Could Ireland Provide the Answer to Developer Worries in Cyprus? Sunday Mail 14 March 2010, page 21

At last, someone who is thinking ‘outside the box’ on the property crisis! Denis O’Hare’s article and cogent argument for a national government agency to buy up developer debts, similar to that set up in Ireland with EU backing, demands proper attention.

As another year has passed since the last quoted figure of €5.9bn for Cyprus developer mortgage debt, it is likely to be much larger now. The banks seem only too happy to keep on extending developer loans instead of instituting recovery procedures. Unfortunately, this only encourages developers to think that they can ride out the recession and maintain new property prices at such inflated levels they have become the butt of jokes around the world. They may have a long wait. Leading figures in the Cyprus property market all tell me they expect another 3-5 years before even a modest recovery. An awful lot of unsold new property will look shabby and uninviting after 5 years and, even if foreign buyers do return, who will be prepared to pay €800,000-900,000 for a property worth only €450,000-500,000?

Government ministers such as Mr Stavrakis and others are now publicly admitting that the Cyprus economy is in dire straits. Only a few days ago, they added the spectre of stagflation – a stagnant economy coupled with high inflation – that toxic scenario experienced by the UK a couple of times in the 1970s-1990s. Like so many things that have never occurred in Cyprus before, there is always a first time! Apparently, Cyprus price inflation is now three times that of the rest of the EU.

The Cyprus economy is close on the heels of Greece in heading for a meltdown. Mr Papandreou and the Greek government have had the courage to grasp the nettle and, among other actions, strip down the over-bloated civil service and the largesse they receive out of taxpayers’ money. The EU made this a pre-condition of any financial crisis assistance that might be requested. It is evident that stripping down the gargantuan profligacy of the Cyprus public sector will also be necessary.

A National Agency (using existing civil servants) to supervise the Cyprus property developer debt bubble and loosen the constipation of the market and tax revenues would also be a positive step in the gathering crisis. Government ministers have all been saying the right things of late regarding the economy. But fine words are easy. Actions are needed urgently. Ignoring vested interests and doing the right thing requires courage. Time is running out.

Dr Alan Waring

Larnaca