The domestic real estate market must be upgraded to maximize the beneficial effects of rapid economic growth, a survey by the Foundation for Economic and Industrial Research (IOBE) suggests. The property market is globally one of the most important economic sectors, as the collective value of houses in all developed countries at end-2002 was estimated at $30 trillion, when that of stocks and state bonds did not exceed $20 trillion. The IOBE research stresses the huge rise in house prices in the 1995-2004 period, estimated at 134 percent, with rates of greater rise in the 1999-2002 period, attributed to the growth of the stock market and the significant decline of interest rates. In Athens, the rise was actually even greater, reaching 164 percent, while in other city areas the rise between 1995 and 2004 came to 111 percent. Since 2004 the rate of price increase has slowed down significantly, IOBE notes, so that in the first nine months of 2004 it was at 2.2 percent against 6.2 percent in the same period in 2003. In Athens there were even cases of a limited reduction in prices of between 0.9 and 4.9 percent in the January-September 2004 period. The survey suggests that rental rates vary considerably depending on the quality and characteristics of every area, while the variant of rates is wide even within the same area. Squares, streets, parks and nearby public transport are among the things that keep rates high. The age of houses, the quality of construction, the location and the comforts on offer are also factors that determine rent levels. In areas of Attica, the average rate ranges from 6 euros per square meter to 16.5 euros/sq.m. Yet if we compare the lowest and the highest price, there is a difference of 27.5 euros/sq.m. The rise in house prices is not due to any similar rise in their construction costs, as in the 1997-2001 period the increase in the cost of construction of buildings was just 4.4 percent. Obviously profit margins for house constructors have increased significantly. In 1998 and 1999 the number of houses on the market rose by 13.4 percent and 23.9 percent respectively. This has limited the rate rise, although the great increase in supply did not continue in 2000 (when there was an increase in supply by just 5.5 percent). A decline in the number of houses on offer by 37 percent in 2001 caused a further rise in prices. Given the importance of the real estate sector, both for the normal operation and the growth of the economy, IOBE calls for a more active role by the state in a series of key issues, such as inaugurating a long-term land policy (land usage, expansion of town-planning zones etc), the management of public corporations’ buildings, the general financial policy, property taxation, rent subsidies and specialized interventions, such as the supply of hundreds of houses after the end of the Olympic Games. «The Greek real estate market has always suffered from the absence of any coordinating body across its sectors, able to draft a long-term property policy and to coordinate interventions in a variety of sectors,» suggests the IOBE survey. It adds that «the absence of such a body has contributed significantly to the lack of important regulations and has bred specific problems in the market, topped by the lack of official, or at least monitored, information about its fundamental data.» The consequences, according to IOBE, have been that «despite efforts by the private sector to set terms for the regulation of the market,» the latter has not profited from the particularly favorable financial conjunction with institutionals putting their money into property. More inspections on construction firms The Special Inspections Service (SIS) is to conduct extensive inspections on construction firms because of evidence of large-scale tax evasion in the sector. According to the IOBE study mentioned above, the construction cost of new houses rose 4.4 percent in 1997-2001, while house prices rose 75 percent. Economy and Finance Minister Giorgos Alogoskoufis told reporters yesterday that value-added tax (VAT) on new buildings was imposed precisely for the purpose of fighting tax evasion. He added that the imposition of VAT on buildings whose construction permits were issued after January 1, 2006, will help impose rules on a rather wild market and also help to draw investors. SIS has been told to conduct inspections on all large construction companies. However, it is mostly the small ones that are active in the housing market, although it is expected that this will gradually change. The Finance Ministry will provide instructions next week as to the most effective inspection methods and the most widely used tax-evasion methods. Such methods include changing the prices on invoice carbon copies, especially in public projects, and underpricing the services of subcontractors and procurers to bring the actual cost of a building into line with its so-called objective value, the criterion used by the state authorities to assess property tax. Last year, 668 construction companies were inspected, with 307 (46 percent) found to have evaded taxes.