380 likes | 546 Views
The Cyprus Property Challenge. Fiona Mullen Director, Sapienta Economics Ltd www.sapientaeconomics.com. The property challenge. Current state of the real estate market Scenarios for financing needs: Compensation costs: 3 valuation scenarios Resettlement costs: 4 scenarios.
E N D
The Cyprus Property Challenge Fiona Mullen Director, Sapienta Economics Ltd www.sapientaeconomics.com
The property challenge • Current state of the real estate market • Scenarios for financing needs: • Compensation costs: 3 valuation scenarios • Resettlement costs: 4 scenarios
Post-settlement opportunities • Reduction of risk for foreign investors • New markets: Turkey (GCs); direct to EU and world (TCs) • Spending on Varosha • Spending on rehousing/resettlement • Legal certainty for affected properties
Financing • Compensation • Resettlement/rehousing • Other (Varosha, Famagusta port, EU acquis)
Main financing needs • Compensation, which depends on: • How property is valued • Restitution-exchange-compensation proportions • Resettlement, which depends on: • Extent of territorial adjustment • Extent of willingness to be a tenant/landlord • Amount of ‘spare’ housing
Approaches to valuation of affected property • “Current value” (Annan Plan) • Immovable Property Commission • ECHR Oct 2010 cases • Versus claimant expectations
“Current value” (Annan V) • “37 Observation: The value at the time of dispossession and the calculation of the increase should be based on the hypothesis that events between 1963 and 1974 had not taken place, i.e. not take into account alteration in values due to those events; it should if possible therefore be based on comparable locations where property prices were not positively or negatively affected by those events.” = highly speculative!
Why is ECHR more than IPC? • Wealthier with higher value land have tended to go to ECHR? • Only recently have the wealthy applied to the IPC? • Expect IPC average to rise
Big differ’ce in expect’ns v. awards (received 15% of amount demanded)
ECHR now deems IPC as “fair basis” • “The Court considers that the amount which, according to the Government, the IPC could have offered in respect of loss of use (approximately EUR 1,202,556.22 – see paragraph 31 above) constitutes a fair basis for compensating the damage sustained by the applicant” – 24 May 2011 (ECHR case 16682/90, App. 9)
Vast range of values in practice • ECHR: • €1,480/sq metre (shops and apartments) • €503/sq metre (Rock Ruby hotels) • €19.3/sq m (fields & orchards in Karmi) • €1.4/sq m field in Yerolakos • IPC also has similar wide ranges
How much would post-settlement compensation cost? • Depends on extent of: • Restitution • Exchange
Three compensation scenarios • 25% restitution, 25% exchange, 50% compensation • 33% restitution, 33% exchange, 33% compensation • 33% restitution through TA; 22% restitution in the TC CS/FU; 22% exchange; 22% compensation
Compensation issues to manage: • Funding: public or private or both? • Payments: cash/ voucher/incentives to invest: eg education fund? • Scheduling: now or staggered or a mix? • Risks • Bust (public-sector funding only) • Boom and bust (over-liquidity)
Cost of a newbuild • Average household size today: 3 • Minimum dwelling size (Annan): 100 m2 • Building cost/sq metre in south: €1,000 • Newbuild cost: €100k for every 3 people • Add 50% for land and social infrastructure(?) • Total cost: €150k for every 3 displaced
Adjustments • One-third of housing needs are covered one way or another by TC ownership in the south (circa 15k v 45k dispossessed dwellings) • Max 20% of TCs rent from reinstated GCs (Cyprus 2015: 17% of GCs would ‘definitely’ or ‘probably’ live in the other CS/FU) • (Not included: possible use of new empty dwellings)
Summary • Big gap between expectations and payouts • Compensation costs range €8bn-€19bn • Rehousing costs could range €1bn-€2.5bn • Even €9bn is 45% of GDP • Big spending or borrowing needs careful management in a eurozone economy • Financiers will demand a “story”
- End - Fiona Mullen Director, Sapienta Economics Ltd www.sapientaeconomics.com