Cyprus has passed a new law to streamline the foreclosure process which had previously prevented banks from repossessing more than 200,000 properties on the island.
The change in legislation comes as part of a condition set by the Troika (trio) of lenders including; The European Commission, The European Central Bank and the International Monetary Fund, who will now take a decision on releasing the next tranche of the €10bn loan.
After weeks of heated debate which has been referred to as 'bickering', the controversial foreclosure bill was finally passed by the Cypriot House of Representatives on Saturday 6th September and it is now anticipated that further bailout funding will follow from the Troika.
The changes to foreclosure legislation are designed to balance borrowers' rights with their obligations to lenders,offering them protection against foreclosure under certain circumstances.
The bill had been criticised for being flawed and 'vague' and that it would end up being used against the very people it claims to protect. However, banks have been restricted from commencing foreclosure on more than 200,000 properties in Cyprus where owners have fallen behind with their payments which has in turn hampered recovery in the country’s banking sector.
Whether the Troika accepts the amended legislation and releases the next stage of the €10bn loan will be decided by a Eurogoup meeting on Friday 12th September in Milan.
The day after the foreclosure bill was passed President Nicos Anastasiades said that he would be holding talks with European leaders and officials over the content of the legislative documents on foreclosures adopted by a majority of 47:7 in the House of Representatives. He also promised to review the amendments adopted by MPs “very seriously”.
As yet, the Eurogroup is not yet aware of the content of the foreclosures law, a high-ranking Eurozone official said on Monday in Brussels. He recalled that Cyprus had to meet some conditions in order to receive the €350m tranche of a €10bn bailout from the troika.
“If we do not get the law a decision cannot be made but if we get the information today or tomorrow and see that the conditions of the Agreement are met, then the Eurogroup will suggest to ministers the disbursement of the next tranche,” he added.
The impact of the amendments to foreclosure in Cyprus is not an easy one to gauge as the effect on the domestic market could result in oversupply of resale housing and under supply of social housing for those whose circumstances have prevented them from paying their mortgages.
For the international investment market, the new legislation will see the resale property market expand on the back of streamlined re-possessions and subsequent divestment of bank-held real estate assets.