The number of new construction permits issued in the first eight months of the year was down by about a third on 2010, according to statistics published yesterday. This is one more sign of the dire state of Greece?s property market, which along with the building sector was hailed during the last decade as one of the driving forces of the Greek economy.
In most places around the world, buying property is considered one of the safest and best ways to invest your money. It often reflects a family?s sacrifices and hopes. However, amid the current economic uncertainty, property in Greece does not seem the wisest investment.
There was a boom in real estate prices in Greece after 2004 with the Olympic Games in Athens, which led to a surge in demand, especially for second homes. The financial crisis that eventually triggered a recession in many European countries, including Greece, led to the market stalling. Many owners were forced to sell their homes and builders could not find buyers for new properties, causing an increase in supply that has gradually pushed prices down.
According to the Bank of Greece, the average price of apartments in Greece fell by 4.1 percent in the third quarter of 2011 compared to the same quarter of 2010. Over the same period, the price of old apartments (5 years or older) fell by 4.7 percent, while prices of newer apartments fell by 3 percent. In Athens, housing prices in the third quarter of 2011 fell by 4.3 percent. In Thessaloniki, the drop was even greater at 6.7 percent.
However, the decline in property values can vary substantially between areas. ?Wealthy neighborhoods in Athens, like Kolonaki, Acropolis, Philopappou or Vouliagmeni, are resistant to the crisis and properties have lost about 5 percent of their value,? said Miltos Kristinakis, a consultant for Aspis Real Estate. ?Meanwhile big cities outside Athens and its suburbs saw prices decline by 20 percent and therefore one can say that once again the middle class was much more affected by the crisis than the rich.?
Industry experts also underline that property tax in Greece is becoming a considerable burden and recent austerity measures are making it impossible for the market to recover. It seems that the emergency property tax, which is levied through electricity bills, is likely to become a permanent charge for homeowners, spelling more problems for the property market.
Speaking to Kathimerini English Edition, Theo Mitrakos, head of the Bank of Greece?s real estate market analysis department, said: ?Since last year the transaction taxes rose by 8 to 10 percent while on the other hand tax on property ownership was not so high. Now — as we can see according to the latest government decisions — there appears to be a transition from transaction taxes to ownership taxes, as is the case with the new property tax included in electricity bills.?
Housing market mobility seems to have been greatly affected by the economic crisis. There were some 82,000 transactions in 2011, almost 20 percent less than the previous year according to the Bank of Greece. This drop has been attributed to weak demand prompted by the poor economic climate.
Mitrakos suggests that a change in property tax policy could help the market. ?I think the transition from transaction to ownership taxes could be a good policy if we look at England or the United States, where real estate taxes are higher than in Greece while taxes on transactions are lower by 2 to 3 percent, which creates much more mobility in the market,? he said.
However, another factor that has to be taken into account is that the lack of liquidity means banks are adopting very conservative lending policies. Mortgages are becoming very difficult to get in Greece. The loan-to-value ratio before the crisis was around 70 to 80 percent whereas now it is 50 to 55 percent, according to the Bank of Greece. Before the crisis, the average mortgage interest rate was about 3 percent but today it is 5 to 6 percent.
Furthermore, mortgage applicants usually need to have salaries that are at least twice as high as the monthly mortgage payment. In the current economic climate, it is no surprise that few Greeks are able to even consider taking out a loan to purchase a property.
However, every crisis is an opportunity for some, and it seems that the current trouble in the Greek property market could represent an opening for foreign investors. Today, a 3,000 square meter villa with a private beach on the island of Corfu can be bought for as little as 200,000 euros. Due to the crisis, lots of good-quality properties in Greece are available at reasonable prices compared to the markets in Italy, Spain and Portugal.
?This is a good time to invest in the Greek real estate market and we expect some correction in prices with slow decreases for the next four months, but we do not expect any catastrophic scenarios for the market,? Mitrakos said.
Of course, investing in property in Greece will only represent a good opportunity as long as it is clear that the country will remain in the euro. At this stage, even this cannot be taken for granted and is just one the many uncertainties that look bound to dog the Greek property market for some time to come.
[Kathimerini English Edition]