Foreclosures and illusions

Foreclosures and illusions

 

By George Mouskides, Director FOX Smart Estate Agency, Chairman Cyprus Association of Property Owners (ΚΣΙΑ)

 

Many potential buyers are expecting that real estate prices will drop as they foresee a great number of foreclosures pretty soon. They ask themselves, “why buy now, if I can get the same property at half the price soon?”.

We, on the contrary, believe that Non-performing Loans, (NPLs), will not push prices downwards for the following reasons:

1. There will not be mass foreclosures in the near future

The legislation passed in 2013 concerning foreclosures through auctions is indeed innovative. Until now public sales had to go through the Lands Registry Dept. and could take a decade to complete. The new legislation trims that period to about five years. If the owner does not contest the foreclosure, however, then the procedure could be wrapped up in about a year. Since the law allows for it, we believe that most owners would be willing to go to court, making the whole procedure lengthy. This is why no mass foreclosures should be expected any time soon.

Five years from now, when court cases are nearing completion, a lot of owners would be better off financially and would seek a settlement with their banks to avoid foreclosure.

2. Banks have nothing to gain from mass foreclosures

It is expected that a foreclosed property will fetch in an auction a fraction of its current market value. So sending a property to foreclosure is to no one’s interest. It appears that it would be to the benefit of all sides to work out a debt restructuring program, with a debt to asset settlement i.e. the bank buying the property in exchange for the loan (or part of it). There seems to be no other logical approach.

This procedure will relieve pressure off the banks and off the borrowers and not affect prices negatively.

If banks push for sales through auctions at low prices, these losses will show up in their books and will require additional funds to keep an adequate capital level. We therefore must rule out such a move, because it would be like “shooting themselves on their foot”.

Real estate sales are gradually but surely picking up. The average price of the properties sold, are also rising. Prices seem to be stabilizing during the last 9 months.

Expectations that mass foreclosures are around the corner and prices will plunge seem unrealistic and far from supported by facts we have in front of us.

The government has offered tax incentives for buyers that purchase a property before 31/12/2016 i.e. zero capital gains tax and ½ transfer fees.

This is as good a time as any, for those who wish to buy and have found the property they like, to go ahead and buy it.

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