HBPG Meeting with Prime Minister

Thursday 6th March 2008 

Topics for clarification discussion with Answers in blue below question

  Updated 02 June 2008

Permission to Purchase 

PTP Refusals

Many buyers are now being informed that they have been refused permission to purchase their TRNC property, many have paid the full price, have been living in these properties for years, have enhanced their property and just want the security of owning the title.

·       They need a valid explanation as to why they were allowed to proceed with the purchase

·       Why did they have to wait years to be informed of this refusal

·       Can the refusal decision be revoked

·       Can we be issued with a full list of PTP refusals in order to advise buyers who are not currently aware?

·       If a foreigner was sold a property adjacent to a Military land or Security Protection Zone and can continue to live there for the remainder of their lives, why can they not be granted permission and subsequently title?

·       Are there any plans to remove Security Protection Zones?

·       If not, who will compensate them for this error? 

Details of known refusals are attached.

 PTP Process Delay

Many buyers are waiting years for permission to be granted and are not properly informed by their lawyer or Interior Ministry exactly why the delay is occurring or what checks are in place to ensure their file is not “lost in the system”.

Since January 2006 all applications must be accompanied by a Police Reference from their current/latest place of residence.  This should have speeded up the process but does not appear to have done so. 

For a period of time (Oct 2006-June 2007) Marian Stokes was provided with the weekly PTP approvals by the Council of Ministers.  This information was never mistreated as only PTP application numbers with the appropriate approval number and date were published on www.hbpg-trnc.net.  This was perceived by buyers as a very positive incentive from the government.  

·       Why was this withdrawn?

·       Can the approvals lists be either given to Marian Stokes or the Property Information Office for publishing on website?

PTP General

In the report prepared by Marian Stokes for the government in June 2006 it was suggested as a solution that the PTP application be streamlined in order to provide buyers with a permit prior to entering into a property sales agreement.

With the enactment of the estate agency law the responsibility now falls on the estate agent to ensure that properties sold to foreigners meets all legal requirements.  Since January 2008 it should only be necessary for the Ministry to validate the buyer’s Police Reference which should only take a matter of weeks.  Purchase permits could therefore be granted to buyers in advance of property market search, these permits allowing buyers to purchase any property within the legal limitations.

Is this scenario currently being investigated as a valid option? 

ANSWER

Regarding the processing of your permission to purchase application, the council of ministers will take searches from the land registry offices, the military and the immigration authorities. In case of positive reports be provided by these authorities the permission will be granted. The permission process can take a long time to complete; the current estimation is around 6 months to 1 year. However, this will not prevent you from moving into your property.  

You should note that the government of the T.R.N.C. has made statements to the effect that all purchasers should obtain permission to purchase from the Council of Ministers before purchasing the property. There is a small risk that the permission to purchase could be refused. Therefore, to protect purchasers, the government advises that permission to purchase should be obtained before. However, due to the length of time permissions are taking to be processed, purchasers find that following this advice is not practical. The government is searching for the most suitable ways in order to accelerate the PTP proceedings. 

Permission to purchase proposal lists are being put on the Council of Minister’s agenda on regular periods. New approvals are coming out of Council of Ministers regularly. It is not acceptable to publish the full list of permission to purchase approvals on principle. People can follow up the current status of their permission to purchase application from the relevant office in the Interior Ministry. They can check in person, through their solicitor or by the help of property information office. 

One of the most positive contribution to regulate permission to purchase issue has currently been made by the new real-estate agents’ record and transactions law. By this law the responsibility falls over the estate agencies to check everything related to the property and inform the buyers accordingly. Thereby, the buyers will be assured before giving a decision to buy.

 

Property Taxes and Title Transfer 

Stamp Duty

The recent enforcement of property contract stamp duty payment and the accompanying penalty amnesty has been gratefully received by all foreigner buyers.  The “window of opportunity” to allow all outstanding sales agreements be registered at the District Land Office is also a positive initiative.  

However, it is also creating distress for a number of reasons: 

·       Due to lack of proper procedures at enactment time which resulted in these changed many times over the last few days, many buyers will not be able to meet the deadline of 8th April 2008.

·       Also many buyers are being informed, upon presentation of their duly stamped sales agreement at the DLO, that the landowner has secured a mortgage either prior to or since they entered into the sales agreement.  Many of these buyers were unaware of this encumbrance and many sales agreements state that the title will be kept free from any encumbrances until such time as title has been transferred to the buyer.

We need to know: 

·       Why has this situation been allowed to happen?

·       Will these landowners now be charged with fraud?

·       Will they be forced to repay the mortgage and remove all encumbrances placed against the title?

·       If not, can the buyer seek compensation from the lender?

·       Will there be another opportunity later in the year when past buyers can register their sales agreements with the DLO?

ANSWER: 

-          the sales agreements stamped within 1 month after the date signed; 5/1000 correspondent to the sales value of the property mentioned on the sales agreement must be paid.

-          the sales agreements stamped after the first month up to 6 months after the date signed; 10/1000 correspondent to the sales value of the property mentioned on the sales agreement must be paid.

-          the sales agreements stamped after 6 months after the date signed; 15/1000 correspondent to the sales value of the property mentioned on the sales agreement must be paid.

-          however, in case of applying to the income and tax office until the date of 30 April 2008 the relevant penalties will not be applied for one occasion only.

-     payment of the stamp duty is a liability of buyers.

-     this process can be done in person at the tax office in your district.        

-     anyone other than the buyer, estate agency, the builder or the lawyer are required having a power of attorney authorizing to carry out this process.

-     the original sales agreement and a copy of the sales agreement are the compulsory documents must be produced at the tax office. 

All signed and stamped sales agreements can be registered with the land registry office in your district until 30 April 2008 (the final deadline for registration has been currently extended to 30 april 2008). 

It is not compulsory to register the sales agreements which was signed before the 1 January 2008, but we advice to do so as a preventative measure. There is no penalty for the contracts signed before 1 January 2008.  

KDV

We understand that a recent amendment to the KDV legislation states that KDV is now payable upon taking possession of property.  As buyers normally take possession prior to title transfer, construction companies are now issuing demands to buyers to pay 5% of the contract sales price direct to them. 

·       Can we be issued with a summary of the current KDV legislation and regulations and a guide to the payment procedure.

·       Can buyers pay the KDV direct to the tax office as many do not trust the construction company to do so on their behalf.

·       If buyers pay the KDV and are subsequently unable to receive title for reasons outside their control, will they be reimbursed with the amount paid?

·       Can KDV be paid if there is an encumbrance on the title? 

ANSWER: 

The KDV (VATt) law has been valid since 1996. KDV (VATt) must be paid at the possession stage by this law and it must be paid to the vendor. The vendor has tax liabilities to the government and they balance the tax payments in the government tax offices. Buyers should beware that they should be given invoice about the KDV (VAT) from the vendor.  If there is an encumbrance on the title, first the title must be cleared from the charges otherwise the procedure of paying the taxes can not come to order and the title transfer proceedings can not be accomplished.

Vendor’s Tax Liability

By law it is the vendor’s responsibility to pay Capital Gains Tax / Withholding Tax / Sales Tax on all property sales.  Many vendors are currently refusing to pay this tax and are demanding that buyers pay it if they want to receive title. 

·         Can vendors be forced to pay their own tax liability?

·         Can the government seize the vendor’s assets in lieu of their tax?

·         How can buyers who have paid the full price and all taxes for their property be denied ownership of title? 

Some sales agreements state that KDV is included in the sales price which buyers have paid in full.  However, many of the vendors are now demanding that buyers pay this tax again.

·       Should this be allow to happen?

ANSWER: 

Stopaj (withholding tax) is a liability of the vendor to pay.  

- % 3,5 stopaj if the vendor is not a professional seller. 

- % 6,25 stopaj if the vendor is a professional seller or a company.  

In spite of the legal tax amounts regulations, any other terms which are agreed by both parties in a sales agreement are valid. 

(professional seller: if a vendor sells more than 3 properties within 1 year)  

In the case of not fulfilling the contract about the payment of taxes and costs by the vendor, it can be reported to the Constructors Association through the Property Information Office. The Constructors Association has the authority to regulate, warn or discipline their members actions. The issues about the inconvenient behavior or nonfulfillment of the sales contracts by the building contractors must be carefully investigated and brought into the Constructors Association’s attention.

 Tax Calculation

We have been informed that, since the 1st January 2008, taxes are being calculated on the contract sales price as opposed to the former Land Registry valuation price.

·       Does this apply to contracts dated prior to the 1st January 2008?

·       If so, is this just and fair to buyers who have waited years for their purchase permit as, in the past, Land Registry valuations tended to be less than the contract price.

·       Can buyers appeal the valuation price?  If so, what is the appeal procedure?

ANSWER: 

According to the new Real-Estate Agents’ Record and Transactions law, all sales agreements must be registered with the land registry office in your district. All the taxes will be calculated by taking the sales price mentioned on the agreement into consideration. However, in case of the price being assessed as underrated, the land registry office will invalidate the contract sales price and revaluate the property.

Title Transfer

As many vendors are now in financial difficulty due to the declining economy, many buyers are being blackmailed by their vendor and lawyer into paying vendor’s taxes, additional monies for non-existent extras and mortgages in order to receive title? 

Many Injunctions and charges have been placed against the title, thereby inhibiting transfer. 

·       Is this type of blackmail legal?

·       If a buyer is faced with such blackmail what action should they take?

·       Are such impediments against title for land that has been developed and sold legal?

ANSWER: 

Sales agreement must be considered as the only valid and legal document regarding your property purchase therefore, agreed terms and conditions must be taken into consideration and both parties should act accordingly. The buyers do not have to accept to pay vendor’s taxes or extra costs if not agreed by the sales contract. The buyers should also pay attention not to pay the full price. For the security of the buyer the stage payment method is one of the most advisable way where the payments are being released when the specific construction works are completed and some payment are kept for the stage of title transfer. The Constructors Association has the authority to regulate, warn or discipline their members actions. The issues about the inconvenient behavior or nonfulfillment of the sales contracts by the building contractors must be carefully investigated and brought into the Constructors Association’s attention.

The Property Information Office

The opening of the PIO last July was a very positive project which has been of enormous benefit to the buyers.  The staff are meticulously hard working, enthusiastic, extremely helpful and polite and cannot be sufficiently rewarded for their efforts.

However, as the office was opened as a goodwill gesture, it is perceived by many as being ineffectual and appears to be treated with contempt by the parties involved in the sale (estate agents, builders, lawyers).

Undertakings from builders to abide by the terms of the sales agreement are being ignored and support from government officials and property related authorities is virtually non-existent making some buyers disillusioned with the pace of progress.

As the service provided by the PIO is vital to ensure the growth of the foreign property market it is necessary to make it a legal entity with autonomous authority in order to achieve more effective results.

Necibe Üstün and Tuğçe Volkan are capable of running the office in their respective roles with the aid and support from other parties.

All information regarding laws, regulations, procedures and announcements should be channelled through the office in order for it to be passed to the buyers in a meaningful and concise manner.

The staff now have sufficient knowledge of the foreign property market and should be consulted prior to any changes in property related legislation.

The recent confusion and misinformation over the stamp duty and contract registration is a typical example of improper information management.

Information Management and Control is vital, especially in a developing economy which is constantly evolving and changing.  Control can only be achieved if there is a central point of  information output.

On many occasions we were promised that notices would be posted at all ports and in in-flight magazines.  These notices would advise potential buyers who to contact for proper impartial guidance and advice. We are still anxiously waiting for this to appear. 

May we suggest that the name be changed to the Prime Ministry Property Office as this sounds more authoritative and there is currently much confusion regarding the word “Information”.  

ANSWER: 

All information regarding the property issues (laws, regulations, procedures and announcements) are being monitored by the Property Information Office in order to acknowledge the buyers in the most meaningful and accurate way. Buyers do not only register their problems but also can consult about any property related issues. Each registered file is being investigated in many aspects. Cases are not only being transferred to the relevant authorities but also being dealt by the officers in order to produce the possible alternatives for the solution of problems.  

The Property Information Office is functioning under the control and authority of the prime ministry. The office plays a key role in channelling the information between the government and property buyers and also increasing the awareness regarding property related issues for both parties. Since the office directly works under the authority of the Prime Ministry, the name naturally is T.R.N.C. Prime Ministry- Property Information Office.

Estate Agents Law

The recent enactment of the estate agency law is also a very positive achievement.

However, exact details of the regulations and procedures of the law are not widely known by the foreign community and therefore cannot be marketed properly by existing buyers to entice new buyers.

We do not know:

·         Which estate agents are certified by the government and are members of the Estate Agency Union.

·       How certification of an estate agent is of benefit to the buyer

·       If and how estate agents selling from abroad are regulated and controlled

·       What the estate agency insurance actually guarantees the buyer

·       Is the insurance adequate to cover such guarantees

·       Why estate agents that are not certified are being allowing to continue trading

·       Why estate agents that are not certified are being allowed to advertise freely in newspapers, magazines and the internet

·       Are construction companies allowed to act as estate agents and, if so, are they only permitted to sell their own properties

·       If construction companies can act as estate agents are they required by law to have the necessary insurance in place under the law.

·       Are private sales permitted and what is the procedure.

ANSWER:

In order to regulate the operations of estate agents in T.R.N.C.,  the real-estate agents’ record and transactions law has been organized for the below mentioned purposes;

·           The main purpose of this law is to keep the real estate agents under registration, the solving of the problems deriving from property process and agreements.

·         Informing obligation; the estate agents has the obligation to inform buyers who intends to purchase a real estate about all relevant issues regarding the property. The agencies are obliged to inform the one about the real estate with the document received from Urbanism and Planning Office indicating the condition of real estate and research document received from Title and Cadastre Office regarding restrictions on the real estate by administration or government and including obligatons on the real estate and regulation rules. In case real estate dealers request research document for the real estate to be sold and relevant person bring the document of authority Title and Cadastre Office, must issue a research document in accordance with Title and Cadastre Office (fees and charges) legislation. Restrictions on the said real estate must be mentioned on research document.

·         Insuring buyers; to be used in the failure of real or body corporate acting as real estate dealer fails in informing purchaser and to be used in case of customer compensation decision of courts, the real estate agent must sign an insurance agreement with an insurance company sum of 100,000 ytl (a hundred thousand) or must mortgage a real estate of its own having 200,000 ytl value to Title and Cadastre Office or give a bank letter of guarantee sum of 100,000 ytl. Title and Cadastre Office is not paid wage for these operations.

·         Fraudulent; real estate agent or real estate companies can not use  fraudulent expressions.

·         Declaration describing itself on a sign; advertisement or a declaration of its own. The agents can not show themselves having a certificate or diploma if they don’t have such actions document or are not a certified member of the Estate Agents Association.

Legislation to regulate lawyers

From information previously compiled by the HBPG and currently by the PIO it is generally understood that some lawyers did not ensure the legal protection of the buyers.

Such lawyers have brought disrepute on the entire legal profession.  As their own regulatory body has also failed in it’s duties, buyers are now being forced to take action against them for their negligence.

We estimate that between 6-8 Girne based lawyers earned far in excess of 15 million pounds between them during the property boom.  Buyers mostly paid in cash or into non-TRNC bank accounts and receipts were not given.

Is this legal?

As proper legal protection for buyers is vital and should not be the responsibility of the estate agents it is imperative that legislation is enacted as a matter of urgency to control and regulate all lawyers in a similar manner to estate agents.

Professional Indemnity Insurance is also vital as buyers should be compensated for problems caused as a result of improper legal advice.

ANSWER:                                                                                                                  

It is common to see people buying property in other countries without knowing the existing rules governing properties and end up losing the whole property or battling in the court of law. Now our government has attempts in various aspects to regulate the rules and regulations regarding property purchase. There are amendments being dealt in order to make the system secure, adequate and also to remedy defects. When you have found the property you wish to buy, your estate agent may give you guidance through the completion of the purchase. An experienced agent must  be able to inform you about all the relevant issues regarding the property according to the new estate agent law, but may not be able to take full legal responsibility or be totally impartial as he represents the vendors interests primarily. It is generally accepted that you use a lawyer to carry out the legal proceedings especially if you do not speak the native language. It is quite important to take professional legal advise about all issues during the process of buying a property. The solicitors must be responsible in gathering all the relevant information about the property such as;

·         Gathering information about the property from official records at Land Registry (Tapu) offices (search document about the property to find out who owns the property or if there are any morgages, encumbrances or charges on the property).

·         Company registration records (Cconstructors Association, Company House)

·         Financial status of a company.

·         Gathering information about all relevant licenses and permissions regarding the construction of the property.

·         Preparing an optimal contract which protects both the buyers and the vendors rights in the best way and also specifies the legal liabilities for both parties.

A buyer should pay attention to the below mentioned points;

All the points should be negotiated and must be in written. The sales contract is the legal agreement to purchase your property.

·         Details of the vendor and the buyer

·         Information regarding the ownership of the land

·         Information regarding the permission to build on the land

·         The agreed sales price

·         Method and timing of payment

·         Furniture, fixtures and fittings included in the price

·         Details of taxes and costs to be paid and who is liable to pay them

·         Penalties for non fulfilment of the contract

·         Completion date for the construction and confirmation that the title deed will be transferred to the buyer on completion

·         Additional points such as repairs to be made before completion

·         Details regarding the infrastructure to be ensured (electricity, water, access, telephone...)

In cases of having problems caused as a result of improper legal advise, Institution of Court (Baro) is the authority where all the solicitors are registered with and can abolish their license thereby they can never work as a solicitor. In an above mentioned case, a complaint must be registered with Institution of Court (Baro).

Inşaat Encumeni

This body has recently come to our attention and earlier this week an Inspection Team visited some of the illegal sites that buyers have registered at the PIO. 

We need to know:

·       The role and authority of Inşaat Encumeni

ANSWER: 

The main role of ‘Inşaat Encümenliği’ is to regulate and discipline the constructive works, registering and inspecting the building contractors by classifying them according to their degrees in tecnical proffession. ‘Inşaat Encümenliği’ is a government body which operates under the authority of the Ministry of Public Works and Transport.  

The main functions and authorities are conceived as follows: 

  1. Registering the building contractors
  1. Taking the necessary measures in order to protect the building constructors’ benefits
  1. Regulating the relevant issues by taking the measures in preparing the worksheets of rules and regulations
  1. Taking disciplinary actions against the building contractors
  1. Giving opinion to the Council of Ministers if special permissions are required
  1. Taking adequate decisions in issues according to the relevant law
  1. To ascertain uncertified building contractors and inform the relevant government authorities

‘Inşaat Encümenliği’ can take the following disciplinary actions against the building contractors;                     

    • Warning
    • Disapproval
    • Lowering degree
    • Cancellation of annual leave
    • Erasing name from the registry

 

·       How long the Inspection Team has been in existence

Answer: 

The inspection team has been in existence for 12 months. The team has the task and responsibility to inspect each construction ground located in all districts of T.R.N.C.  

·       Why they have not previously visited problematic properties that have been reported to the authorities.

ANSWER:

The inspection team’s work schedule is being regulated according to the arrangements made by their administrative board. The cases reported by the Property Information Office is now being investigated and the construction sites are being inspected on a particular schedule. The inspection team will be in cooperation with Property Information Office and the inspection reports will also be forwarded to the Property Information Office on a regular basis.

Electric and Water Charges 

We have been informed that it is compulsory by law for full infrastructure to be in place prior to any property construction taking place.  This law has not been enforced and, as a consequence, buyers are being forced to take possession of properties without proper infrastructure – road, electric, water, telephone. 

On properties that have not been granted Final Building Approval the owners are being charged a penalty rate which can equate to double the normal rate.  In many of these cases the buyer is not aware of or properly informed that: 

·       Their property is not legal in accordance with current legislation

·       They are being penalised for this non-conformance to the laws and associated regulations

·       That no compensation will be granted for their ignorance

ANSWER:

In order to get connected to the electricity supply for your new property;

·      The property must have a building permit

·      The electricity project must be designed

·      The project must be issued a Visa from the Chamber of Electrical Engineers

·      Once the Visa is issued the electricity system can be laid

·      The electricity system must be inspected by Kib-tek inspection teams in order to give conformance that the system is laid according to the project.  After Kib-tek gives conformation the electricity can be connected.

·      Final approval will be issued by the Municipality after being inspected.

·      All the approvals must be received for the whole construction file from the relevant government bodies (municipality, city planning, highway authority, district office)

·      The property must be completed and livable

·      An application to Kib-tek is required in order to be given electricity connection

(For people who are not T.R.N.C. citizens, a guarantor or treble payment of the deposit is also required by Kib-tek)

In order to get connected to the water supply for your new property;

·      The property must be completed and livable

·      The property must be in the boundaries of Municipality

·      The property must have a building permit

·      You will need to go to the Belediye (local council) and sign a water supply contract.

·      After you sign the contract you will be given a metered connection, and billed accordingly.

If there is a phrase in the sales agreement stating the details of electricity and water supply costs and will be paid by whom; the payment of supply costs will be arranged by taking the sales agreement into consideration.

However, in case of having no mention about the supply costs in the sales agreement or not having a gentlemen’s agreement between two parties; it becomes a liability of the person who applies for the production of services to pay the supply fees.

In order to produce lower cost service for people using temporary electric as in equal rates as mains electric. Currently the Construction Constructors Association has made attempts and has been in negotiations with Kib-tek. (this issue is at the stage of planning, it is not an official decision yet)

Discrimination Against Foreigners

It has verbally been reported to us many times that foreigners feel they are being discriminated against, particularly by the Police.  When a foreigner makes a complaint against a Cypriot to the Police they are often badly treated and not permitted make a proper written statement and the Police appear to side with the other party.  Details of a recent event is attached. 

It would be extremely useful if an English speaking officer was appointed at each station and that their details were made available to the foreign community as a point of contact for all complaints.

The Foreign Buyer

The majority of foreigners who choose to buy property in the TRNC do so because of their love for the Country and it’s people.  They also have a need to contribute to a developing Country such as the TRNC. 

It is estimated that approximately 14,000 foreigners (mainly British) either live here permanently or on a part-time basis.  These 14,000 are gross contributors to the economy: their property investment alone totalling in excess of 500 million pounds. They also buy cars or pay import duty on cars which generates 35 million pounds, furniture and other items for their home and garden 50 million pounds, taxes on properties 50 million pounds.  On a regular basis they spend in excess of 100 million pounds every year on every day living. (These are conservative estimates).

Despite this vast regular contribution they do not receive justice.

 Other Issues

 ·      Individual buyers cases

·       Aga Developments Hz Omer and other smaller sites