven repayment capacity, pursuant to the supervising authority’s directives,” Hassapis noted. On his part Hourican, who worked in Royal Bank of Scotland before assuming the top management seat in BoC, said the board will make small steps to regain the people’s confidence. “However, it will take time, as there is no quick fix to the bank’s problems,” he said. According to Hassapis, the bank is currently implementing a restructuring plan, featuring a specialized management of the bank’s large exposure to land developers and a centralized handling of the NPLs in a bid to achieve their swift recovery or restructure as far as of viable corporations are concerned. Hourican said following the bailout decisions, BoC became hostage to the Cypriot economy. “A deeper and more prolonged contraction with its consequences on unemployment, real estate and client confidence could derail the implementation of the restructuring plan,” he said, noting “perhaps our biggest task at hand is regaining the confidence of our clients.” However, he described the CBC’s new directive on NPLs as “foolish as it traps large amount of capital,” and he added the tendency of asset quality deterioration will continue beyond the first half of 2013. Noting that the bank is working to contain this tendency, Hourican stressed that there is no problem with the bank’s capital. According to the latest financial results, BoC capital adequacy ratio stands at 10.7% whereas the IMF believes that BoC’s Core Tier 1 capital ratio will remain at 9% throughout the programme period, that is, until 2016. Source: Cyprus News Agency

Before the capital controls involving money transfers abroad are scrapped, enabling those who have sold their homes to repatriate the proceeds more easily, domestic controls will be fully eased first.

THE FINANCE ministry announced on Friday it was abolishing restrictions on fixed term bank deposits, introduced last year along with other capital controls to prevent a bank run.

The ministry also said it was increasing the current limit for monthly money transfers per person within the Republic, regardless of purpose, from €15,000 to €20,000. The same applies to companies, which can now transfer €100,000 per month instead of €75,000. Cyprus introduced capital controls last March to prevent a run on banks after a bailout shut down a major lender, and imposed losses on large deposits in a second. It was conditional for €10 billion in aid from the EU and the International Monetary Fund. Based on the plan for a gradual relaxation on transactions, domestic controls will be fully eased first, before transactions involving money transfers abroad are scrapped. There has been an incremental easing of restrictions, but cash withdrawals are still limited to €300 per day and cashing of cheques is not allowed. The ministry said on Friday that according to the roadmap, which was published in August 2013, all milestones of the second stage have been met – disbursement of funds under the macroeconomic adjustment program for the recapitalisation of co-ops, submission of the co-ops restructuring plan to the European Commission, recapitalisation of Hellenic Bank, approval of the Bank of Cyprus restructuring plan – therefore it is possible proceed with further easing of the restrictions.

Courtesy of Cyprus Property News

BASED on the Central Bank of Cyprus “Directive on Arrears Management of 2013″ the Bank of Cyprus has adopted an Appeal Process mechanism and established an Appeals Committee for the impartial handling appeals received from borrowers regarding the restructuring of their credit facilities. Borrowers wishing to submit an appeal must do so in writing by filling out a Submission of Appeal on Restructuring Form (001-01-1888). The form, which should be completed in full and signed by the borrower, should be sent with all supporting documents either

: By post in a sealed envelope to the following address: PO BOX 21472 – Group Compliance Unit,

or

: By e-mail to This email address is being protected from spambots. You need JavaScript enabled to view it. (The form is also available in all branches of the bank.)

The Bank will provide borrowers with an official acknowledgement of their appeal, which may not be later than fifteen (15) business days from the date of receipt of the complaint, and an official decision of the Appeals Committee, which may not be more than three (3) months from the date of receipt of the appeal. If, in the period between the submission of the appeal and the receipt of the decision of the Committee, borrowers wish to be informed on the progress of their appeal, they may contact the 1Bank Call Centre/Telebank, which shall respond within twenty four (24) hours.

Central Bank Directive

The Central Bank Directive on Arrears Management of 2013 regulates the arrears management framework and establishes a code of conduct between Authorised Credit Institutions (ACIs) and borrowers. The main purpose of the Directive is to bring achievable, successful and sustainable long-term credit restructuring solutions. The Directive is in two parts: Directive on arrears management of 2013 (pdf document) Personal Financial Statement (Excel Workbook) The Personal Financial statement has to be completed and signed by the borrower and returned to the bank together with the restructuring form 001-01-1888. Nigel Nigel Howarth

Although a figure of 130,000 has often been quoted for the number of properties waiting to be issued with Title Deeds, this was based on statistics published by the Department of Lands and Surveys in 2008.

IN OCTOBER 2008, the Land Registry presented figures showing the overseas demand for property and highlighting delays in the issuance of their Title Deeds. In summary: Between January 2005 and June 2008 a total of 37,769 overseas buyers purchased 29,949 properties whose Title Deeds had yet to be transferred. This figure of 29,949 included properties for which Title Deeds had yet to be issued plus those whose Title Deeds were in the process of being issued. During the same three and a half year period, 4,440 properties were transferred to 5,988 overseas buyers. (However, the figures did not reveal how many properties had been issued with Title Deeds that had not been transferred). The article accompanying the figures reported that sales to overseas buyers accounted for 3 out of 10 sales of property.

Theoretical Title Deeds backlog Based on the figures published in 2008 – and assuming that the 7 out of 10 property sold to the domestic market were also waiting for Title Deeds to be issued – we can assume that a total 17,760 properties were transferred over the three and a half year period to both domestic and overseas purchasers; an average of 423/month. According to the figures published by the Department of Lands and Surveys, we know that a total of 183,556 properties have been sold since 2000. If we assume that over the same period of time that the Land Registry has maintained an average transfer rate of 423 properties/month, the number of transfers since 2000 is 423 * 169 = 71,487. Based on the various assumptions above, the number of properties whose Title Deeds have yet to be transferred is 112,069 (183,556 – 71,487). But this figure does not include sales that took place before 2000 and, therefore, the actual number will be somewhat higher; a figure of between 120,000 and 130,000 is not unreasonable. However, the Department of Lands and Surveys has published no statistics that provide the actual numbers of properties waiting for Title Deeds.

The Troika

It seems that the Troika may have identified the problem and this resulted in them back-tracking on the requirement for Cyprus to reduce the Title Deed backlog to less than 2,000 cases of immovable property units with title deed issuance pending for more than one year by Q4-2014. Buried in section 1.29 of the latest Memorandum of Understanding (MoU), which was issued on 12 April 2013, is the requirement that: The authorities will establish a Task Force (comprising representatives of Central Bank of Cyprus, Ministry of Finance, the Law Office of the Republic and the Land Register) by end-March to prepare a study assessing the magnitude of registered, but untitled land sales contracts and underlying mortgages and develop recommendations by end-June. Clearly, much work has yet to be done to assess how many properties are waiting for Title Deeds and the underlying mortgages preventing their transfer; hopefully things will become clearer later this year. But land sales contracts? Does this include all immovable property sales – i.e. land, commercial property and residential property or just sales of land? And what about the many other impediments that prevent the transfer of a property to its purchaser such as court judgements in favour of the vendor’s creditors, claims for unpaid Immovable Property and Capital Gains Taxes, costs for the construction of a street, etc?

What a mess!

The Bank of Cyprus leadership believes there is evidence of improving stability in the Bank and generally in the banking sector and points out that it is fully committed to restoring the confidence of depositors and customers.

The Bank of Cyprus leadership believes there is evidence of improving stability in the Bank and generally in the banking sector. Nonetheless, it points out at the same time that it is fully committed to restoring the confidence of depositors and customers.

In an interview with the Cyprus News Agency, Chairman of the Board of the Bank Christis Hassapis and CEO of the Group John Patrick Hourican talked about the recent release of the first of the three fixed term deposits and the sale of the Group’s Business in Ukraine. After the shock of the Eurogroup decisions of last March and the consolidation process, the Bank`s new Board and the new management are actively working to stabilize the Bank and restore the trust of depositors, which has gradually begun to return to the Bank as well as the banking sector in general. However, the Bank’s leadership does not this trust for granted. “We need to keep earning their trust and we need to keep making progress in restoring the strength of the Bank”, Hourican notes. The Bank now puts forward a new goal, empowerment through shrinking (Shrinking to Strength) and this includes the recent sale of its subsidiary bank in the Ukraine. For the restructuring plan, Hassapis notes that it is on track, adding that the goal is to create a bank attractive to investors. According to Hassapis, improving the stability of the deposit base and the liquidity of the Bank is also reflected in the recent release of the six – month fixed deposits, amounting to € 950 millions, which were frozen under the consolidation decree. However they say that problematic loans remain a source of concern, estimating that amid the ongoing economic contraction, the loan portfolio will continue to come under pressure.

Full text of the interview

The Bank has just released the first of the three fixed term deposits. At the same time a large part of the Bank’s funding comes from ELA.

What is the rationale which has led the Bank to release the blocked deposits?

Ch. Hassapis: The Bank’s funding comes from a variety of sources. We have customer deposits, funding from the Central Bank in the form of ELA and ECB funding and we have the equity base of the bank. The deposit base includes €2.9bn of deposits that were blocked at the date of the bank was recapitalized. The first £950m of these fixed deposits were due for release at the end of January and the bank had an option to roll the deposits for a further period of six months. Having established evidence of improving stability in the Bank’s deposit base and an increasing level of customer confidence, we determined that the most appropriate course of action was to release these deposits. This decision was taken after careful consideration of all the facts not least our expectation of available liquidity under various scenarios.

How do you expect the depositors of the Bank to react to the release?

John Hourican: We recognize that all of our depositors have choices and, as restrictive measures across the economy are lifted, this choice will increase. We have seen increasing stability in our deposit base over the past few months and this is pleasing, as confidence slowly returns to the banking sector and Bank of Cyprus in particular. We believe that our depositors will continue to support the bank but we do not take this support for granted. We need to keep earning their trust and we need to keep making progress in restoring the strength of the bank.

Have you had any disagreement with the Government or the Central Bank on releasing these deposits?

Ch. Hassapis: We made a very careful consideration of all aspects of this decision and we consulted with the appropriate stakeholders. We listened to input from various interested parties and we took into consideration their opinions in making the decision. This was a decision that the Bank Board of Directors took having carefully weighed up all the arguments. Moreover the Ministry of Finance and the Central Bank issued a joint press release on the issue. We are satisfied with customer and market reaction.

What should a holder of a blocked deposit expect and know?

J. Hourican: Although we have released the fixed deposits, they will continue to be affected by the general restrictive measures currently applicable across all banks in Cyprus. The depositors can withdraw up to 20% from the fixed deposit and place it in a current account. The rest will be placed on a one month deposit or, as we hope, the customers can opt for a deposit of a longer duration.

How is the implementation of the restructuring plan going?

Ch. Hassapis: The restructuring plan adopted by the Bank sets out a clear roadmap for the Bank over the coming few years. It is designed to make the Bank safer, smaller and relevant to Cyprus and its economy. This plan relies on our rebuilding customer trust and confidence, simplifying the business and making it attractive to investors. We are doing well. We have completed the rationalisation of our branch network, reduced the cost base of the Bank significantly and we are on target to integrate the Bank’s IT platforms by mid-year. We are making steady progress on our business disposal agenda and you will have noted, for example, that we have recently announced an agreement to sell our Ukrainian business to Alfa Group. We have clear plans to engage with customers to help restructure their exposures and we are making progress in arresting the deterioration of asset quality across our business. Whilst we have made a good start on restructuring the Bank, we still have much to do. We are working with our largest and our small customers to ensure loans can be serviced and repaid. We are working hard to regain the trust of depositors. We recognize that we must play our role in re-starting the Cypriot economy.

Why are you selling the Group’s business in the Ukraine?

J. Hourican: We decided, as part of our restructuring plan that our business in the Ukraine was not core to the strategy of the “go forward” Group. We are pleased with the sale of this business to Alfa Group and we are pleased that our 500 staff in Ukraine will have the prospect of a future career under a new owner. The group is “shrinking to strength” deliberately. We have withdrawn from the Ukraine as part of a deliberate strategy to focus our scarce capital and resources primarily on our domestic operations in Cyprus.

What are you expectations for problematic loans?

Ch. Hassapis: The trends in problematic loans are of course a concern for the Bank and we need to do everything we can to arrest any worsening of the position. As the economy continues to contract, we will have pressure on the loan book and we have to counteract this with clear and deliberate actions with delinquent customers.

The way delinquent loans are reported can be confusing. The definition of Non- performing loans has changed during 2013. Most loans that have some element of restructuring are now captured for an extended period within this definition, irrespective of performance and the “NPL” classification on ours and other banks’ balance sheets will likely grow and become less meaningful. Within the non-performing category are loans that are in arrears past 90 days and it is these loans that are the true measure of delinquency. We have seen some stabilization in the absolute level of these 90+ days overdue loans during the past few months. We would not yet characterize the trends as in reverse and, as the overall balance sheet changes shape it is of course possible that some trends and ratios will need further explanation. One of the Bank’s main challenges is dealing with large exposures and recovering problem loans.

What is the Bank’s approach on these and other exposures?

J. Hourican: The Bank’s Executive is systematically and actively engaged with our largest customers. We are working with each of our customers to ensure that we protect the bank’s interests but also that we work to ensure viable businesses are supported. We have reorganized the bank to create a centralized, specialized division responsible for restructuring and recoveries. This is an essential feature of our business at this difficult point in the economic cycle. It is essential that the bank’s customers, large and small, meet their obligations to the Bank and work to ensure that we can recycle lending into the Cyprus economy. The Troika is in town and you have already met with them.

How were the meetings?

Ch. Hassapis: We have a very good working relationship with the Troika. We had a number of meetings where we presented on our business, the progress we are making and issues we are facing. We were, as always, very open with them and our meetings have been very productive. We look forward to continuing this cooperation and engagement throughout 2014.

How would you describe the cooperation between the two of you, given that both of you have assumed your posts in the Bank only recently?

J. Hourican We have an excellent and harmonious cooperation on a daily basis. We have created the necessary internal structures and conditions that strengthen this cooperation. Our ultimate goal is the operation and governance with the aim to serve the Group’s best interests. Hassapis expressed his agreement with a nod of approval.