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By Antonis Loizou F.R.I.C.S. – Antonis Loizou & Associates Ltd – Real Estate Valuers & Estate Agents
The subject of non-performing loans (NPLs) is hugely serious and according to Averof Neophytou (Chairman of the governing party) it is the biggest problem we have in
Whatever idea one has to help solve this situation, our first care must be the support of the banks, so that we do not have to face the situation of the bail-in of 2013. I watch the various efforts that the Bank of Cyprus is undertaking (while the other banks are at an infancy stage) regarding the swap deals, the recent creation of a real estate fund with a return of 6%, the creation of its real estate management team (REMU), etc. Notwithstanding that banks exchange their debts with real estate valued at 70% of the market value, when it comes to selling their loans in bulk to foreign investors, the latter are rather apprehensive offering a price more likely around 50% (see last effort with a discounted asking price of EUR 400 mln value with a 300 mln offer).
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So far, these new administrators have their own shortcoming because they use bank employees to handle real estate matters. It is not the best solution and I note delays in responding and even when there is some interest, they are not in a hurry to respond (e.g. no replies, normal bank working hours, no weekends/late afternoons, etc). In a recent case, a financier took his time to reply to four enquiries regarding apartment sales (1 month) and in another it required our office to make 12 phone calls and one month’s delay to chase that employee to respond (always in meetings, sick, on leave, etc).
So the financiers themselves have their own limitations and capability to blame. They need to get their act together, have special promotional teams set up which will go out locally and abroad to promote their assets, give finance to worthy buyers for acquisitions, keep nagging the local international audit firms, advocates, etc, who are handling foreign investors, reminding the market of any opportunities and including participation in exhibitions, real estate/tourism, exhibitions, conferences, etc.
There are of course certain projects that one cannot dispose of, especially those which are presently half built, with the only option left being the completion and to sell it afterwards. It is difficult to persuade the financiers to consider this alternative approach since they are afraid that throwing good money after bad is not a good option, but then, if they do not sell, what can you do? Completing a project with no demand and acquiring it at a discount price could be one option. Project management could be another alternative to offer and as an example there is a 40-unit housing project that is incomplete in the Protaras area, with very good sales prospects as individual units. No interest so far but if completed I am certain that it will be sold either as private sales/or for villa to let, etc. It is a difficult job all round.
On another occasion a hotel apartment project was proposed to be sold for a swap deal at EUR 4 mln plus 50,000 sq.m. added land. An obvious very low value, notwithstanding that the owners, a well organised group, claimed that with an added EUR 2.0 mln investment the project could have reached a EUR 10 mln value (plus the vacant land). The bank refused and the owner has managed to secure the added investment from other sources. Now (first year of operation after renovation) it is showing a G.O.P. of EUR 2.0 mln p.a. and rising, making it most successful which based on the G.O.P., it is worth EUR 10 mln and this in addition to around 50,000 sq.m. of added land for further development. Had the swap deal went ahead, the bank stood to lose around EUR 4 mln and now it has the opportunity to receive its debt with the added value and the annual income to go.
Project management is another alternative, where the banks may set up, through sub-contracting, 2-3 project management teams, not only to manage the development to complete and sale, but also to manage existing projects (see abandoned properties/projects that are vandalised, no proper maintenance and care, arrears in rental collection, etc). Private firms could undertake this which based on their own business plan, can take over and subject to a performance guarantee by them.
Yes, we are placing added burdens on the financiers, but if they keep their properties as they are at present, their assets/value will be much reduced. In a project which we were called upon to value in 2016, we warned the bank that security should be in place (half built 60 housing units in Paphos). The idea was turned down and upon revaluation for 2017, the project was vandalised by removing everything from electrical wires, to kitchen counters, aluminium windows, etc.
Surely we cannot offer a likeable solution by everybody and a dialogue is required in order to ascertain the problems that each site is facing hoping for a better future, while the recent warning by the E.U. on NPLs is an urgent addition.
