Real estate ownership balance shifting

2 mins read

Cyprus Central Bank’s recent financial stability report included some interesting data about the loans and properties that passed into the ownership of Credit Acquiring Companies (CΑCs), shedding a little more light on what they own and how much of the market they have influence over.

On December 31, 2021, CACs owned and managed 80,192 loans with a total contractual balance of €19.2 billion.

Some 50% of loans were to individuals, 47% to non-financial companies and 3% concerned other funding.

The value of the collateral (mainly real estate) as a percentage of the loan portfolio held by the CACs amounted to 52%.

At the same time, CACs own a significant number of properties, which were acquired either as part of the purchase of credit institutions’ non-performing loan portfolios or through debt-for-asset exchange agreements with borrowers.

More specifically, as of December 31, they owned 5,679 properties with a total value of €978 mln.

In other words, the Central Bank figures confirm what we have been saying for a long time: the Real Estate sector’s balance has changed because the owners and sellers of properties have changed. Dramatically.

In addition to real estate developers who are obviously developing and selling for profit, and private sellers and banks who are also looking to sell the properties they own for a decent amount, another category of sellers have now been added: CACs and their associated services.

These organisations hold the advantage of having obtained their loans and collateral at a relatively low price, assuming the related management costs and risk, and are seeking to dispose of them in a short period and with as few costs as possible to maximise their profit.

Analysing publicly available data, WiRE currently identified around 18,000 properties for sale across the market.

More specifically, banks and CACs have 5,700 for sale, with a total asking price of approximately €1.6 bln.

Some 900 properties with a reserve total price of €110 mln are in the foreclosure process, while Bazaraki, the largest real estate promotion platform, hosts approximately 11,300 properties with a total asking price of around €3.5 bln.

We want to clarify that these are the properties that are currently marketed.

It is estimated there are other properties worth approximately €500-600 mln in the hands of banks and CACs that have not yet been put on the market (and there are many individuals who have their property on the market but choose not to promote it because “they don’t want people/ their neighbours to know”).

For comparison purposes, we note that in 2021, a total of 20,916 transactions with a total value of approximately €4 bln were recorded by the Department of Lands and Surveys.

It should be noted that most of the properties that banks and CACs promote do not reflect current demand.

They mainly own large tracts of land, golf courses (or, let’s rather speak, licensed parcels of land), ageing warehouses, etc.

Meanwhile, real demand is for apartments, low-cost houses, and offices in city centres. It is reasonable to expect that a significant portion of these properties will end up in the hands of developers to turn them into an attractive product for the market, but many will remain on the shelf.

In time we will see reductions in the prices of some properties of which ‘their time has passed’.

This will make the life of some individuals/sellers even more difficult, as they will be faced with a reality check —you see, the days of ‘this is what I ask for if you don’t like the price, go elsewhere’ have passed.

However, because this is Cyprus, it is a tall order to have a strategy and policy to manage the upcoming challenges to the economy and the real estate market as the pace of monetisation by these institutions accelerates.

Let us see what happens!

By Pavlos Loizou, CEO, WiRE