Prices for new houses keep rising

The average price of a newly built apartment in Attica is now more than -2,000 euros per square meter, according to the latest price data from the market. In most areas the lowest market prices for new houses start from -1,600/sq.m. and reach -2,500/sq.m., not including high-priced areas such as Palaio Psychico, Kefalari, Kolonaki or parts of the southern suburbs such as Vouliagmeni, Voula and Kavouri. The relatively few new developments in those areas go beyond what the average Greek household can afford, as their prices start from -3,500/sq.m. and could rise to -7,000-8,000/sq.m. It is true that new buildings are becoming a less and less affordable option for most potential buyers, as they cannot spend any more than -200,000-250,000. The situation has been aggravated in recent months with the steady rise of euro interest rates by the European Central Bank increasing the cost of loans for the majority of borrowers who usually choose products of fluctuating rate. The new apartment markets have been limited to the areas with relatively low prices and smaller houses. At the same time the swing of more and more buyers toward older houses is clear, as these are more affordable. One of the basic rules of the housing market suggests that every house loses about 10 percent of its value with every decade that passes. This means that, for example, an apartment that is 20 years old will be sold at a price 20 percent lower than a new apartment in the same area. The sale prices of newly built apartments are used as a point of reference for the sale of older houses in the same area. Consequently, many households have recently started looking for an older house with a bigger surface area, as they prefer this solution to a new flat that is smaller. After all, this is the meaning of a good bargain, particularly if the apartment on sale is in good condition and the block of flats is a quality construction. In many cases, one can find apartments on the market that are just five years old or less, depending on the area, as their current owners choose to liquidate their capital gains. Of course, some of those apartments are on sale because their owners cannot meet their debt obligations anymore and clearly opt for this solution instead of a possible auction. The high prices of new buildings are due to a series of factors related to the sector’s operating conditions. The panic at the end of 2005, ahead of the application of value-added tax on new constructions and in view of the adjustment of official property values used for tax purposes, forced many construction companies to sign contracts of property exchange for development with very high returns in proportion for property owners. The aim of the companies was to secure plots that would be exempt from VAT. This is why even today, more than a year after the application of VAT, the property transactions with VAT are minimal. Furthermore, builders came up against the significant rise in construction costs, as building materials’ prices have been rising steadily in the past year, increasing by double-digit percentages in some categories. Those who tried to pass the increased costs on to buyers faced significant difficulties and were forced to wait many months before they sold their apartments. This year remains a mystery, as there are no margins for further price rises in new houses. However, the stock of building permits that are exempt from VAT is gradually diminishing, until the market starts to feed on new properties sold with 19 percent VAT. At this stage no one is able to assess the market’s reaction and the way in which the new measure will be applied. It is certain, though, that if builders try to pass VAT on to sale prices, the market will automatically freeze, as it has already reached its limit.