Cyprus Mail
CM Regular ColumnistOpinion

It’s gonna’ turn nasty

Expect to see this sign

By Hermes Solomon

NO BANK can remain in business unless they are permitted to call in unsustainable NPLs to protect depositors and support the bank’s capital base.

Parliament cannot keep ‘the wolves’ from the door indefinitely. By the end of this year NPLs will come under the hammer or the troika will withhold the next tranche of funds.

It doesn’t matter how the House of Reps votes on the ‘forced sale of property’ bill. Opponents will not delay the inevitable, which is that NPLs must be called in whether money is available or not.

No political party has openly condoned forced sales/auctions of NPL first residences, but the ‘wordy’ DISY bill coming before the House all but does.

The House of Reps has yet to tell us in plain language what will happen to NPLs, but thanks to the troika, we already know.

What happened in the US, Spain, Portugal, Ireland and Greece will happen here, eventually! But opposition parties must first broadcast, until we are sick to the teeth of hearing them, virulent debates in ‘defence’ of first residence NPLs as if they weren’t toxic waste, which they are.

Little mention is made of our ‘fat cat’ developers, who collectively owe ‘toxic’ billions yet hold the sway of power on all political parties and the banks (for now) are in the palm of their hands.

We were told this week that 14 per cent of NPLs overall are for primary residences, but we also need to know their overall estimated value, then compare that to the extent/amount/value of major developers’ toxic NPLs so that we can have some true understanding of who owes what.

Has anybody compiled those figures? Of course not, for the simple reason that you can only value something by what it will fetch on the open market. And given politicians’ delaying tactics, little will sell at anywhere near its former value.

Years of pussyfooting by politicians have reduced sale values to bargain basement prices.

And when the bargain basement opens for business, as it will eventually, foreigners will home in and buy up prime job lots for a song unless ‘bankrupt’ major developers return funds from their illicit offshore accounts to bid for what they formerly sold and were paid for.

Perhaps waiting to bid for prime lots at bargain basements prices was always their intention and isn’t that always the case at times of reckoning – the small go under and the fat cats float to the top?

In 2004 He was a small developer and She a civil servant on an annual salary of Cy £20,000. He built them a 400 square metre house in the suburbs with the help of a Cy £200,000 low interest loan (340,000 euros).

They had two ‘posh’ cars, two dogs, cat, housemaid and two lovely children, who could both communicate in pidgin Filipino.

Like most small developers, His business went up the spout and She is now supporting the family, the outstanding loan repayments (His several after He was declared bankrupt) and one small car on a reduced by 20 per cent salary, from which is deducted income tax, social insurance, healthcare, loan interest, pension contributions, etc.

Over the past ten years, the cost of living has soared and they, like many others, are struggling to survive. Their dream house has made of the family potential SDF’s (sans domicile fixe). They could always walk away, like many did in the States. But if they choose to remain in Cyprus, there is no place to hide from our banks and the judiciary.

Valued at a million euros prior to the crash, the house’s likely sale value now sits at around half that. If it fails to sell then the asking price will be reduced by a further 20 percent. If, in a further six months, it still hasn’t sold, it will go to auction.

Given that the eventual sale price fails to meet ‘all’ loan obligations, the couple will be in debt to the bank for the rest of their lives.

On the upside, rents are unrealistically cheap by comparison to pre-crash years. Towns overflow with vacant property. The family could rent a three bedroom flat for around 400 euros a month – less than a third of what She is paying in monthly interest on their present loans – never mind capital repayments, which is something most borrowers never take into account when they sign on the dotted line.

But the banks urgently need to recapitalise to survive and foreign investors are buying in. Existing board members will be politely requested to walk the plank and be replaced by the Wilbur L Ross’s of this world – American, Russian, British and Chinese. Call them vultures if you will, but business is business…

The new board members will not be so kind. They do not have a political face or any obligation to answer to the House and ordinary voter for ‘heartless’ actions taken against non performers.

It’s gonna’ turn nasty. To a Cypriot, his home is his castle and he will fight to the ‘death’ to keep it. But he will lose the war because he was simply paying interest to the banks for something he would never completely own.

Four hundred square metre houses are pie in the sky, castles in Spain, a dream while it lasted. There are tons of them! Pay IPT, insure them, heat them, cool them, clean them and water them, that’s all a living nightmare in hard times.

Six years ago I wrote “The days of wine and roses are numbered. Consolidate!”

We did not consolidate and today we are no longer in control. We never really were.

There is no such thing as a free lunch! Next time we’ll think twice before biting the poisoned apple of ‘easy money’.

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