Cyprus Government will have to write off Cyprus Bank Debts

As the Informer anticipated the Cyprus Government will not be undertaking a major reform of title deeds or the law which allows developers to re-mortgage land on which houses have been sold without the issue of title.

This was announced in the Cyprus Press. 

The writing is on the wall for all to see.

Property sales in Cyprus had already stalled because of the worldwide financial crisis and the long running saga of title deeds and mortgages which has been brought to the forefront of world news by the campaigning organisation CPAG (Cyprus Property Action Group).

Nobody now wants to buy properties in Cyprus without title deeds because they fear that if a Cyprus developer goes bust then the Cyprus Banks could move in and sell houses already sold.

The circumstances of many developers in Cyprus is already thought to be dire as they struggle to cover high interest rates and this news will simply kill off the traditional off plan, mass market, house sale route.

To the Informer that means that the Cyprus Government has two choices.  To watch people of all nationalities having their massive numbers of homes repossessed by Cyprus Banks or do what all other countries have found entirely thinkable.  Write off billions of Cyprus Banking system debt in exchange for a stake in the commercial banks.

I don’t think that the Government will have any choice because surely now major developer failures are likely given high interest rates and the further impact the Government decision on title deeds will have on the property market.

The Cyprus Tourist industry is in trouble because of the strength of the euro against sterling in particular and the odd habit that Cyprus traders have of increasing the price in times of low demand to recoup income from the few that do visit.  This message has obviously reached those who might have considered a holiday in Cyprus. Their feet are going elsewhere fast.

Cypriot traders continue to price goods off the Cypriot Pound and convert to Euros at 1.7. This historic rate which could not have survived the downturn worldwide is another reason why Cyprus is now significantly uncompetitive.

The property market must also be about to nose dive for the next few decades now because of a Cyprus Government that will not introduce the sort of safeguards that all other countries in Europe have for house buyers.

Cyprus has tax laws that rival many other tax havens.  Keeping interest rates high, whilst other countries have been forced to reduce significantly, must  have been a welcome strategy to keep deposits in Cyprus high and encourage new deposits.

The Cyprus Government has boasted that it is not affected by the problems of the banks and property elsewhere.  And ,of course, being a new entrant to the world economy via the euro it was not too vulnerable to external factors because the economy was relatively isolated because of the Cyprus Pound.

But internal economic problems are about to strike with a failing tourist and property market.  And as interest rates will have to fall to try to save property developers and encourage local investment in new businesses, Cyprus could also lose its valuable external deposits as confidence and yields fall.

Currently sales of Government Debt is buoyant because the Cyprus economy looks good in its largely self contained system but that could change rapidly. 

As other the economies of other countries start to bottom or even show signs of improvement there is a real risk that Cyprus will collapse.  Ordinarily this could encourage investment as prices fall but with the inherent risk problems in the Cyprus property market which has now been given worldwide exposure, I don’t think that this will happen as investors shun Cyprus.

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