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Our View: Lease-back of homes to relieve NPLs sounds good, but can it be done?

Nobel prize winning economist Christophoros Pissarides

ON THE SURFACE, the scheme by which the state would buy NPLs, in order to protect home-owners, seems a good idea as it would eliminate the need for legislation suspending loan repayments. According to the scheme, discussed on Tuesday by the national council for the economy and endorsed by the president in a letter sent to the House speaker on Thursday, homes of people who have fallen on hard times would be bought from the banks by the state which would then rent these back to the owners, until the latter were in a position to resume repaying loan instalments.

In this way, none of the hard-up citizens would be kicked out of their homes, the NPLs of the banks would be reduced and the workload of the courts would not be increased. This, at least, is the theory the experts that advise president Anastasiades on economics issues came up with. As Nobel prize-winning economist Christoforos Pissarides said, “we are trying to find a way to protect the primary residence without bringing more trouble on the banking system,” but he admitted that this was “something difficult.”

It would be more than difficult for the experts when they try to put the theory into practice.

Pissarides touched on the issue of the funding, which is beyond the capabilities of the state, saying the international lenders could contribute. And if they were unwilling to do so, these non-performing loans could be bought by investment funds, “provided there is assurance that the owner would not be thrown out of the house.” But what investment fund would buy discounted NPLs when it would be unable to evict the tenant when the latter is not paying the rent for the property? And what would be the ownership status of a property with a sitting tenant protected by law?

In the unlikely event that the state finds the funds to take over these properties, what would it do if the tenant/owner simply does not pay the rent agreed? It would not evict them as this would defeat the object of the whole scheme, so it would run the risk of having hundreds, perhaps thousands, of properties that it would be unable to sell and from which it would be collecting no rent. As for the possibility of investment funds buying properties to help the poor and vulnerable home-owners, it sounded more like an April Fool’s yarn than a serious option.

As we said above, on the surface, the scheme seemed like a good idea, but if a modicum of serious thought is given to the practicalities of its implementation – no economic expertise needed – it would be dismissed as nothing more than a fantasy scenario.

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