House prices stay high but it looks more like a plateau before the slide
House prices in Europe are projected to undergo a correction pretty soon; the price explosion of the last three years, the result of the previous stock market exuberance and of the considerable decline in mortgage interest rates, is now seen to be nearing an end. This is a prospect anticipated by market pundits and institutional bodies alike, such as the UK-based Royal Institute of Chartered Surveyors (RICS), which numbers about 110,000 members in 120 countries (36 of which are in Greece). In its European Housing Review 2002, RICS notes that after seven years of continuous ascent, property prices in Germany, France, Italy, Belgium and the Netherlands have already stopped rising. In other countries, however – Spain, the UK, Greece and Switzerland – they are still rising. But the situation in Spain in particular is seen as likely to undergo a reversal soon. The other countries will probably follow suit, especially if there is a rise in interest rates and in oil prices due to a war in Iraq. In a similar study of the Greek market, estate agents Property Ltd estimate the rise in house prices in 2002 will not exceed 6 percent, registering a slowdown compared to previous years. The continued rise is attributed to the «Greeks’ high degree of credit expansion, combined with the steadily strong demand for houses, mainly in low-income areas.» In Greece, the Finance Ministry’s recent vacillation over whether it intended to introduce an 18 percent VAT rate on new house prices caused considerable confusion, even anxiety, among all people involved. The proposal, expected to be combined with a simultaneous increase in the officially set (so-called «objective») prices according to area in order to bring about their equalization with commercial prices, was seen as an explosive cocktail which would have pushed up prices by 30-35 percent, automatically freezing demand. Last week’s announcement that VAT on new houses has been postponed until 2005 put an end to this uncertainty. Estate agents hold the view that if the market is left to function without government intervention, prices will start falling. They argue that such a trend has already been particularly apparent in the luxury housing market segment. Sales have been falling in upmarket suburbs such as Palaio Psychico and Kefalari, and secondarily in Filothei, Kifissia, Glyfada and Maroussi. Strangely, demand does not seem to have weakened appreciably but buyers appear less confident and willing to fork out the big sums asked by developers, which to a degree may reflect high land prices. Before the present phase, developers were known to put up prices every month. A well-known firm hiked its prices in Palaio Psychico by up to 35 percent within a period of 12 months. It is still refusing to bring them down, even though it has managed to sell only a few apartments. Expensive Athens The price of an apartment in the upmarket Athens district of Kolonaki is about 5,700 euros per square meter; this is the same rate as for a two-bedroom apartment in a good area of London, one of Europe’s most expensive cities. A good apartment in Glyfada can be bought at around 3,700 euros/sq.m. This is about the same rate – possibly higher – as for a four-bedroom house in Amsterdam, Berlin, Dublin, Edinburgh, Madrid, Munich or Rome. And if one decides to act as investor, he/she can buy four 150 sq.m. apartments at this rate in Warsaw! Property Ltd projects prices to start declining by about 3.6 percent annually after 2004, which it sees as a natural development after the rises of recent years; excess supply after the Olympic Games should logically work in this direction. As of the new year, the reduction in the tax break for interest payments on mortgages for first-home buyers is expected to rein in demand; interest paid on the part of mortgages over 200,000 euros will not be tax deductible, and deductibility will apply to tax due rather than taxable income. It is estimated only about 15 percent of annual interest will be deducted.