ECONOMY

Property prices seen falling still further

In full reflection of the continuing recession, Greek property prices and rents fell at an accelerated rate over the last 18 months, Bank of Greece data show. Whereas the drop was 11.7 percent between 2007 and the end of 2011, it has now reached 23.1 percent.

According to an analysis by Alpha Bank, rents picked up 11.2 percent in the 2007-11 period. They nudged down 2 percent last year and the fall accelerated to 4.6 percent in the first quarter of 2013 and 6.1 percent in the second quarter. The study cites a number of factors for the decline, arguing that the lack of demand is due to households’ insecurity about employment and future incomes, high – and multiple – property taxes, frequent disparities between the market rates and the official property rates used for taxation purposes, and an overcautious attitude on the part of banks regarding mortgage credit. The latter declined 3.4 percent last year and fell a further 3.2 percent in the first half of 2013.

The study also notes an increase in market supply, due to the need of households with many properties to cut costs.

The number of transactions remains minimal. The analysts argue that this is due to the distortions created by the property transfer tax, which is imposed on much higher (official) values than the market rates, as well as to expectations of a further drop in prices.

Apart from the negative factors cited above, realtors see prices falling much further before stabilizing as a result of the instability of the property tax regime, combined with the government’s definitive decision to lift the freeze on first-home repossessions some time next year.

According to a report by chartered property valuators GLP Values, the lifting of the ban on repossessions alone is expected to lead to an additional drop in prices of 12-21 percent, although the measure is not seen causing conditions of oversupply in the market.

“About two to three years ago, there were about 12 banks, which ruled out any common policy on home repossessions. Today, however, with just four systemic banks, there will be a more uniform and balanced application of the measure, as the lenders can measure its impact more accurately,” says Tassos Tsompanidis of GLP Values.

The firm further argues that the lifting of the ban on repossessions and a likely delay in the introduction of the Single Property Tax (EFA), in parallel with the maintenance of the emergency property tax (EETA) introduced in 2011 and collected via electricity bills, “cannot create viable conditions for a substantial reverse of the negative climate in the property market.”

In a recent report, Fitch Ratings predicted a further slide in Greek property prices in the medium term of some 18 percent. Given that the average fall since the 2008 high so far has been 30 percent, according to central bank data, the cumulative decline is seen approaching 50 percent. This data also show that in the second quarter of the year the pace of decline in property prices accelerated in Athens, from 11.8 percent in 2012 to 12.7 percent, but eased in Thessaloniki, from 13.6 percent to 10.5 percent. In other cities, the average decline was 11.5 percent and elsewhere it came to 10 percent.

The Bank of Greece data also show that the prices of older properties are sliding at a steeper rate than last year. In the second quarter, the prices of new constructions fell 11.3 percent on an annual basis, compared with 11.8 percent for older constructions. The respective rates in the first quarter were 10.3 percent and 12 percent.