VZCZCXRO8135
PP RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV RUEHSR
DE RUEHNC #0275/01 1141018
ZNR UUUUU ZZH
P 241018Z APR 09
FM AMEMBASSY NICOSIA
TO RUEHC/SECSTATE WASHDC PRIORITY 9802
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY
RUEHAK/AMEMBASSY ANKARA PRIORITY 5443
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

UNCLAS SECTION 01 OF 03 NICOSIA 000275 
 
SENSITIVE 
SIPDIS 
 
TREASURY FOR OFFICE OF EASTERN EUROPE 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PREL CY
SUBJECT: CYPRIOT PROPERTY PROBLEMS 
 
REF: NICOSIA 107 
 
¶1. (SBU) Summary. While the worst effects of the global 
financial crisis have largely bypassed Cyprus so far, 
bureaucratic delays transmitting title deeds to individuals 
seems to be leading to growing problems in the property 
sector here. Local banks have a very high exposure to the 
property and construction markets. If these markets decline 
precipitously from current levels, the financial structure of 
the country would be severely impacted. That the problem is 
the focus primarily of the many British citizens (rather than 
Cypriots) who have purchased property (mainly holiday and 
retirement homes) in Cyprus seems to make the GOC even more 
reluctant to deal firmly with the situation. The fallout from 
a major court case will also impact how property values are 
viewed on the island. End Summary. 
 
¶2. (U) Real estate has been one of the key drivers of the 
Cypriot economy over the past five years. With Cyprus' 2004 
accession to the EU, Europeans became even more interested 
than hitherto in buying a vacation or retirement property on 
a sunny, low-crime,  Mediterranean island. The influx of 
northern European, Russian, and especially UK property buyers 
caused real estate values to double since 2004 and led to a 
construction boom. Loans to developers now comprise almost 40 
percent of local commercial bank's loan portfolios 
 
¶3. (U) The boom is now over, with the global decline in asset 
values echoing in Cyprus, albeit not as significantly. 
Property prices in areas most favored by UK buyers (Paphos 
and Agia Napa) are most affected, with prices down 25-30 
percent from early last year.   In localities catering more 
to local or Russian markets (Nicosia and Limassol) prices are 
flat. 
 
Why Are Title Deeds So Hard to Obtain? 
-------------------------------------- 
 
¶4. (SBU) Exacerbating the downturn, and what could 
potentially cause a more significant decline in prices, is 
the growing difficulty of property buyers acquiring title 
deeds from property developers. Developers typically borrow 
to buy and build a property project, then sell "off-plan" to 
individual unit buyers who make progress payments until 
taking final delivery and moving in. However, there is no 
time line for actual delivery of the title deed from the 
developer who holds the deeds to the entire development until 
two things happen: 
- The Land Registry Office inspects the final development and 
confirms that the project is according to code, zoning 
regulations, and the original plans filed by the developer 
with the Office. 
- The bank holding the mortgage on the development releases 
the collateral as a result of being fully repaid by the 
developer/borrower. 
 
¶5. (SBU) This process can take anywhere from three to thirty 
years, and has been getting more drawn out recently. The Land 
registry only conducted 1600 final inspections last year, 
while more than 20,000 new dwellings were built. There are 
reportedly 100,000 homes awaiting final title deeds, of which 
30,000 belong to non-Cypriots.  Banks, of course, hold on to 
their collateral until the entire mortgage is paid by the 
developer. There is no sub-division of the overall project 
deed into individual deeds until the above two preconditions 
are met. 
 
¶6. (SBU) As an "accommodation" developers have typically been 
willing to "buy back" a unit within one of their developments 
for a fee that range from 15-30 percent of the price that a 
second buyer pays (since the developer holds the title deed, 
only they can legally buy the property back). When prices 
were rising, anxious sellers were not happy paying what 
amounted to such a large commission, but typically went along 
since they had no other options, usually still made money in 
the transaction, and did not have to wait too long for the 
transaction to be completed. But with prices declining, 
buyers becoming increasingly rare, and developers' cash flows 
under pressure, this procedure is no longer operative. 
Meanwhile, many UK residents are finding that they can no 
longer afford to maintain two homes or, if retired, their 
pensions do not go as far in Cyprus given the UK Pound has 
depreciated against the Euro by about 12 percent since 
November 2008. 
 
Fear Leading to More Problems 
----------------------------- 
 
 
NICOSIA 00000275  002 OF 003 
 
 
¶7. (SBU) Many foreign buyers claim they were unaware that 
they would not receive their title deeds upon final payment 
to the developer, and an association of foreign homeowners 
(the Cyprus Property Action Group, CPAG) accuses developers 
and lawyers of being in cahoots to mislead foreign buyers 
about title deeds and the GOC of not doing anything about the 
situation. This has led to a further decrease in foreign 
buyers and an even greater desire among some to sell. And 
since they cannot sell without a title deed, there is a 
growing number of foreign property owners becoming more vocal 
and crying fraud. CPAG reports receiving more than 100 calls 
or e-mails per day from people looking for assistance. 
 
¶8. (SBU) Banks have told us that they expect several property 
developers to become insolvent this year as they are unable 
to sell off their most recent developments and service their 
loans. In this case, according to a local lawyer, individuals 
in these developments have no rights to their assets because 
the foreclosing bank would obtain the title deed as 
mortgage-holder. Further complicating matters, there are 
reports that some developers re-mortgaged completed projects 
to finance new developments. If any large developers declare 
bankruptcy, there will be significant difficulty unwinding 
all the competing claims, although CPAG's biggest concern is 
that its members would be evicted as the foreclosing bank 
resells the foreclosed property to a new buyer. 
 
UK Gets Involved 
---------------- 
 
¶9. (U) News of the situation has made it to the British and 
European parliaments with one British MEP writing to the 
Cyprus Justice Ministry: "Is Cyprus a rogue state beyond the 
fringe of civilization? How could this practice of retaining 
title deeds, after the sale of a property, be condoned?" CPAG 
also is considering bringing the matter to the UK Department 
of Trade to demand that the many Cypriot developers with 
sales offices in the UK be closed for "fraudulent sales 
practices." Some observers are concerned that this agitation 
may result in making buyers even scarcer and price declines 
to accelerate. 
 
¶10. (SBU) The UK High Commission is working with the GOC and 
CPAG to devise a solution to the title deeds issue, but has 
not made any progress. Banks will not give up their 
collateral and the bureaucracy has been unable to devise a 
way to speed up Land Registry inspections, resorting instead 
to occasional "amnesties" declaring properties to be approved 
even in the absence of a physical inspection. 
 
Bankers and Cypriot Homebuyers Don't See a Problem 
--------------------------------------------- ----- 
 
¶11. (SBU) We have spoken to commercial bankers and the 
Central Bank about the situation, and they are confident that 
their balance sheets are protected because of conservative 
lending practices over the years. They have never lent for 
more than 80 percent of value and claim that they have been 
careful to assure that there is only one loan per property 
(most foreign buyers pay in cash, often re-mortgaging their 
UK home to buy their Cypriot property). 
 
¶12. (SBU) There has been very little reaction to this problem 
from Cypriots, even though they also typically must wait for 
years for their title deeds. This is because Cypriots are not 
usually buyers in the neighborhoods and developments that 
have seen the largest price declines, and because they 
typically are far less likely to be in circumstances in which 
they urgently need to sell. Finally, Cyprus being a small 
place, most Cypriots are confident that, if they did need a 
title deed urgently, they would find some way to get one or 
work with the bank holding the developer's mortgage to 
protect their asset. 
 
¶13. (SBU) Comment: Cypriot officials are extremely sanguine 
about this situation, in marked contrast to the near hysteria 
of many of the British homeowners who claim "a country-wide 
conspiracy" is denying them their "human rights." The irony 
is that the rights of property owners is one of the major 
sticking points in the reunification negotiations, with Greek 
Cypriots insisting that an individual's property rights are 
sacrosanct, and so GC owners of properties located in the 
Turkish Cypriot administered parts of the island should have 
the ultimate determination on the disposition of a property. 
Tensions about property rights between the two communities 
will only increase in the wake of the expected April 28 
European Court of Justice decision on the "Orams" case 
(reftel). If the ECJ finds for the GC party, any individual 
 
NICOSIA 00000275  003 OF 003 
 
 
who purchased formerly GC-owned property in north Cyprus can 
have their assets attached in their home nation to satisfy 
the judgment of a GC court. We are hearing reports that TCs 
are planning to pursue a similar path against the GOC for 
formerly TC-owned propertied in the Republic of Cyprus. The 
effects all this will have on property prices island-wide are 
not likely to be positive. 
Urbancic