Cyprus Banks need to offload billions of Euros of
property left on their books by bankrupt developers
and offer 100 percent mortgages spread over 40
years, similar to those being offered in Spain.
banks are involved in ambitious capital raising
exercises to cover massive losses sustained on their
Greek sovereign debt exposure and distressed
property holdings in Cyprus and abroad.
The attempt to reach the capital targets may however
not be successful if the banks don’t rush to offload
distressed and non-core assets. Bank of Cyprus have
already disposed of some assets abroad but the
proceeds from such sales is not enough to cover the
massive capital injections that the banks need.
The banks need to offload billions of Euros of
property and the way to offload the distressed
property is very simple and is already being done in
Spain with great success and I’m sure will be
repeated in Cyprus soon. A few weeks ago, Reuters
had an article on how Santander, the euro zone’s
largest bank, offered a two-bedroom apartment in
Sesena area near Madrid with a communal swimming
pool for €65,000, with 100 percent mortgage over 40
years, costing as little as €242 a month to service.
At the peak of the decade-long property boom that
preceded the crash, similar apartments would have
sold for at least twice that.
Santander, most Spanish banks offer 100 percent
financing over 40 years at interest well below the
market rate to get rid of the homes that sit on
their balance sheets, eating up capital in
provisions and costing money in taxes and
Cyprus banks will quickly realize who much Cyprus
property is expensive compared to similar property
offered in Spain and Greece, which is also on the
radar screen of foreign buyers.
Banks also need to offer 100 percent mortgages
spread over 40 years, similar to that being offered
in Spain to allow Cypriots who were forced out of
the property market to come back and purchase decent
property at affordable rates. As the Reuters article
revealed, the €242 a month mortgage offered by
Santander in Spain is about a sixth of the average
Spaniard’s monthly income. Assuming that the average
monthly income of a Cypriot male is €2,250 a month,
such a ratio would mean a monthly payment of €375,
spread over 40 years.