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New bankruptcy code stumbles on housing body

Sources told Business Daily, many objections and concerns are being expressed by investors about the business plan presented, both in terms of the amount of returns for investors, which the government estimates will be around 5 percent, and whether it will be able to operate with private financial criteria and proceed with evictions of vulnerable borrowers who do not pay their rent.

The government is facing significant difficulties in finding private funds to set up a body that will buy the houses of vulnerable households, despite comments from state officials that there is strong interest in the new organization.

Sources told Business Daily, many objections and concerns are being expressed by investors about the business plan presented, both in terms of the amount of returns for investors, which the government estimates will be around 5 percent, and whether it will be able to operate with private financial criteria and proceed with evictions of vulnerable borrowers who do not pay their rent.

The difficulty in discussions, combined with the fact that time is running out, (the new framework needs to be implemented January 1, 2021) has alarmed the government. According to sources, the alternative plans that have been proposed and are being considered are to ask loan management companies to participate in the new body. As plan B, it has been proposed to ask the systemic banks – National Bank, Alpha Bank, Eurobank and Piraeus Bank - to each acquire a 25 percent stake in the new institution, a proposal, however, that seems to have many technical problems.

A major concern is that the new body will not be able to operate under private financial criteria and achieve the returns promised by the government. According to the government plan, the special Acquisition and Rental Agency will buy the homes of vulnerable households, which will go bankrupt under the provisions of the new bankruptcy law, and then will be able to rent the home back to the previous owners for a period of 12 years. A significant part of the rent will be subsidized by the state. When the 12-year lease period ends, they will be able to buy them again from the special body, at the market price.

The government is optimistic that the rent subsidy will be a strong incentive for vulnerable households to pay their rent on time, while the law stipulates that if a household does not pay the rent for 3 months, they will be evicted.

The basic areas of concern are:

• To achieve a yield of 4% - 5%, as provided by the government, rents should be set at high levels. Thus, even if there is a significant state subsidy for rent, households that have so far not paid a single euro and have rejected loan restructurings offered by banks will have to bear a significant monthly cost of paying rent. High rent is mathematically certain to lead to insolvency.

• The issue of evictions raises even more concerns. Which investor and which government will allow evictions of bankrupt households that are proven to be in extremely poor financial condition? It is noted that in the last decade auctions have, for various reasons, frozen and banks are unable to turn against strategic defaulters, who found refuge in complex laws such as the Katseli law.

Prime Minister Kyriakos Mitsotakis, speaking at the Thessaloniki trade fair, stressed the social dimension of the government intervention. "No eviction will take place. I will say it again, no eviction will take place. This is exactly the purpose of this intervention. And it is possible through this intervention that the man who may lose ownership of his house for some to regain it, but will stay in his house. And we have to face in Greece phenomena that we have seen in other countries where people lost their homes, their first home - I want to emphasize this - and found themselves in very difficult situations. This is something we do not want and will not do".

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