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Title Deeds and the Financial Crisis

Posted by (Regular StockWatch Contributor) on September 7th, 2015 - 6 Comments

The British parliament raised the issue with the Cypriot authorities’ inability to protect the property rights of UK citizens who had invested in Cyprus properties back in 2007. To their astonishment, these buyers found out that they would get no title deed even though they bought the property through a law office (something that in their country implies that you automatically get a title deed).

In 2007 Cyprus, no-one involved in the rapidly developing and already large property sector (banks, developers, chartered surveyors, land registry, town planning and
municipal authorities, lawyers, accountants, politicians etc.) was alarmed, despite the developing dangers for an economy trying to sell properties. In my opinion, ultimate responsibility for failing to tackle this problem must lie with the government agencies that have the primary responsibility of protecting property rights.

One basic principle for an economy to function well is the protection of a citizen’s property rights. In this case, the property right is protected with the issue of a title deed. My fundamental position is that no immovable property should change hands without a title deed. With this tough measure in place (which would have forced authorities to ditch bureaucratic procedures because of the large economic cost from failing to do so), subsequent systemic problems would have been largely avoided.

First, in the absence of title deeds, reselling a property is difficult, therefore increasing the possibility for an unrestrained increase of immovable property prices. When reselling becomes very difficult, the property market is not allowed to function properly. Not only do prices rise too fast in the good times but in the bad times dangers rise disproportionately due to property illiquidity in a leveraged economy. Second, in the absence of a central credit register, it is more likely for credit from the banking sector to increase very fastin the good times without the central bank having the necessary tools to control credit expansion. Third, the state loses substantial revenue from transfer fees and subsequent property taxes.

The solution to this Gordian Knot is simple, and a state respecting its citizens would not have waited for the imposition of a solution by the Troika. No property transaction without a title deed should be legal and there should be a central credit registry. The financial crisis would have been much more manageable were these simple instructions from the Troika put in place back in 2007.

Inability to quickly apply similar changes to the “business as usual”model will bring the next economic crisis to Cyprus sooner than many people think.

Alexandros Michaelides is a professor of finance at Imperial College Business School.

Categories → Οικονομία

  1. avatar
    Savvakis C Savvides on September 7, 2015 - (permalink)

    It should have been self evident and totally logical in a self respecting state to be protecting property rights and to be doing what Alexandros correctly points out. Which begs the question, has anything really changed?

  2. avatar
    The Invisible Hand on September 7, 2015 - (permalink)

    A very correct comment by Dr Michaelides.

    The unnecessarily complicated bureaucracy in licensing and title issuing procedures result in delays of five years or more from plan to title.

    This governmental idiocy has:
    1. Lost the confidence of overseas buyers, who used to buy up to 10,000 holiday or retirement homes annually.
    2. Enabled dishonest developers to maintain their crooked ways for years at the expense of buyers and of the good name of the industry and of the island.
    3. Starved the state of probably a billion euro in transfer fees, capital gains tax and other taxes by keeping over one hundred thousand homes in limbo.

    Recent legislation made a start by allowing title deeds to be issued in cases delayed by license irregularities, but, unfortunately, the government is still reluctant to streamline procedures by outsourcing much of the work to competent professionals in the private sector with necessary guarantees.

  3. avatar
    Anonynous on September 8, 2015 - (permalink)

    How is it possible for banks to accept a sold property as a mortgage collateral? How is this done in other countries?

  4. avatar
    Επιλήσμων on September 8, 2015 - (permalink)

    Γιά το μπάχαλο με τους τίτλους ιδιοκτησίας ακίνητης περιουσίας έχει δίκαιο ο κ. Μιχαηλίδης ότι το πρόβλημα -το φταίξιμο εγώ λέω – βρίσκεται στις διάφορες κυβερνητικές υπηρεσίες που γιά διάφορους λόγους (ποιούς άραγε?) άφησαν απροστάτευτους τους αγοραστές ακινήτων.

    Και είναι κρίμα που αφήσαμε να συμβεί αυτό, διότι από το 1878 οι “απαίσιοι″ Άγγλοι φρόντισαν να έχουμε ένα από τα καλύτερα κτηματολόγια του κόσμου.
    Οι ‘Αγγλοι έστειλαν στην Κύπρο τον Λόρδο Kitchener (γνωστό σε πολλούς από το poster “Your Country Needs You”), που εργάστηκε γιά την πρώτη επιστημονική χαρτογράφηση και χωρομέτρηση της Κύπρου και διοργάνωσε το Κυπριακό Κτηματολόγιο.

  5. avatar
    Erol Riza on September 9, 2015 - (permalink)


    Your brief article is spot on. But it begs the question that we have been governed on the whole by lawyers and yet they have failed the country on such an obvious and fair protection of property rights. It goes to the heart of the problem that when good governance is absent from public and private corporates we get this state of affairs. The issue of good governance was one of the themes which the National Economic Council proposed and I hope it has not been binned. Unless there is a change of governance we may live in hope only.
    Despite the many differences politicians have with the presence of the Troika it seems that it is our only hope to ensure that there is no next crisis. The EU and OECD guidelines on good governance should be compulsory reading for all politicians and enforced by the present government. It has made progress but must continue the road which will be rocky.

  6. avatar
    Γιάννος on September 9, 2015 - (permalink)

    εξαιρετικό άρθρο κ. Μιχαηλίδη. Τι διαφορά έχει αυτή η συμπεριφορά των “αρμοδίων” από την περίοδο του Χρηματιστηρίου, όταν εγκλώβισαν χιλιάδες αγοραστές μετοχών και δεν τους επέτρεπαν να πουλήσουν διότι δεν περνούσαν οι πράξεις (δεν είχαν τίτλο!!!!) διότι το Registry άλλως Αποθετήριο ενημερωνόταν manually ενώ οι πράξεις γίνονταν με ταχύτητα φωτός!! Να μην ξεχνούμε ότι είχαν και την “έννοια” των δήθεν ξένων μετόχων και τη ζημιά που θα προκαλούσε στο καλό όνομα της Κύπρου, οπότε άνοιγαν το χρηματιστήριο με τις 2000 πράξεις την ημέρα και το έκλειναν σε 1-2 δευτερόλευπτα για να πουλήσουν ως επί το πλείστον οι ιδιοκτήτες των δημοσίων εταιρειών και οι φίλοι τους!! Είναι η ίδια ομάδα, η επιθετική μετριότητα που κυβέρνησε και θα κυβερνά αυτό τον δύσμοιρο τόπο με τους εθισμένους πολίτες-πελάτες να τους χειροκροτούν και σήμερα και αύριο και πάντα, αναμένοντας την σειρά τους να πάρουν το αντάλλαγμα τους. Και αν πάει κάτι στραβά πάντα υπάρχει η δυνατότητα να κατάσχουν τις περιουσίες του κόσμου, αφού πρώτα η θεία πρόνοια τους οδηγήσει στο παρα πέντε να φυγαδεύσουν τα λεφτά τους, της οικογένειας και των πελατών τους στο εξωτερικό! Αυτή είναι η Κύπρος! Δυστυχώς.

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