What a Mess – character Valuations (Cyprus)

What a Mess – character Valuations (Cyprus)




This, new for us economic situation, has had numerous side effects, which already us, who are the largest and perhaps the oldest valuation firm in Cyprus, are wondering what next.

In recessionary situations, there is a reduction in need and a consequential reduction in character values. In countries such as the U.S., the housing market has shown a drop of 40% in terms of real estate values, the U.K. up to 30%, Greece 40% and Spain for the touristic areas 40%. What is interesting however, is that these price reductions meet offers by interested buyers. In Cyprus the situation is quite different however, adding to the whole confusion. character prices in Cyprus have now reached as a maximum reduction of ±30% and that refers to character in the touristic areas, while the residential ones (i.e. where need is forthcoming chiefly from locals) around 20%. This is a comparatively low reduction bearing in mind that foreign need has reduced by 70% and local by 50%, since one would expect price reductions around these percentages.

Having said that and if for example a Cypriot seller reduces the price by 30%, will he find a buyer? The answer is most likely not, at the minimum for the great majority. So we have the paradox, that character prices are reduced at a lower percentage than need, while at the same time, there are no/very little buyers. This is, perhaps, due to the fact that local edges (so far at the minimum) have not been as aggressive in debt collection as edges in other countries, character owners (so far at the minimum) have been able to “stick it out” and forced sales of mortgages take years to materialize. So in this situation what is the value of a character, since there is now need? Should we expect prices to be reduced to levels of 50% plus? Is this perhaps the today’s correct character prices? What a scary situation, we must say, since while the year 2010 has shown signs of a slight recovery, for the first 6 months, the last 3 months have shown a reduction of interest by comparison to the year 2009. If this need trend continues, perhaps we may see larger discounts/character price reductions. however we nevertheless see new projects under development, especially in the local need areas and we attribute this (not certain) to prior commitment of developers, who are under contractual obligations to carry out part exchange projects and another reason, is perhaps the stubbornness of locals to appreciate the situation which has not been experienced over the last 50 years in the real estate market.

There is a school of thought that the only way to recovery is to leave prices to go down as much as possible and wait for the market correction afterward. There is an economist logic in this, but, then, what misery will this approach cause? People will stand to lose their homes and have a shortfall in addition, security value for business people who usually place real estate for mortgage in order to get loans, will worth next to nothing etc etc. For the non performing loans, at the end, the shortfall of the edges will cause them to have huge provisions for recoveries affecting their profitability and security value, increasing their financial future risk. If this happens will foreign investors and depositors (€50 bil. from Russia) trust the local edges (?) and if this happens, will the Government step in to help and with what cash during a crisis? Will Cyprus become another Ireland, Portugal or God forbid Greece? For these reasons we do not proportion this “cruel” thought (despite that the Governor of the Central Bank goes the other way), but on the contrary we suggest an exercise of patience by the edges, in order to give some breathing space to the market to correct itself without relating huge losses and human misery to all. The theory is one thing and practice with its consequential affects is another.

What we are very much worried about, is that delays in loan repayments are charged by local edges with a 12% interest (consequently helping the needy to go under at a faster rate) while a recent Cyprus High Court decision (and a decision by the Court of allurement in the U.K.) justifies the edges to do so, being part of the contract to grand a loan (the U.K. case referred to interest charge of 22%!!).

In order to add salt on the wound, we have the problem of no title deeds, which already if one offers the character at a discount of say 35%, with the bad publicity that the non titles owning people have, the buyers will not touch them (in some respects quite unjustifiably we must say). So at the end of the day, what is your character worth – nothing or next to nothing?

Not necessarily, since we have noted that locals are quite happy to step into the shoes of the foreign need in some situations. See recent (2009/2010) sales for holiday home/apartment acquisitions in the Pafos area and that of the Paralimni vicinity.

So and in ending this, otherwise most depressing article, dear readers, there is hope in the near (1½-2½ years) future? (see our past article on Cyprus attracting Millionaires etc). This is a “God protected” country, we think, since during difficult times, something else happens in the world (mostly misfortunes) which helps us. See the Lebanon civil war, the ex-Yugoslavia war, the Russian era of Metamorphosis etc.

The recent visit by the President of Russia is one positive sign with Cyprus getting off the Russians black list, the Qatar deal is another, as is the Kuwait interest on the gas terminal. At the end and we hope it comes soon, if we find gas/oil in the Cyprus sea economic zone, it will help us most (see what happened in Scotland and Norway). Shall we then seek God’s help to help us in a most difficult situation? Going to church, we say, more often, might help!!!




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