ECONOMY

Older properties gaining ground over new ones

One dominant characteristic of the floundering real estate market is the growing popularity of older properties.

According to market experts, of the few sales that have been made since the start of 2011 (total sales for the year are estimated to reach 50,000, compared to 74,000-75,000 in 2010 and 2009, and 100,000 in 2008), some 80 percent involved older properties that were, as expected, cheaper than newly built homes of the same size.

Furthermore, the drop in prices for such properties has also been significantly greater than that for new ones, a fact that has attracted buying interest.

This trend has been confirmed by the Bank of Greece?s quarterly reports as well as a plethora of other studies. The most recent of these, published by ICAP, concluded that the greatest reduction in prices during the first half of this year was observed in older properties and varied from 6 to 10 percent. In total, from the end of 2008 and up to the present, it is estimated that the cost of older houses and apartments has decreased by around 30 to 35 percent on average.

Furthermore, it has been observed that over the past two years, individuals selling property have become much more flexible in accepting lower bids for their homes compared to construction companies selling newly built properties, who have agreed to freeze reductions. Though many of these firms have proved resilient during the slump thanks to the significant profits they enjoyed in previous years, some 1,000 of the 14,000 construction companies operating in Greece have closed down since the beginning of the economic crisis.

According to the ICAP report, the price of newly built homes in the first half of 2011 dipped from between 4 and 9 percent. However, market analysts and pundits say that the overall state of the economy, and more specifically the real estate market, does not justify the current prices for new properties. In short, newly built homes are grossly overpriced given the circumstances: a supply glut (over 150,000 properties in Greece remain unsold) and zero demand.

However, construction firms are hopeful that business will begin to pick up this fall, given a recent amendment by which the exemption period for buyers having to submit an account of their sources of income has been extended to 2013 and also covers all property purchased, not just primary residences, as was the case until now.

The so-called ?pothen esches? form required all people making large purchases to prove where they got the cash as part of the government?s drive to crack down on tax evasion, corruption and fraud. However, the measure has been relaxed to include second homes or holiday homes in response to pressure from the market.

By making this move, is it obvious that the Finance Ministry is looking to curb capital flight out of the country, either in the form of savings or in real estate purchases.

According to the Panhellenic Federation of Constructors and Building Companies (OMKOEE), the abolition of the pothen esches, which effectively means the legalization of ill-gotten gains, will boost the real estate market as well as the construction sector.

However, given that September is also expected to bring more taxes and more unemployment, contained optimism is the best attitude for the market to adopt. These negative effects are also expected to break the constructors? pact, forcing them to take a more flexible approach, especially given the anticipated increases in property taxes, meaning that individuals who own two or more properties will be eager to sell.