Greece

Residential property prices in Greece continue to plunge, with the Greek economy enduring one of the worst crises in its history. Greece is already on its fifth year of recession, with the economy expected to contract by 7% in 2012.

The average price of apartments in Greece plunged by 9.83% y-o-y to Q1 2012, according to the Bank of Greece. When adjusted for inflation, property prices actually dropped by 11.62% over the same period.

During the year to Q1 2012, prices of old apartments (5 years or older) fell 8.6%, with prices of newer apartments falling 10.3%.

Almost all cities in the country experienced house price falls.

• In Athens, average house prices fell 9.9% y-o-y to end-Q1 2012
• In Thessaloniki (the second largest city) prices fell 10.1% over the same period
• In “all other cities”, house prices dropped 8.8% y-o-y in Q1 2012
• In “all other areas”, prices fell 8.2% over the same period

Residential real estate transactions fell in number, volume, and value.  In the first quarter of 2012, the total number of residential real estate transactions was down 54.1% to 5,874 from a year earlier. On the other hand, the volume and value of real estate transaction plunged by 52.1% and 56.5%, respectively.

In June 2012, the total amount of outstanding housing loans in Greece fell by 3.5% to €76.6 billion from the same period last year, based on figures released by the Bank of Greece.

Non-performing mortgages in the country already reached 17.2% of the total outstanding mortgages in the first quarter of 2012, up from 15% in the previous quarter.

Since May 2010, Greece has been granted two successive rescue loan packages by European leaders and the International Monetary Fund (IMF) worth €110 billion and €130 billion, tied to a stiff austerity package. The austerity measures imposed by the government include:

• Tax increases
• Spending cuts
• Privatization of government-controlled corporations
• Slashing salaries
• Slashing pensions, especially for high-income retirees
• Taxing low-income earners. The taxable income threshold would be reduced to EUR5,000 from EUR8,000
• Placing about 30,000 public workers in labor reserve

Other reforms include strengthening laws against rampant tax evasion, liberalizing the labour market and selling state assets.

Some of the moves were not accepted by the public, and violent protests, rallies, strikeouts took place in key areas.

In the first quarter of 2012, the economy is estimated to have contracted by 6.5% from a year earlier. The economy is expected to shrink by more than 7% in 2012. GDP had fallen by 6.9% in 2011, 3.5% in 2010, 3.3% in 2009 and 0.14% in 2008.

In 2011, the country’s budget deficit was 9.1% of GDP, from a staggering 15.8% of GDP in 2009. In 2012, Greece aims to reduce the deficit to about 7.3% of GDP. The troika requires the country to reduce its budget deficit to below 3% of GDP by end-2014. But the country is seeking a two-year extension to reach its budget deficit targets.

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Greece’s debt problem is deeply rooted. When the euro was first introduced in 1999, Greece was left out because of its high budget deficit and inflation. Embarrassed by the isolation, Greece appeared to clean up its act and fix its finances and macroeconomic fundamentals. By January 2001, it was able to adopt the euro as its official currency.

In November 2004, however, Greece admitted that it had fudged the figures to gain entry to the eurozone.  Since 1999 its budget deficit had never been below the EU limit of 3% of GDP. It was also revealed in early 2010 that Greece had paid Goldman Sachs and other banks to hide the true amount of its debt and borrowing.

Euro adoption led to a cycle of debt-financed growth and deficit spending. Greek sovereign debt spreads fell, allowing it to borrow cheaply. Access to cheap funds allowed it to continually pump-prime the economy, leading to higher growth.

The Greek economy expanded by an annual average of 4% from 2000 to 2007, one of the highest rates in the eurozone.  With higher growth, government officials rewarded themselves with higher incomes and pensions and generous leave credits and bonuses. The bureaucracy is also bloated and overstaffed.

In October 2009 Prime Minister George Papandreou took office and revealed that the deficit was much higher than the previous government had claimed. His response?  Austerity measures,including slashing salaries and pensions, and increasing taxes, given that around 5 million Greeks (6 out of 10) pay no income tax. These moves were not accepted by the public, and violent protests, rallies, strikeouts have taken place in key areas.  But they were necessary to obtain the European and International Monetary Fund (IMF) rescue loan packages (worth €110 billion and €130 billion).

Greece is already on its fifth year of recession. In the first quarter of 2012, the economy is estimated to have contracted by 6.5% from a year earlier. In 2012, the economy is expected to shrink by more than 7%. GDP fell 6.9% in 2011, 3.5% in 2010, 3.3% in 2009 and 0.14% in 2008.

In 2011, the country’s budget deficit was 9.1% of GDP, down from a staggering 15.8% of GDP in 2009. In 2012, Greece aims to reduce the deficit to about 7.3% of GDP. The troika requires the country to reduce its budget deficit to below 3% of GDP by end-2014. But the country is seeking a two-year extension to reach its budget deficit targets.

By end-2011, Greece’s public debt peaked at 165.3% of GDP, before the government completed a debt write-off deal with its private sector creditors. In the first quarter of 2012, public debt was reduced to 132.4% of GDP.

The country’s overall unemployment rate hit 22.5% in April 2012, up from 16.2% from the same month last year, according to Eurostat. Among young people, the jobless rate was 52.8% over the same period. This is far from the average unemployment rate of 9.2% from 2003 to 2008.

In June 2012, the overall inflation rate eased to 1.3%, according to EL.STAT, the country’s statistical service. Consumer prices rose by 3.1% in 2011.

Political instability in the country keeps undermining efforts to reform the ailing economy. The government of Prime Minister Antonis Samaras is already the fourth in eight months. The previous three governments achieved little in terms of reform as domestic bickering forced two national elections in May and June 2012.