Greece’s holiday housing potential remains untapped
Economists and other experts have long argued that sustaining Greece’s strong economic growth rates into the future and tackling the country’s social security problem may be the biggest challenges facing policy makers. This task could be made much easier by turning Greece into the «Florida of Europe.» Greece can count on some -20 billion in European Union structural funds up to 2013, in addition to more than -24 billion during the 2000-2008 period to keep its economy on the path of 3.8 to 4.2 percent in annual growth rates. But this may not be enough if the cost of money for consumers and business gets more expensive as the European Central Bank keeps raising its intervention interest rate, currently at 4.0 percent, and some major EU economies experience a slowdown. However, unlike other countries, Greece can add to the firepower of EU structural funds in the years to come provided its policy makers talk less and do more to accommodate the strong demand for second homes in the country from abroad. Baby-boomers It is no secret that many baby-boomers, that is, people who were born after World War II, from Northern Europe are seeking a quality second place to live on the sunny Mediterranean as they go into or approach retirement. Moreover, a number of younger tourists from northern and eastern Europe are looking for summer vacation homes. According to real estate executives, the demand for second homes from foreigners could reach 1 million units in Greece in the next several years. Assuming an average cost of -120,000 per home, the country can look forward to some foreign direct inflows (FDI) of up to -120 billion over the same period. Even if that takes 12 years to materialize, this translates into some -10 billion per year on average. This a huge amount by all means and there is little doubt it would help to sustain Greece’s 4.0 percent growth rate and even boost it further. It is easy to understand why this is likely to happen. First of all, private residential investment is going to rise to accommodate demand. Secondly, house and property values in general are likely to rise as well. The house price increases are going to boost the earnings of real estate development companies, engineers and others working in the construction business, leading to further investments. Also, the incomes created along with the potential wealth effect from the likely house price inflation will help to prop up consumption spending. We should remember that residential property accounts for some 80 to 90 percent of total household wealth, while home-ownership approaches or exceeds 80 percent of the population. If this amount of -120 billion is added to the expected -20 billion the country is scheduled to get from the EU over the next several years, one should stop being worried about the sustainability of economic growth in the Greek paradigm but be concerned about higher inflation. Red tape Of course, this plausible scenario will never materialize if Greek politicians and bureaucrats do not stop doing what they do best, that is, dragging their feet. In addition to the continuous improvements in infrastructure, the country seems at last to be moving ahead to solve problems with zoning, restrictive building codes and other matters. This will facilitate the development of large-scale housing complexes on the islands and in other wonderful areas along the coastline. Given the fact that France, Italy and Spain, the three most popular locations for second home buyers from northern Europe in the south, are overcrowded and overbuilt, Greece offers an alternative, along with some other countries in the region, such as Turkey and Croatia. Real estate executives say it is reasonable to expect that Greece can sell 1 million homes to foreigners over the next several years, provided the disincentives for large-scale real estate development are lifted and infrastructure further improves, for a number of reasons. In addition to the overcrowded summer vacation market argument for France, Italy and Spain, Greece commands a 10 percent market share of the Mediterranean tourist industry. This by no means translates into a comparable figure for the purchase of summer vacation homes by foreigners. According to the data, Greece has sold just 50,000 homes to foreigners in the last 12 years, compared to 4 million units on the Iberian Peninsula. Some 10 million summer vacation homes have been sold in France, Spain, Italy, Portugal, Turkey and Cyprus. So, Greece’s problem is not the lack of demand from northern – and increasingly eastern – Europeans, particularly the Russians. The country’s biggest problem is that it does not have enough of the product to satisfy the demand. To be more specific, Greece does not offer enough modern summer vacation houses in organized housing complexes in wonderful areas complete with all the facilities and easy access to nearby hospitals, airports and ports. At this point, it also does not offer luxury residences in tourist housing complexes to be bought by a few individuals nor has it any market for condominiums and houses to buy to use and let. By all accounts, Greece’s underdeveloped, and to some extent virgin, landscape could be helped to convert itself into the Florida of Europe in the next few years, sustaining high growth rates for may years to come. Already, some steps have been taken in that direction with the new zoning system and it is up to the country to take a few more to make it happen.
