By: Costas Zeniou, Director at DP
There is a widespread problem that affects numerous developments in Cyprus that have not obtained a certificate of final approval or horizontal division into separate title deeds. The issue is focused primarily in residential developments and arose to facilitate transactions of real estate before the completion of projects through contracts of sale. The issue was exacerbated by many projects remaining incomplete due to delinquent developers and/ or projects as well as a backlog of unissued title deeds in the land registry, that was a result of the rapid increase in transactions during the booming era of the real estate sector.
Depending on the current state of development of each project, this issue can be a significant expense for the Banks, as often such developments require significant capital for their completion, which will ensure compliance with local regulation and allow issuance of a final approval certificate and horizontal division of ownership into separate title deeds. Thankfully, the entrapped buyers amendment to the immovable property law allowed buyers who obeyed by their contract of sale to acquire title deed outside of this whole process. Additionally, this problem affects only a small segment of real estate in Cyprus, and a subset of the Bank’s NPE’s. However, the involvement of retail buyers in large incomplete projects introduces a significant complication for the workout of these exposures, since it is often the case that units in these projects have been sold to local and foreign buyers, in many cases with local financing, which is often times also not performing. Therefore the Banks have a NPE for the Developer’s financing for the entire project, as well as individual NPEs that concern buyers for units of that project. This introducers significant delays and complication in the workout of such projects, as the Bank needs to concurrently workout the developer’s exposure as well as the retail exposure.
Both the Banks and legislation has evolved to prevent such problems arising in the future. This will restore investor confidence in the real estate market overall, as a clear ownership infrastructure is essential to foster investment and growth in the sector.