Greeks sell real estate eBay-style to evict debt specter

A legend that has swirled around the dilapidated mansion on Smolenski Street in Athens is that the ghost of the previous owner deters prospective buyers by moaning: “The house is mine.”

The Greek government refuses to be spooked. The protected two-story mansion and tower, replete with palm trees in the overgrown gardens, will be sold on September 17 to the highest bidder in an EBay-style Internet auction. Greece is trying to dispel criticism it’s not doing enough to sell real estate pledged as part of its 240 billion-euro ($315 billion) rescue.

“It’s literally haunting the Greek budget,” Andreas Taprantzis, executive director for real estate at the Hellenic Republic Asset Development Fund, said in an interview. It “generates zero income, not even taxes,” he said.

Hobbled by red tape, a dearth of demand, political resistance and frequent delays, Greek state asset sales haven’t brought in the revenue demanded by the international lenders who bailed out the country. The creditors have signaled they will be taking a more critical look at the strategies being used when they begin their next quarterly review this month.

With more than 70,000 properties ranging from a luxury beach resort on the Athenian coast to a disused car repair shop, real estate accounts for half of the 50 billion euros the government originally pledged to raise from selling assets.

Greek EBay

For about 1,000 small buildings, offices and homes owned by the state, online auctions have been picked as the best way to quickly and transparently move them off Greece’s books, Taprantzis said, calling it an “E-Bay for Greek real estate.”

The process is “smart and efficient,” said Lefteris Farmakis, an analyst at Nomura International in London. “But it’s not going to be easy to generate serious revenue, given the illiquid nature of real estate investments and the legal obstacles they face in Greece.”

The fund has sold three properties via e-auctions since they started in July, raising 7.4 million euros, and has a slate of seven properties due for the e-block this month.

The assets on sale range from a tract of beachfront property in northern Greece to a four-story office building in central Athens. Starting bids will range from 310,000 euros for No. 4 Smolenski Street, a stone mansion built in the 1930s in the seaside neighborhood of Neo Faliro, to 3.4 million euros for the commercial property.

The government is targeting annual sales of 35 million euros to 50 million euros from the online auctions, according to Tapranztis, who was appointed in July 2011.

Raising money efficiently from Greek real estate assets is a priority for the European Commission, European Central Bank and International Monetary Fund, the troika of lenders who may soon need to discuss options for a third financial package of aid for Greece. Their continued support rests on Greece reducing debt to less than 124 percent of gross domestic product by 2020 from a projected peak of 176 percent this year.

The revenue target for asset sales, used to pay down debt, has been repeatedly revised. The initial goal of 50 billion euros by the end of 2015 was scaled back to 24 billion euros by 2020. Greece’s failure in June to sell national gas company Depa SA is the latest setback to the plan.

Foreign Managers?

The IMF said in June the government should consider bringing in foreign managers to run the asset-sales fund, known as HRADF, should the program run further behind schedule.

“If the comprehensive review of the privatization program scheduled for the fall of 2013 suggests that delays are continuing — in particular that political interference continues to hamper the process — more far-reaching governance changes to the HRADF must be considered,” it said.

For the real estate, the IMF said in a separate report a month later, alternative methods, such as asset securitization, are being assessed to boost revenue beyond what’s currently foreseen in the privatization plan.

Taprantzis, 47, said the fund is seeking financial advisers for the securitization and expects to name a winner this month with a view to having a first transaction in the second quarter of 2014, he said.

It’s not just ghosts haunting Greece’s real estate market, which Taprantzis describes as “at best, dead.”

Six-Year Slump

Greece is in a sixth year of recession, with unemployment topping a record 27 percent. House prices dropped almost 12 percent in the second quarter of the year, according to the central bank, and the lifting a foreclosure ban on some properties may damp the market further.

While the starting price for Smolenski Street in Athens might look like a bargain, years of neglect is restricting the amount that Greece can raise from the assets.

Taprantzis said the sale of a mansion in the traditionally wealthy inner-city neighborhood of Kolonaki in July fetched 1.1 million euros. The property could need as much as 2 million euros in refurbishment costs, so “it’s not for everybody.”

The online auctions will be used for assets valued at less than 5 or 6 million euros, Tsaprantzis said. Anything valued at more than that would probably require an international tender. The fund plans to sell another cluster of assets the state owns outside Greece after selling buildings such as a townhouse in Holland Park, one of London’s wealthiest neighborhoods.

That may include a Roman hotel bequeathed to the Greek state by a Greek living in Italy, valued at about 14 million euros. A hotel in Athens is also due to be auctioned.

The vast majority of assets to be auctioned online have come to the Greek state’s possession through foreclosures, bequests or donations or after their owners died without heirs.

“Many people end up with no heirs and eventually the state inherits the property,” Taprantzis said by telephone. “The state is family for all citizens, including the ones with no heirs but with a fortune.”

[Bloomberg]