The ever-rising prices

Over the past four years, the property market – and, especially, the housing market – has blossomed. The main factors affecting the market and the course of housing prices are the rise in gross domestic product (GDP) and incomes and the fluctuations of interest rates and inflation. Changes in these factors favored the development of the property market and pushed prices higher. Greece’s adoption of the euro, at the beginning of 2001, allowed interest rates to fall dramatically and credit to expand accordingly. Nowadays, a house is a Greek household’s main property title. Over 80 percent of households own their own house: this is one of the highest percentages encountered in the European Union. Increased demand for housing pushed prices upward, to the extent that worries were expressed over a possible «bubble market.» Such worries have not been borne out by events, at least in the housing market. The prices of commercial properties, however, have fallen significantly. According to market experts, office building prices along Kifissias Avenue, a prime location, have dropped 30-40 percent since 2000. There is a tendency to relate the explosion in property prices with the stock market bull market of 1998-99. However, the Athens Stock Exchange (ASE) and housing prices did not follow the same path. During 2000, when the decline in the ASE had been well underway, the general index ended the year at 3,388.90 points and market capitalization stood at 97 percent of Greece’s GDP. During that year, the housing prices index rose 15 percent in Athens and 10.5 percent in all Greek urban areas. In 2001, the general index closed at 2,591.60 points and ASE’s capitalization was equal to 74 percent of GDP. Housing prices increased 17.6 percent in Athens and 14.6 percent in all urban areas. In 2002, the index closed at 1,748.40 points and ASE capitalization was only 47 percent of GDP. Housing prices continued to rise, however (16.2 percent in Athens, 13 percent in all urban areas). In 2003, the ASE recovered somewhat: the index closed at 2,263.60 points and capitalization rose to 56 percent of GDP. That year, however, housing prices rose just 4 percent in Athens and 5.6 percent in all Greek urban areas. Housing loans continued to grow in 2003 (25 percent), although at a lower pace than in 2002 (35.6 percent). Bankers estimate that housing loan growth will expand at a 20-23 percent pace in 2004. Despite the fact that there is now a large stock of unoccupied houses, prices are not declining. Two reasons advanced for this are the high levels of liquidity enjoyed by households and construction firms. The big difference, however, is that household liquidity has been achieved through credit expansion, while construction firms are using their own capital and indebtedness is almost non-existent. Economy and Finance Minister Giorgos Alogoskoufis has announced a series of measures, such as a larger tax break for a first house and a delay in introducing VAT on construction, that may provide a boost in the construction market. Given, however, that prospective buyers have used bank credit to finance their purchases, it remains to be seen whether a rise in interest rates will lead to an increase in defaults.