The steep 20 percent fall in building activity in July, year-on-year, was mainly due to the skyrocketing of the number of home building licenses issues last year, as developers scurried in advance of the imposition of value-added tax (VAT) on new constructions on January 1. The fall is not expected to create upward pressure on house prices in the short term as spare capacity appears sufficient to meet current demand. «The market is in a transitional phase after the tax changes and is projected to reach an equilibrium in early 2008, when the gradual adjustment of the officially determined prices according to area for tax purposes has been completed,» said a developer in Athens’s northern, pricier suburbs. «We should not forget that the real figures are considerably lower than those issued by the National Statistics Service, as the vast majority of developers do not have the capacity to execute all the projects for which licenses have been obtained at the same time. This means that all those expecting a decline in prices due to excessive supply should reconsider their estimates,» said realty consultant Aris Kyratzis. Real estate agents report that due to the proliferation of inactive licenses, in recent months there has been an increase in the number of ads by developers, offering for sale land plots complete with building licenses. On the other hand, developers are adjusting production to market conditions, often slowing down the pace of construction in new projects. «Demand is clearly stronger than expected, at least on the basis of expectations that emerged after the 2005 explosion. This is reflected in the disbursement rate of new mortgage loans,» says a developer. «The current state of the market does not leave any room for prices to fall. But there is not much room for price rises, either, despite the recent upward adjustment of the official rates,» he adds. Recession? The steep fall in new home construction in July is giving rise to mounting concern about an increase in unemployment in the sector. The fall was 20.5 percent in the number of licenses issued, 19.7 percent in the total area built and 15.5 percent in the volume of new homes. Last year, building activity was up 20 percent in July, year-on-year. For their part, banks have for some time expressed fears of a recession in new construction, as a result of a downward trend in prices for business premises and in pricier areas. Bank officials note that more than 15,000 homes, worth about 2 billion euros, have been mortgaged by borrowers who are more than three months late in their repayments.