Economy-driving construction sector goes from boom to bust
Greece’s rustic reputation for blue waters and sandy beaches belies the fact that the construction industry has been, alongside tourism, a catalyst of the country’s economic growth for decades. Loose enforcement of urban-planning rules, concern about abundant earthquakes and a tradition of investing family savings in real estate had provided healthy growth for an industry that contributes some 7 percent of national output. But in the midst of an unprecedented Greek financial crisis and a deepening recession, even this once-reliable motor is starting to sputter as a result of austerity measures that have dampened consumer demand in general. The streets of Athens and Thessaloniki, Greece’s northern metropolis, are now littered with sale and rental signs, graphically betraying the fate of a sector that employs around 700,000 people. «The building industry is going through its worst crisis in a decade,» says Dimitris Kapsimalis, chairman of the confederation of Greek construction firms. Home demand, he argues, has suffered from the effects of the government’s cost-cutting policies which have plunged the country deeper into recession. «After pay cuts in the public sector, there is also job insecurity, poor bank liquidity and increased property taxes,» Kapsimalis notes. In the second quarter of the year, construction activity declined by 18.3 percent on a 12-month comparison, compounding a 13.9 percent fall in the first quarter, according to the Bank of Greece. In the same April-June period, the value of property transactions dipped by 13.1 percent, BoG added. According to the Technical Chamber of Greece (TEE), construction revenue declined by 12 percent in June and by 14 percent in July year-on-year. The number of building permits also fell by 40 percent, the chamber said. The industry has literally gone from boom to bust in six years. The good years In 2004, when Athens hosted the Olympic Games, construction chiefs had orders coming out of their ears as the country ran a last-minute preparation marathon to get its sports venues in place. The increase in orders had begun some years earlier, after a 5.9-Richter quake northwest of Athens killed 143 people in 1999, prompting greater safety awareness, says Kapsimalis. «The earthquake pushed Greeks to invest in new homes more resistant to earthquakes,» he notes. The introduction of the single European currency that replaced the Greek drachma in 2001 gave another boost, adds Yiannis Revythis, head of the Athens real estate association. «The euro further reinforced the Greek custom of putting their money into real estate,» he said. Today, however, few Greeks feel they have euros to spare. For the past year, the country has been mired in a growing recession that is likely to see the economy contract by 4 percent this year. Wage and pension cuts and tax hikes enacted by the Socialist government as it struggles to beat back enormous public deficits have further frozen demand. And yet, despite the slump, property prices are paradoxically holding firm. Despite the availability of over 120,000 buildings for sale, prices have only declined by 6 percent in the second quarter of the year, according to BoG. Kapsimalis rules out a market collapse akin to that of Spain or the United States, which proved disastrous for both economies. «Construction firms in Greece are small and without major loan burdens, so there is no pressure from banks that could lead to a collapse of prices,» he said.