Banks increasingly resort to foreclosures as auctions remain ineffecitve

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Cypriot banks are piling the pressure on uncooperative borrowers and resorted to an increased number of foreclosures in the second quarter of this year even though auctions of foreclosed properties remain unsuccessful, official data show.

Plagued with a mountain of non-performing loans in excess of €23.bn and accounting for roughly half their loan portfolio, Cypriot lenders initiated 477 foreclosures in April to June, compared to 369 the quarter before, a Central Bank of Cyprus document submitted to the Parliament said. Still, the market value of the properties foreclosed in the second quarter is €94.5m against €129.4m in January to March.

In the second quarter of the year, banks resorted to foreclosing an increased number of primary residences – a step considered taboo in Cypriot society – by setting a date for the first auction, the report marked as classified said.

The total number of primary homes foreclosed in the second quarter rose to 16 from 3 in the quarter before. In addition, banks went ahead with the foreclosure of 70 other residential properties, 52 commercial properties, 98 plots and 238 parcels of land in the second quarter.

In the first three months of the year, they foreclosed 30 other residential properties, 33 commercial properties such as shops, offices, factories and animal breeding units, 47 plots, and 248 parcels of land, the report said.

According to the foreclosure law, modernised as part of Cyprus’s adjustment programme, banks can auction a foreclosed property first at 80 per cent of its estimated value, before they can put it up for auction without a mandatory minimum reserve price.

In the second quarter, banks informed 791 borrowers about their intention to foreclosure collateral of non-performing loans worth €229.5m, compared to 389 cases in the quarter before worth €103.2m, the central bank report said.

However, demand at auctions was limited in the first half of the year. Banks managed to sell only 31 properties at the first auction attempt in the second quarter compared to six cases in the first quarter. These included 33 parcels of land, one plot, one commercial property and two other residential properties other than primary homes, the data show. The second auction attempt produced more disappointing results. Banks were successful in selling only four parcels of lands and a plot in the first quarter and sold nothing in the second quarter.

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Stelios Orphanides is a journalist at CyprusBusinessMail.com. To contact Stelios Orphanides: [email protected]

  • Bob Ellis

    Simple maths. You lend someone €500,000 to buy a €400,000 property in 2007 that is now worth a maximum of €250,000 at best. When I went to school that meant the minimum loss of €200,000 assuming some repayments were made. If this is the story for all the NPL’s the lost money is something in the order of €10,000,0000,000 , probably more than the banks are worth; hence the reluctance to do anything, why the economy is still broken and why the politicians are not moving on this because if the banks fail, so do the developers, the economy and bang goes most of their legal fees. Another wonderful vicious circle of our own creation.

    • cyprus observer

      Well said. I agree completely with this scenario. Cyprus seems to think the laws of economics doesn’t apply to them…..but one day it will!

      • Bob Ellis

        Does Cyprus think any laws apply, another vicious circle…..

  • Pc

    Banks are foreclosing because auctioning off properties is not working.
    There simply is not enough demand in the market to absorb the offered
    real estate. And that makes sense because many of the assets on sales sofarhave been premium offerings. The only people who could afford these are
    people who generally already have this type of property and they are not
    in the market for a second one.

    • Didier Ouzaid

      Yeah, but auctioning off affordable (primary) residential housing would be a nightmare on such a small island.

      I dont know about you, but no matter the price (unless it’s pure investment), id have to think twice (or twenty times) before moving into a house I just bought off someone that doesnt have anything to lose anymore. The societal structure would suffer from that. And that’s the problem here (and in Greece). Balancing social issues and the possible collective financial meltdown (a second one – a deeper one).

  • Mist

    Where do they advertize the properties? I looked at the Bank of Cyprus web site for the auction on 20th Oct, the bulk of the sales were for part ownership eg. 3/8, or 1/8th. Am i reading the information wrongly?

    • Bob Ellis

      Most of the good stuff goes directly to friends, family or well placed customers.

      • cyprus observer

        The Cypriot way….

      • zemo munro

        Ha!…I have no problem , like a lot of underhand dealings which remain very prevalent here in Cyprus, believing in how the auctioning of foreclosed properties are really handled by banks!…Same Old Same Old!…Its not what you know it’s who you know!….The minions get what’s left and the books are cooked accordingly!

        • Mist

          Kevin, Stuart and Bob will be happy with the rest!

      • I’llbeback

        A 10% fee? Daylight robbery

    • Meh

      You can find the auctions on the ministry of interior website. They only have them in Greek though. You can find the location of each property from the planning department portal.

  • Douglas

    Property auctions ,it’s too early for ‘April’ fools day ?

  • seriously

    Moan moan moan, whinge whinge whinge, for those who live in Cyprus, if you don’t like if DA you know what they say.

  • desres

    All that will happen will be that the banks will have a stock of unsaleable properties, so no benefit