ECONOMY

Demand in the second-home market set for another poor year

Pessimists predicting another mediocre year for Greece’s second-home market look as though they will be vindicated despite a reported surge in buying interest from wealthy Russians. Some Greeks may be fond of calling their country «the Florida of Europe» and Greece may indeed have the potential to become one, but in reality this title is as unsuitable as it was a year ago, according to executives of real estate companies. The international credit crisis has hit a number of high-flying real estate markets in Europe as well as the US and has made households and companies more cautious when it comes to investments. Although Greece has not been a major destination for second-home buyers from these countries, real estate executives such as Panos Danos, head of real estate consultancy firm Danos & Associates, say the global crisis has had an impact on investors from traditional Western European countries such as Germany, Britain and France. On the contrary, the international credit and stock market crisis has not discouraged a new breed of investors from Eastern Europe, most notably Russians, who have plenty of money to spend but like others before them are coming up against the same problem. Namely, the lack of adequate, high-quality housing with modern infrastructure and services. «The price is not the issue for the Russians. It is the available product. They want large, luxury mansions with their own private little harbor. They want all comforts, access to golf resorts, entertainment etc,» adds Danos. Although there are no official estimates of selling prices for second homes across the country, people from the real estate industry say they range from 1,200 to 30,000 euros per square meter in places such as the island of Myconos. The number of Greeks who are buying a second home has been rising in the last few years. They are the ones who generally absorb the new supply of small units going at prices ranging from 1,200 to 6,000 euros per square meter, according to brokers. Foreign funds investing in major real estate projects are willing to part with their money because they know there has been buying interest from Western Europe and Eastern Europeans, mainly Russians, in the last six to 12 months or so. It is known that interest in buying a holiday home in Greece has been expressed by associations of retirees in addition to individuals from Western Europe. However, such large-scale projects are very hard to implement in Greece and thus these investments are often lost. «Small and medium-scale projects are feasible but large projects run into countless problems, rendering their development impossible,» says Panos Mihalos, head of DTZ Hellas. «Unless there is a clear zoning law and the procedure for issuing building permits is rationalized, Greece will not be able to come up with a quality product.» According to Mihalos, we can talk about Greece being the Florida of Europe but very little will be accomplished in reality. It is no secret that different laws apply to different parts of the country with respect to development, for example the islands in the Cyclades (Santorini, Myconos, Syros etc) and in the Ionian Sea (Zakynthos, Cephalonia, Corfu etc). Another obstacle to large-scale development is the fragmentation of the land among a number of owners who may disagree on whether and at what price they want to sell their property to real estate funds and other real estate development companies. The lack of an adequate supply of quality second homes has curtailed demand from abroad. So it comes as no surprise that according to estimates, fewer than 50,000 vacation homes have been sold to non-residents in the last 10 years compared to more than 4 million on the Iberian peninsula, mainly Spain. However, this shows the great potential for Greece which commands a 10 percent market share in Mediterranean tourist traffic. It is easy to calculate how much money could have poured into the country if some 50,000 houses were sold each year for the next 10 years at a modest price of 100,000 euros each. The total amounts to 50 billion euros. Even if one lowered the estimate to a more realistic 10,000 units per year, inflows could have amounted to 1 billion euros per year. Of course, the country does not benefit from these inflows alone. It also benefits from the money spent by the new owners on food, clothing and other items and services, which has a multiplier effect on national income. The retiree who will be staying in his new home will most likely spend his retirement income in the supermarkets, retail shops and coffee shops of his new neighborhood, village or city. So, the cumulative positive impact on the national economy will be even greater. While Greece is losing time debating all these issues, some of its neighbors are taking concrete steps to attract foreign nationals by offering a quality product. Neighboring countries such as Turkey and others in the wider geographical area, such as Croatia, are making greater strides while some, like Cyprus, have long since overcome the problems. Unfortunately, the pessimists have again been proven right and Greece will miss yet another year in its quest to develop a second-home market.