House price rises unlikely

Speculation has grown recently over the prospect of a fall in property prices, mainly of housing and office space, after the Olympics. Those who who accept this view argue that the main factor behind such a development will be a glut of supply after the Olympics. But this is not likely. The commercial promotion of private housing complexes (totaling about 430 apartments) used as media villages had begun several months before the Olympics and is not a new factor in the market. Also, the Olympic Village of 2,292 apartments will be entirely distributed through lottery to working families, that is, low-income households, most of whom had not planned to buy a house in the next few years. «The speculation regarding the existence of a so-called bubble in the property market and forecasts that a significant fall in property prices is imminent began at the end of 2001. Many lent credence to these forecasts and decided to put off investing in new homes when they could have bought them in areas such as Dafni, Gerakas and Peristeri for 1,500 euros per square meter or even less. Today, the prospective buyer has to pay 30-40 percent more for the same house, or buy a much smaller one,» notes Dimitris Kapsimalis, president of the Association of Construction Companies. He acknowledges that the absorption rate of new houses has slowed down recently, but notes that so has the pace of new construction. «After three general meetings, our association decided we should slow down our pace, and this is reflected in the shrinking of building activity by 35 percent recently, and also in the rate at which people are prepared to give up a detached house in exchange for apartments or other property items in new constructions,» notes Kapsimalis. He adds that midsized construction companies have minimal operating costs and can therefore vary their activity, in contrast to the bigger public project contractors that have begun diversifying into the housing market. After the 1999 earthquake, Kapsimalis points out, a surge in building activity bolstered construction companies’ revenues and the overwhelming majority now have no need to borrow. Apart from a firm’s profit margin, the main factors determining the price of a property item are the cost of land – which does not look like receding – and the cost of building materials, which has begun to be affected by rising oil prices. He forecasts that if oil prices remain at current levels until the end of the year, the cost of building materials will rise by 8-10 percent. Beyond these factors, Kapsimalis urges prospective investors to consider possible changes in real estate taxes, particularly whether the government will ultimately introduce value-added tax on real estate transactions. «My view is that we should not expect any significant developments, particularly a fall in property prices after the Olympics. The Games will have a negative or positive impact on the real estate market depending on their impact on the economy as a whole,» he argues. However, what has already changed as a result of the new, Olympics-related infrastructure, is the map of the housing market. The areas along the metro lines, especially the recent extensions, are attracting the biggest part of demand. «In the northeastern suburbs of Halandri, Papagos, Vrilissia, Melissia, Gerakas and Aghia Paraskevi, and Peristeri in the west – which are now serviced by or are nearer to new metro stations – house prices are moving 3-5 percent higher, proving the rule of the uplifting effect of train services on property prices,» he notes. Conversely, the resulting changes in the property prices make areas about which high expectations had been built less attractive. According to Kapsimalis, Pallini and the wider Mesogeia area is a case in point. «Pallini grew without proper planning and has lost the advantage of a better quality of life compared to suburbs nearer the city center. Despite its adjacent Attiki Odos highway, it remains far from the center, while the cost of toll charges has a deterrent effect. «I consider attractive opportunities are now appearing in western Attica, particularly in the Aegaleo area, where the next metro station will be,» says Kapsimalis.