In contrast with Greece’s commercial real estate market, which has now started showing signs of maturity, the country’s housing market is evidently riding high on the need and strong desire of Greek households for a privately owned home. The market appears fragmented, dominated by hundreds of small local constructors, and appears to be stubbornly refusing to follow the fundamental law of supply and demand that determines prices. Such are the main conclusions of a survey by the Statistics Department of the Athens University of Economics and Business (AUEB) on domestic real estate companies and professionals’ views. Notably, 47.62 percent of respondents believe that in the first half of 2006 the course of the housing market will be much worse than that of the second half of 2005, though just 9.53 percent of respondents believe this year’s first half will be worse than January-June 2005. This is hardly surprising and is attributed to the artificial demand created by the changes in taxation and the rise of official property values used for tax purposes. Increased demand has led to increased prices, which is absolutely logical in financial reality. The problem, however, in the Greek housing market is that the law of supply and demand only functions when it serves the rise in sale prices by constructors. The AUEB survey shows that 33 percent of those asked consider that there is an oversupply of housing today, although this percentage is clearly less than the previous poll (55 percent). This is said to be due to the high volume of sales last year that absorbed a considerable number of newly built houses. Pessimism At the same time, 49 percent expect significantly fewer sales in the first half of this year, although the current number of houses under construction has increased from the previous six-month period, according to 41.3 percent of respondents. The survey found that due to the imposition of value-added tax and the rise of official values, the previous period saw 57.8 percent of market experts expect higher house sales in the latter half of 2005. Developments proved that estimate correct, but only one in five (17.46 percent) now expect higher sales in this half of 2006. On the contrary, 49.21 percent expect fewer sales in the first half of this year. Although property market experts predict that this half will be worse than the previous, dominated by oversupply and clearly reduced demand, to the key question about the course of prices, most (57.15 percent) say prices will remain stable, although financial logic would have dictated a drop in prices, which is what only one in seven (14.29 percent) predict. There also is a 25.4 percent of experts who see a further rise. The vast majority of those polled (78 percent) believes that the imposition of VAT on sales of newly built houses, expected in end-2006 or early 2007, will bring a direct rise in sale prices by 10 percent. If the Finance Ministry proceeds to an increase in official property values, as the original planning dictated, then the cost of buying a newly built house will understandably become too much for the average household after 2007, which could generate a new wave of artificial demand in the latter half of 2006 and therefore new price rises at a time when mortgage interest rates are also expected to head north. As for the existence of a bubble in the housing market, 43 percent of respondents remain calm, although a considerable 28.5 percent now appear worried, considering that the continued rise in prices could lead to the second bubble in Greek economy after that of the Greek stock market.