The rise in house prices is clearly slowing down this year due to the drop in demand and new tax measures, argues consultancy firm Savills in its report on the Greek housing market. The report also questions the extent to which the average Greek household can afford their own home, since the rate of price increases remains higher than that of salaries and employment. A direct consequence of this will be the rebound in the rental market, particularly if interest rates continue to climb. This year the average increase in house prices is expected to close much lower than 10 percent, after double-digit rises during 2005. Last year’s huge increases were due to the change in the tax status of properties, and mainly the imposition of 19 percent value-added tax on newly built constructions. However, Savills notes, as long as a family’s main residence is exempted from VAT, the effects on the market will be limited. Within 2005, 65 percent of all mortgage loans concerned main residence purchases. Although analysts consider the big rises of the last decade as justified given the improvement in the economy and the earlier decline in interest rates, Savills worries how feasible the purchase of a house is by Greek households if prices keep rising. «The limited income rises and the slow growth of employment are a combination that can limit disposable income. Furthermore, demographics do not show any significant increase in new households, which is the main pool for main-residence buyers,» the report suggests. The supply of houses remains high, thanks to the construction frenzy of 2005 that marked a peak in building since 2000 (with pre-Olympic year 2003 excepted), as 130,000 houses were built last year, 30 percent of which were in Attica. Market observers note that in the last quarter of 2005 most contractors obtained a great number of building permits to avoid VAT. Most of these firms however could not possibly come through on all the permits they have acquired.