ECONOMY

Holiday house industry may make up for downturn in infrastructure works

The hordes of foreign high-level corporate executives, major shareholders of world-known companies and renowned bankers expected to visit Athens during the Olympic Games have not arrived – at least not yet, but this does not mean the Greek economy cannot look forward to other types of foreign investment. Although most economists and others limit the economic benefits of well-organized Games to a pickup in tourism next year and beyond, some point to the Spanish experience after the 1992 Olympics and predict a significant increase in housing purchases by non-residents, mainly Europeans, in years to come. It is known that the construction and related industries, such as the cement and metallurgical industries, made a significant contribution to Greece’s GDP growth in the last few years. According to National Bank of Greece estimates, just the construction sector accounted for about one-third of the 4.2 percent growth in 2003 versus 0.2 percentage points in the 1991-2002 period. At the end of last year, construction activity is estimated to have accounted for 14.2 percent of GDP, up from 11.7 percent in 1996, contrasting sharply with trends in the eurozone where the share of construction to GDP fell to about 10 percent versus 12 percent in 1991. «Demand for cheaper housing by immigrants and the acquisition of a second house by Greeks should help support the residential market and the local cement industry in particular in the next few years but the key will be foreign buying,» says Takis Kanellopoulos, head of investor relations at Titan Cement, one of the country’s two largest cement producers, with more than 50 percent of sales coming from outside Greece. Kanellopoulos and others point to an improved urban infrastructure, including streets, airports, hotels, and upgrades in mass transportation such as trains, buses and airplanes to make their case for a potential pickup in tourism and second-house buying by non-residents, mainly on the islands and the Greek coastline. Although they admit the lack of modern health facilities in some tourist locations, including remote islands, works the other way, they feel confident improved standards of living along with Greece’s enhanced visibility due to the Olympics Games can make the difference and become the catalyst for attracting foreign residential buyers. In Barcelona’s steps? They draw parallels between Athens and the 1992 Olympic Games held in Barcelona, widely regarded as a model, since they helped attract many foreign residential buyers. According to them, more than 10 million houses have been bought by non-residents in Spain since then, boosting the local construction and related sectors. It should be pointed out, however, that construction activity and cement consumption in particular eased in the area of Catalonia in the post-Olympic years contrary to what happened in South Korea, where it continued its upward course. The demand for cement in the state of Georgia firmed a bit the year after the 1996 Olympics and then stabilized. Of course, there are differences between Greece and Spain, such as the proximity to other major Western European countries, but optimists readily say Greece can count on its geographical proximity and ties with Eastern European countries, especially Russia. «West Europeans may continue to dominate in the short run, in the medium term, though, I think the major buyers of real estate in Greece will be mainly East Europeans,» says Kanellopoulos. If this indeed turns out to be the case, it will be good news for an industry, expecting a drop of about 5 percent in the consumption of cement volumes this year compared to last year, followed by a single-digit fall next year. The completion of some public work projects, some linked to the Olympics, will contribute to this effect, although the demand for cement and ready-mix linked to Olympic projects was small compared to the total even in 2003 and 2004. Provided the forecasts about a significant increase in real estate purchases by non-residents over time are correct, it is likely that a major motor in the Greek economic engine – the construction and related industries such as cement and metallurgy – will not suffer a great deal, but rather either have a smooth landing or enter a new growth phase in the medium term. The combination of healthy domestic residential buying supported by the ongoing mortgage expansion, BOT (Build-Operate-Transfer) projects and some large public works co-financed with EU funds should also help support the sectors and the Greek economy in general. Undoubtedly, the high dependence of the Greek construction sector and related industries on public work projects makes them vulnerable to the projected decline in public construction in the second half of 2004 and 2005. However, Greece’s huge coastline, largely free of buildings, and hundreds of islands along with its improved infrastructure and polished image make it a strong candidate for real estate development. This may pave the way for second-house buying by non-residents and create opportunities for foreign entrepreneurs. Of course, the jury is still out. The chances are, though, its verdict will be along the lines predicted by the optimists, or rather, realists.