More and more properties in Cyprus are transferred to the disposal of local banks as part of the alienation of collateral.
The Central Bank of Cyprus released on Wednesday, May 19 a report in which they expressed concern about the deteriorating performance of the real estate sector and the possible destabilization of the country's financial system.
The technocrats of the Central Bank noted that the Cyprus real estate sector has now proven to be resistant to the coronavirus pandemic. However, the impact of the consequences of a pandemic may be delayed, therefore the assessment of the sector's vulnerability must be thorough and continuous.
The risks of local financial institutions associated with the issuance of loans for real estate remain very significant. So, as of September 30, 2020, 57.7% of the total volume issued by the court fell on mortgage loans. In comparison, in the same period in 2019, this figure was 56.1%.
Loans to households secured by residential real estate accounted for €8.9 billion, or 29.6% of the total loan portfolio (on September 30, 2019, these indicators were equal to €9.8 billion, or 29.5%), and loans to companies secured by commercial real estate were €8.5 billion, or 28.1% of the total loan portfolio (on September 30, 2019, these indicators were equal to €8.8 billion or 26.6%).
In addition, a significant amount of loans issued fell on construction organizations, or companies whose activities are directly related to the construction sector.
According to the report of the Central Bank of Cyprus, as of September 30, 2020, the volume of loans in this category amounted to €4 billion (25.6%) of the total volume of loans to non-financial corporations. However, it should be noted that compared to 2019, the share of loans issued to developers has slightly decreased. In comparison, as of September 30, 2019, these indicators amounted to €4.7 billion or 31.3% of the total volume of loans issued.
Technocrats of the Central Bank of Cyprus stressed that "the country's lending institutions are directly related to the real estate that hangs on their balance sheets."
Thus, as of June 30, 2020, within the framework of the alienation of collateral for non-performing loans, financial institutions of Cyprus received 7,629 real estate objects, the total amount of which amounted to €2.4 billion.
- 4,330 objects in the amount of €943 million were in residential real estate
- 1464 objects in the amount of €139 million were in agricultural plots
- 1,030 objects in the amount of €910 million were in commercial real estate
- 805 objects worth €403 million fell on other categories of real estate.
The central bank said that "the coronavirus pandemic and the associated decline in economic activity in the country have had a negative impact on the real estate market and construction in general." Technocrats noted that the decrease in external demand for real estate in Cyprus after the closure of the program "Citizenship by Investment" may cause further decline in housing prices.
However, the fiscal support measures taken during the pandemic and targeted incentives to support the real estate sector supported domestic demand for real estate, preventing significant negative changes in real estate prices, - the Central Bank of Cyprus summed up.
As you may know, the collateralized real estate is a type of real estate that is pledged (mortgaged) by the creditor bank or on their balance sheet after collection from the debtor.
These are mainly secondary housing, but there are a small number of offers and primary housing. It is profitable to purchase mortgaged housing for subsequent renting out. Experienced investors are actively investing in objects of this type for resale.
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