In what many see as a doomsday scenario for investors in northern Cyprus and justice for those forced to flee when the island was split some years ago, the European Court of Justice (ECJ) has handed out a ruling which will shake the very foundations of the Cypriot property market. A situation regarding land ownership has been ongoing for some time although very few people believed we would actually arrive at a definitive ruling in favour of those forced to flee in 1974 when Turkish forces invaded northern Cyprus.
Background to the ECJ Northern Cyprus ruling
When the island of Cyprus was effectively split in 1974 after Turkish forces invaded the north of the island there was literally a free for all regarding property and land ownership in the region. After the eventual introduction of a United Nations peacekeeping force across the boundary between north and south Cyprus we saw a significant property market start to develop. However, since 1974 there have been various attempts to reclaim land which was lost when Greek Cypriots were forced to abandon their properties and their lives in northern Cyprus.
Interestingly European Union law was suspended in 2004 when Northern Cyprus joined the EU bloc although yesterday’s ruling has effectively negated any potential protection offered by the earlier action. The ECJ has ruled that the suspension of European Union law does not stop other EU members from upholding judgements against northern Cyprus, which is only officially recognised as a country by Turkey.
Yesterday’s ruling
Yesterday we saw Meletis Apostolides given permission to reclaim land in northern Cyprus which he held ownership over before being forced out of the country. The land in question was acquired by a British couple, Linda and David Orams, who invested £160,000 building a dream villa after deciding to spend their retirement in northern Cyprus.
The situation has been ongoing for some time now as an earlier Greek Cypriot Court had ruled that the villa should be demolished and ownership returned to Meletis Apostolides. However, when the ruling was challenged in the UK and a formal transfer of ownership instruction entered into the UK justice system, this was rejected and a UK court ruled in favour of Mr and Mrs Orams. Yesterday’s ruling by the ECJ is ultimately the definitive action in the case and a decision which cannot be appealed and the UK courts are now obliged to follow the ruling.
The practical implications of the ruling
While the official ruling from the ECJ contains instruction for the villa in question to be demolished and the land returned to its former owner, who would like to replant a citrus grove, the likelihood is that compensation will be sought through the UK courts. Quite how any compensation payment would be calculated and on what basis remains to be seen as many former residents of northern Cyprus operated businesses from their land before being forced to flee.
When you consider that some 5,000 Britons hold properties in northern Cyprus, whether as investments or retirement homes, the potential compensation outlay could be enormous. In effect those who acquired properties in the region could be forced to “pay twice” as the likelihood of those now living in southern Cyprus return to the north would appear to be fairly remote. We will now see an army of lawyers and advisers come to the fore which could potentially add millions of pounds to the cost of the operation.
The Cypriot economy
This ruling could have far-reaching consequences for the northern Cyprus tourism industry with the potential for villas and hotels to be demolished in the event of successful compensation claims regarding property ownership. However, as suggested above, the likelihood is that some kind of compensation will be agreed, although this could quite literally push many businesses in the region to the brink of collapse.
The Cypriot tourism industry is a vital element of the economy and any impact in this region could have wide ranging implications for the economy as a whole. As a result of the ruling, property investment in the region is likely to collapse with international investors likely to give the area a wide berth until the legal arguments have ended and a plan for the future has been announced. With so much money at stake this stage of the operation could literally take years to conclude which could potentially ruin the Cypriot economy in the short to medium term.
Cypriot property prices
While the ruling from the ECJ regarding ownership issues refers to properties acquired after 1974, and involves those who had been forced to leave the area, this could take in a substantial number of properties. In the short term we could see a significant number of property investors leaving the region and pressure on short-term property prices. With the UK pound having suffered a substantial fall against many currencies around the world, a number of UK investors may be happy to call it a day and move to calmer waters.
This is probably the last thing the Cypriot property market needs as a number of investors and observers already believed that property prices in the region were excessive. If nothing else, the ECJ ruling will give investors a reason to demand lower and lower prices and put more and more pressure on those who may at some stage be on the end of a compensation claim.
Is the unification of Cyprus at risk?
The involvement of the European Court of Justice would appear to have far-reaching implications regarding ongoing talks to unify north and south Cyprus. It will cause more unrest and friction between the two factions and could effectively kill any potential deal in the short to medium term. These are talks which have at the best of times been fragile and volatile although recently there have been signs of progress and hopes were high of a positive outcome.
Conclusion
Whether you believe justice has been done or the European Court of Justice has made a difficult situation worse, the ramifications of yesterday’s ruling will rumble on for many many years to come. The fact that no appeal can be launched against the ECJ ruling will further infuriate many who acquired property in northern Cyprus “in good faith”.
While you would expect current property owners to chase former owners for any compensation they are forced to pay this could be a very difficult and long drawn out affair which could ultimately end in failure. Even though there have been signs of recovery in some areas of the worldwide economy Cyprus could well remain under a cloud for many years to come until a formula regarding compensation to former landowners is agreed upon by all parties. This is a move which could literally take the island back to 1974 and re-ignite the significant differences and disagreements between both parties.