It is the accepted popular belief that «property in Greece never goes down in value.» Proving this not to be the case, the office property market has experienced a significant decline in rental and capital values over the last two years. Recently there have been indications that the Greek housing market is also slowing. This was confirmed this week in the 2004 European Housing Review produced by the Royal Institution of Chartered Surveyors (RICS) in association with property researchers, banks, and governments across Europe. The 134-page report covers all EU countries (except Luxembourg) and Switzerland. It may come as no surprise that Greece has experienced the third highest growth in house prices in the EU since 1980 – only Spain and Ireland have had a higher growth rate. Greece is also in third place (behind Spain and Ireland) in the rate of new house construction with annual new supply equivalent to 1.7 percent of existing stock. When apparent demand has been so strong it is incredible that, according to EU Housing Statistics, 34 percent of property in Greece was classified as vacant in 2001. However, this can be partly explained by the large number of vacation properties and derelict countryside properties. The high vacancy rate is also due to the high availability of rental properties. This availability has resulted in little real rental growth since the late 1990s, in contrast to strong property price increases. The widening gap between rents and capital values means that Greek residential yields are among the lowest in the EU. Although the Greek housing market was still growing during 2003, the growth rate fell from 17 percent to 3 percent – the largest fall of any country in the report. It is also evident that in some areas, prices have fallen. So is this a slowdown or the start of a crash? One factor suggesting that there may be future growth in the market is mortgage lending, which is still growing at a staggering 30 percent a year. However, only 21 percent of house purchases are funded through bank lending, with 61 percent of home buyers still relying on savings and 10 percent using funds from selling a previous property. The remaining 8 percent borrow from friends and family. For a crash to occur, interest rates would have to increase, coupled with a substantial fall in economic growth. Under such circumstances, new buyers would not to be able to afford current prices and owners may be forced to sell property assets in order to sustain their lifestyles and spending power. A combination of these factors could force prices down by as much as 30 percent. However, the existing capital structure of Greek households acts as a buffer and prevents sharp property market fluctuations in response to general economic activity. Greece has one of the lowest outstanding housing mortgage to national income ratios at 12 percent. Even if there is an increase in people defaulting on mortgage repayments, the resultant forced sales would only represent a small proportion of total housing stock. The scenario which looks more likely is a prolonged period of stagnation where prices would either see minimal growth or slight decline. For owner-occupiers this would not present a major problem, but for owners that rent their property, low rental returns coupled with limited capital growth prospects means that after tax and maintenance costs, residential property would not make a profitable investment. (1) James Ward is a chartered surveyor and real estate consultant with Lambert Smith Hampton (Hellas) SA. He contributed this article to Kathimerini English Edition.