ECONOMY

Inhospitable Greek property market for foreign investors

Foreign investors considering proposals for investment in Greece appear to base concerns on three main fields: the legal framework regarding contracts, town-planning regulations and tax regulations. The issues involved multiply when the proposals concern public real estate, as this must be assessed via time-consuming processes. A major issue in the legal framework is that commercial leases do not have any guaranteed duration, meaning the tenant has the right to unilaterally cancel the contract after two years, on the condition of providing six months’ notice as well as payment of four months’ rent, irrespective of the initially agreed upon duration of the lease. Insecurity of investment This creates evident insecurity for the prospecting investor regarding the viability of his investment. Judging from experience, it seems appropriate to improve this legal provision by extending the minimum time the tenant is required to remain in the property to at least 60-70 percent of the agreed upon period. This will help the principle of proportionality to prevail in the relationship between the contracting parties, as well as eliminate an important risk factor in the various evaluation models used by prospecting investors. Forging closer relations between owners and tenants could also be promoted through the adoption of the British or French systems regarding leases, particularly as regards sub-lets which are especially troublesome in the Greek marketplace. Stable mechanism needed As regards town-planning regulations, a major problem is the phenomenon of local government authorities intervening after plans have been approved and canceling important investments. Such decisions represent a totally mistaken and poor economic approach that has had significant bearing on the public real estate market. In our view, central and local administrations must adopt a specific unified decision-making mechanism for town planning that will protect the field from damaging prevarications and turnabouts as regards important investment schemes. Such a mechanism, setting clear steps toward final approval of the required licenses, would also correct the distorting phenomenon of rulings by the Council of State – the country’s highest administrative court – against already licenced investments, often just at the stage of implementation. Further, it would avert postdated freezing of important real estate assets by local mayors, who, in our opinion, should make publicly known within the first semester of their four-year term their views on the town-planning requirements of their local communities. Such views should be in line with the financial possibilities and planning of a local authority. We believe that such an arrangement would solve a crucial issue. Combined with the modernization and speedier implementation of town-planning procedures, particularly regarding terms of land use and construction, this would give a strong boost to an important number of investment plans now facing the specter of possible cancellation and demise. Prominent examples of such unfortunate cases are the property of the ex-pharmaceutical company Chropei in Piraeus, for which the Portuguese group Sonae has been trying to find a solution for the last five years; the former factory of the Fertilizer Company in Drapetsona, Piraeus, and those of Heracles Cement company and BP, which could become centers of urban redevelopment. Another case in point is that of the recent unfavorable Council of State ruling on the commercial and housing development of the Olympic Media Village in Maroussi. Similar problems are likely to arise in the plans to redevelop the two property assets of Hellenic Railways, in Aghios Dionysios, Piraeus and in Rendi, which are hoping to attract foreign investors. Formally, these are outside the general city plan but still obviously a part of the urban environment. Piecemeal and mercurial tax regulations are the third major group of factors thwarting likely foreign investors. The most recent example is the 3 percent tax on the value of properties owned by offshore companies. While the true purpose of the law was to counter specific sources of tax evasion, its indiscriminate application effectively nullifies the value of foreign investments and will lead to their sponsors’ exit from the Greek property market. Unwarranted externalities The creation of adverse externalities in the transparent economic activity of foreign investors – whereas the purpose of the law was to battle tax evasion from opaque activities – shows a lack of flexibility in planning and, specifically, a clear change in the framework that formed the basis behind the decisions by many foreign institutionals to invest. Such externalities and the lack of a long-term, stable tax regime runs the serious risk of eliminating any investment interest in the Greek property market, in view of the fact that most such investments – either within the framework of concession agreements or as direct placements – are almost exclusively implemented through such «special vehicles» as offshore companies. (1) Dimitris Manousakis is managing director of FPD Savills.