ECONOMY

Greek housing boom heading for soft landing as interest rates rise and market is overpriced

For newlywed Vangelis Golemas, buying his own home at the age of 31 was an achievement that his parents could not even dream about two decades ago. The IT company manager is part of Greece’s first generation to take up mortgages to buy homes, making Greece one of Europe’s fastest growing housing markets and boosting nominal prices by 175 percent in about a decade. «My father didn’t manage to buy an apartment before he was middle-aged and then only because he worked for the army and the military offered low-interest loans,» Golemas said. «It’s no small thing to own your home. It’s such a great feeling.» A sharp drop in interest rates as Greece prepared to join the eurozone in 2001 meant a sea change in the country’s housing habits and market. Young people could finally afford mortgages, moving out of their family home much earlier. Greek residential mortgage debt rose to 25 percent of GDP in 2005 from only 4.7 percent in 1996. The country had the eurozone’s fastest mortgage growth in 2005 at 33 percent, according to the European Mortgage Federation. Real estate prices rose by 175 percent nominally and 69 percent in real terms between 1994 and 2005, a study by EFG Eurobank showed. A square meter in an average neighborhood now costs about 3,000 euros. Greek banks, which have seen strong double-digit profit growth in the last three years as young families borrow to buy homes and furnish them, say the boom is showing signs of slowing, as in the rest of Europe. No bubble to burst But with GDP growth at about 4.3 percent in the third quarter of 2006, well above the 2.6 percent eurozone average, and people mostly buying their first home as their sole investment and unlikely to sell if prices drop sharply, there is no bubble to burst. «We do not feel the market is (greatly) overvalued,» said Dimitris Malliaropoulos, a research adviser for Eurobank, adding that prices were 5-9 percent above fair value. «The most realistic scenario is a slowdown of credit expansion, especially mortgages.» Real estate brokers take a dimmer view of the future. They say demand had begun to ease after the 2004 Olympics-related construction boom but investors rushed to buy in 2005 to avoid impending tax changes, making for another bumper year. «Instead of having a healthy correction we had this artificial rise in 2005,» said real estate consultant Nikos Yiannoulelis. «According to our own studies, the market is 30 percent overpriced compared to economic fundamentals and mainly average incomes.» But brokers also agree a market crash is unlikely. The most likely scenario is that the landing will be smooth with inflation, at an annual pace of about 3 percent, closing the gap within the next three to four years. Seeing demand slackening and competition toughening, Greek banks have come up with new products to attract new homeowners, such as Swiss franc-denominated mortgages. Euro-denominated mortgages are extended to 40 years, with floating rates of about 4-5 percent. At present 50 percent of the country’s housing market is focused around Athens, with people looking to buy better and bigger homes. In the 1980s and 90s many Athenians moved to the suburbs, but the trend has now been reversed with many neglected historic districts experiencing a revival. Despite the boom, Greece has yet to experience the intense property growth seen in Spain, which was largely due to north European holidaymakers, retirees and immigration. Experts say that although Greece’s blue coastline and olive tree-covered slopes have few rivals in the Mediterranean, its legal and administrative systems must be improved before it can attract wealthy foreigners. «In the whole Mediterranean about 10 million homes have been sold to north Europeans. Although our share of tourism is 10 percent of this market, only about 60,000-80,000 homes, mostly on the island of Crete, have been sold so far,» Yiannoulelis said. With no land registry office and almost non-existent zoning laws, foreigners are reluctant to buy property in Greece, fearing that their views of the Aegean could be blocked by hotel complexes.