Cyprus Mail
Opinion

Our View: MPs must understand property prices cannot be set by legislation

THERE is nothing worse than politicians interfering in the workings of the market in misguided attempts to regulate it, supposedly in order to help people. They help nobody while their interference usually causes bigger problems. The draft bill prepared by Edek leader Marinos Sizopoulos and discussed on Monday at the House finance committee is a classic example of how good intentions could have disastrous consequences.

Sizopoulos’ bill stipulates that when a building which had been used as collateral was to be auctioned off it would be valued at the initial valuation agreed by the bank when granting the loan. In other words, if a flat used as security for a loan granted in 2008 was valued at €500,000 by the bank it should be put up for auction in 2016 or 2017 at that price. It is a ludicrous idea by which Sizopoulos wants to punish the banks for over-estimating property values when they were giving out loans but things will never work out as he planned.

For instance, he genuinely believes that apart from punishing the bank, his bill would also protect property owners by ensuring properties were not auctioned off by the banks at low prices. This is not the way the market operates. There had been a property bubble until six years ago and properties have taken a big hit since then. The banks were largely to blame for this because of their easy credit policies but they cannot now be forced to sell mortgaged properties at bubble era prices as nothing would be sold. Who would buy a property at a price based on a 2009 valuation today?

As representatives of the finance ministry and Central Bank told the House committee, if approved the bill would prevent the restructuring of loans and also create a new distortion in the property market. In the end the banks would have an unhealthily large portfolio of properties they would be unable to sell, while without the restructuring of loans the number of NPLs would remain alarmingly high with the inevitable negative consequences for the economy. Should we also mention the fact that a struggling business that does not restructure its loans would not survive?

In the end, who would Sizopoulos’ bill help if approved? The answer is nobody. It would simply create another market distortion and further slow down the pace of loan restructuring, which is the last thing our economy needs now it is on the road to recovery. Deputies must understand that they cannot mess with the operation of the market and that property prices cannot be determined by legislation.


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