ECONOMY

Property prices declining

The continuing uncertainty afflicting the markets has accelerated the trend toward lower property prices that began late in 2001. Before then, the Greek property market was unique in not having experienced boom and bust cycles, at least in peacetime. Property prices rose steadily, creating conditions akin to a market «bubble.» A recent report by the European Central Bank shows that property prices rose an average of 3.5 percent each year during 1994 to 2001. Only in Spain did property prices rise higher (4.2 percent annually from 1987 to 2001). In other EU countries, the increases were at most 1 percent, while in some countries, like Sweden, prices have been slowly falling since 1980. It was during the 1990s that Greece finally succeeded in taming double-digit inflation, which was a constant presence from 1973 to 1995. Inflation has continued falling throughout the past decade, with interest rates lagging somewhat. Still, in the 1995-2001 period, Greece enjoyed the steepest decline in mortgage rates, 14 percentage points, of any EU country. The second largest decline, in Spain, was 5.5 percent, while in Germany, mortgage rates dropped just 1.75 percent. This increased the number and amount of mortgage loans to 12 percent of Greece’s gross domestic product in 2001 (the 1995-2001 average was 7.5 percent). While this has led to anxious warnings from the Bank of Greece, mortgage indebtedness in Greece is still small compared to e.g. Portugal and Germany, where it is equal to 47 percent of GDP, Sweden (58 percent), the UK (60 percent), Denmark (67 percent) and the Netherlands (74 percent). In the past year, office rents in prime locations, such as Kifissias Avenue, have dropped by 20-25 percent. Housing prices and rents have so far declined only in the most expensive areas, but consumers expect the decline to become more widespread; bankers say that demand for loans exceeding 200,000 euros has fallen.