While the Cypriot property market is very much a tale of two markets, both have been fairly buoyant over the last few years and have in some respects been isolated from the worst effects of the worldwide credit crunch. However, over the last few months a serious issue has arisen with regard to the protection of property ownership rights in Cyprus and the fact that things may not be as straightforward as they should be.
Northern Cyprus has had more than its fair share of properly troubles over the years with many in southern Cyprus still fighting for land which they claim was stolen when the North was occupied during the ferocious battles of the past. However, the whole island appears to have a rather archaic property ownership system which is nothing like the UK system many would have you believe was in place.
The situation at present
While there are many reasons why Cyprus was not really a major player on the international property market in the past this has changed over the last few years with fewer conflicts and increasing transport links to the region assisting in the growth of local economies. This has led to a major increase in the number of overseas property investors in the region and growth in the number of local property developers on the island.
Many investors may not be aware that land ownership on the island is dictated by ancient Turkish property laws which are very different to those in the more developed property markets of the world. In simple terms the new title deeds to a property will only be produced by the local authorities after the developer has fulfilled various obligations and requirements regarding the development. While this should be a fairly straightforward procedure, it now appears as though many Cypriot property developers have been retaining the original deeds to the land in question and using these as collateral against loans which they have taken out.
Problems for potential Cypriot property investors
Even know the Cypriot property market has not suffered to the same extent as the likes of the UK and the US there has still been a marked slowdown in the number of overseas investors looking at the region and prices have stagnated in many areas. This has placed short-term pressure on property developers who are now using original title deeds as collateral against loans to get them through potentially difficult times.
While you would expect this to be a rare occurrence, some observers are suggesting that in excess of 100,000 properties in Cyprus do not have the correct title deeds in place and buyers have no protection in law whatsoever. Until the title deeds are in the possession of the “owner” Cypriot developers are well within their rights to use the original deeds as collateral against loans which opens up the opportunity for banks to sell properties covered by the title deeds to recover any losses on outstanding loans. This exposes property investors to the potential loss of their homes with no compensation even if they have been living in the property.
There is a serious issue with regard to the speed of paperwork being produced by the Cyprus Land Registry with figures showing there are in excess of 29,000 transfers of title deeds to foreigners still pending with only 1,600 being issued each year which means that it will take approaching 20 years to resolve the backlog of paperwork not to mentioned future transactions!
Many observers in Cyprus are suggesting that outstanding title deeds for domestic property buyers are in excess of the 29,000 for foreign investors which is the reason why an online petition has been created to try and force governments around the world to put pressure on the Cypriot authorities. There is a real danger that unless the situation is resolved in the short term, property investors will flee the market and there will be potential for massive confusion in the future, as well as substantial investment taken away from the local economies.
There is some confusion as to how Cyprus has managed to avoid compliance with basic EU regulations with regards to properly title deeds even though it has been a member of the EU since May 2004. While it would be wrong to suggest that membership of the EU will be at risk over the issue of property ownership documentation there is every chance that the country could incur fines or some form of financial penalty if the issue is not resolved in the short term. This may also be the right time to resolve the more historic issue of property rights in the north of the island which have been going through the courts for many years.
Unless the issues are resolved it seems unlikely that we will see substantial property investment into the region at a time when the country has very much got itself back on track with even suggestions that the two warring factions may look to arrange some kind of long-term peace agreement to bring the nation back together.
Many property investors will be shocked about the revelation that old title deeds are being used to cover loans for the original property developers even though they no longer “own” the properties in question. This also highlights the fact that unless you have inside knowledge of local markets there are still many pitfalls to overcome before a successful property investment can be completed.
There seems to be a groundswell of support for the online petition relating to the property title deed situation which would appear to be getting worse as more and more investors look to acquire Cypriot property. Unless the authorities act now this has the potential to grow into a major scandal and expose the Cypriot authorities to a number of charges of incompetence.
The UK government still has a historic link with the country and indeed the Army is still present on the border between the warring factions. However, whether the UK government would be able to press for a swift resolution to the situation remains to be seen as there are more pressing issues in the UK at the moment. Make no mistake, this has the potential to grow into a serious problem which could affect not only the Cypriot property market but the Cypriot economy.