Disregard for the workings of the market has always been embraced by a large number of our politicians. This was evident once again listening to the leader of Edek Marinos Sizopoulos speaking on state radio on Tuesday morning defending his law suspending foreclosure actions for two months that was vetoed by the president.
One of the complaints made by Sizopoulos against the banks was that they were forcing people, who were not repaying their loans, to agree to the sale of their properties at prices lower than their valuation and below the maximum discount set by the law. In the foreclosures law there is a stipulation that banks cannot sell a re-possessed property at a price more than 20 or 30 per cent below the valuation made by a property valuer.
This provision, although never challenged legally, seems unconstitutional, because nobody has the power to dictate at what price an asset should be sold by its owner – a foreclosed property in theory belongs to the bank. And the bank would try to get the top price for a property but if it cannot it should have the right to cut its losses. If the original owner could get a higher price we are certain the bank would not stand in their way.
Valuations of properties have always been problematic primarily because this is a very small market and a couple of overpriced transactions could raise average prices. Add to this the practice of owners setting an ultra-high price for a property even though there are no buyers. Of course, the banks are not without blame for this as in the good old days they would overvalue properties to justify giving big loans to customers.
Now the problem is that banks want to sell a property at a price at which there are buyers not at the price valued by the former owner or the minimum price legislated by the House. Again deputies are blind to the workings of the market. Banks have a large supply of properties at their disposal and even if they put these on sale gradually people know they can buy at a relatively low price.
If the banks were offering more housing loans, there may be higher prices on foreclosed properties, but even housing loans are limited because of deputies’ interference in the market. Why would a bank give a housing loan for a primary residence to a young couple when it is barred from foreclosing the property if loan repayments are not met? Thanks to this law, a primary residence has zero value as collateral for a loan.
One day the parties may discover that trying to control market forces causes more problems than it solves.