Anthony PetersSwissInvest strategist
THE YEAR IS coming to a close and, one way or the other, we will soon be swamped with reviews of this and musings on that. No doubt one of the principal conclusions will be that the eurozone crisis, though not entirely over, is well corralled and that we can now get down again to be being one happy family in an ever closer union.
But there is one little corner of Europe where fraternity and solidarity still seems a very long way away.
I’m sure everyone remembers the near-death experience in Cyprus. The fact that the country was tiny meant that the few billions it took to rescue the place appeared a small price to pay in order to maintain the veneer of perpetuity that is so important to the eurozone.
However, my spies in Nicosia advise me that that there is a lingering issue of which I was aware but had not yet understood the full implications.
FOR MANY YEARS there has been a sore point when it came to purchasing property in Cyprus, which many northern Europeans – especially Brits and Germans – have done. The problem is that the purchasers didn’t in fact acquire the title deeds to their sparkly new holiday homes. Officially, there was nothing more than a typically Mediterranean bureaucratic backlog and buyers were fobbed off with the explanation that the paperwork was still in a transfer process which, if put in a race, would lose to a snail.
What the new owners failed to realise was that in the eyes of Cypriot banks they didn’t hold good title over their properties and that therefore the developers that still held the deeds could liberally borrow against them.
So, find a foreigner, sell him a house or flat, take his money and then quickly borrow again against the property you’ve just sold. Then take the money out of the company and declare bankruptcy. Johnny Foreigner suddenly finds that he never did own the property he paid for and he might well be left with a mortgage loan and no security.
Not all missing title deeds spell disaster but at the time when Cyprus was on its knees and begging the Troika to find it fit to be rescued, the number of outstanding deeds was reckoned to be in the region of 130,000. Therefore, as one of the preconditions for the bailout loans, the Troika specifically demanded that the backlog be cleared by the fourth quarter of 2014.
In order to transfer the deeds, there must be no encumbrances on the property concerned and where developers have borrowed again, in some cases as late as the day before the completion of the sale, transfer is simply not possible.
Johnny Foreigner suddenly finds that he never did own the property he paid for
OVER THE YEARS there have been multiple cases of developers collapsing and leaving foreign buyers in property purgatory. Meanwhile, the local banks have found no shame in demanding that the owners of the properties – if that is what they are – make cash contributions towards developers’ defaulted bank debts and tax liabilities in order to get closer to the deeds that rightfully belong to them.
In the case of the failed developer SNK, it is reported that the liquidators appointed by the Bank of Cyprus are looking for between €15,000 and €20,000 from each defrauded owner plus a further contribution towards SNK’s €540,000 unpaid tax bill.
By all accounts, the resolution of the title deed scandal has made next to no progress yet and parochial interests apparently continue to take precedence over those of the damaged parties.
Remember please that many of these foreign owners, now including Russians and Chinese, already got taken to the cleaners when their local bank accounts were plundered in order to rescue a banking system in the demise of which they largely had no part.
SO WHILE INSTITUTIONAL investors sit back and congratulate themselves on having made out like bandits on peripherals in 2013 and smile at the authorities in Brussels and Frankfurt for having kept the integrity of the eurozone intact, tens of thousands of citizens, many of them retired or having wanted to retire, find their rights being sacrificed in order to keep the mask of eurozone solidarity in place.
In order to qualify for the next tranche of bailout money, the Cypriot government is obliged to present plans for the privatisation of a string of state-owned enterprises and utilities by the end of this year and it looks likely that it will succeed in doing so.
What, if anything, is being done about the errant title deeds is uncertain. In order to meet the objective of clearing the matter by the end of next year, the authorities in Nicosia would have to process around 350 cases every day, seven days a week, right up until the deadline.
We know they can’t do it. They know they can’t do it. We know that they know that they can’t do it. What we don’t know, alas, is whether they are even going to try, and what sanctions the Troika will adopt if they don’t.