Europe is faced with a major demographic change over the next 10 years. The largest segment of the population – known as the «baby boomers» – is reaching the age of retirement. This change is expected to create a series of economic opportunities in the real estate sector. According to official statistics, the baby-boomer generation accounts for about 50 million of the total population. This figure includes a considerable number of affluent homeowners with large private pension provisions and long life expectancies. This generation has also experienced good capital appreciation on their residential property. For them, the purchase of a property in a warmer climate is both an improvement in lifestyle and a sound financial investment. The most common method of purchase is through an equity transfer from residential property owned in the home country. This enables millions of people to buy second homes in the Mediterranean markets. A sizable proportion of these people live in the colder northern European countries, including Germany, Holland, Denmark, Sweden, Britain, Belgium and Norway. As the first generation to enjoy annual holidays in the Mediterranean, many of those who can afford it are looking to live semi-permanently in warmer climes. Although limited official statistics exist, international estate agents in Spain estimate that 30,000-40,000 properties were sold to people from the UK during 2002. With average unit prices around 175,000 euros, this amounts to 5-7 billion euros of direct foreign investment. With the inclusion of other international buyers, total investment is far higher. This is just the initial investment, as the owners of second homes create local demand for a wide range of goods and services, including consumer goods, food and beverages, medical service, management and maintenance services and insurance. They also contribute to local tax revenues. The importance of this type of foreign investment has long been recognized by the Spanish government, which has created a specific department for this sector, known as «Residential Tourism.» This department encourages new development and promotes the Spanish second-home market. As might be expected, the United States has a greater amount of official data on the second-home market. In its 2001 survey, the National Association of Realtors (NAR) recorded that during 2001, 356,000 second homes were purchased in the USA, up from 264,000 in 1991. The average price for a second home in the USA is $127,000. In terms of desired leisure activities of interest to vacation homeowners, 69 percent identified beach, lake or water sports; 44 percent boating; 36 percent hunting or fishing; 21 percent golf; 21 percent winter recreation; 16 percent biking, hiking or horseback riding; and 4 percent tennis. Why not Greece? During 2002, fewer than 3,000 foreign nationals bought second-home properties in Greece. So what’s the problem? Is Greece less beautiful than Spain? Is it a less desirable place to live? Admittedly, Spain and Portugal have more (and cheaper) flights to the northern European markets but this is largely the result of historically greater demand. Charter and budget airlines have indicated that they would fly to more Greek destinations if there was greater demand apart from the summer season. The problem is that the existing supply of residential property in Greece fails to stimulate demand. Existing zoning policies limit residential development outside urban areas and although illegal development is commonplace, international purchasers are rightly cautious about illegally built properties. Zoning laws make it difficult to create larger-scale developments that can provide the facilities required by international buyers. Small-scale development also cannot justify the expenses of international marketing and promotion. Consequently, little effort is made to promote Greek residential properties to the international markets. As a result, there is a limited awareness of the market and, therefore, less demand. This is not helped by the prevailing perception that international purchasers will pay over the top for property. Not true – international buyers normally have a good knowledge of prices in other European countries. When presented with inflated asking prices they simply reject the property outright. Solutions and benefits A structured policy on the development of the Greek market is important to ensure that planning legislation makes land available in the right locations. Additional policies that focus on the quality, legality and protection of the environment in developments should be implemented. Attempts to launch larger-scale development have met with opposition from planning authorities, while small-scale illegal development continues with little enforcement of planning policy. The potential economic benefits of opening up this sector would be substantial. For example, if 200,000 new residential properties were developed over the next 10 years and sold on the international market at an average price of 200,000 euros this would be equivalent to 40 billion euros of direct foreign investment. Secondary local spending could also be worth billions of euros per annum. Based on the potential demand and comparisons to other markets, this figures are conservative. It is not rocket science, which is why other counties are starting to develop their residential tourism markets. Croatia, Turkey, Egypt and Bulgaria are all trying to develop their residential markets and attract foreign investors. For the moment, Greece enjoys the major advantages of being an EU country, i.e. possessing a lower risk profile, residency agreements and capital transfers agreements. However, these newer markets are very competitive in pricing and some are aiming for EU membership in 2007. If encouraged, these levels of investment could make a valuable contribution toward sustaining economic growth after the Third Community Support Framework structural funds run dry in 2006 – or it could be another missed opportunity. (1) Chartered surveyor and real estate consultant, Lambert Smith Hampton (Hellas).