Greece's house prices on cusp of rising, as its economy continues to recover
February 12, 2018
In Greece's urban areas, house prices dropped by just 0.67% during the year to Q3 2017, the lowest annual fall in house prices since Q1 2009, according to the Bank of Greece. When adjusted for inflation, house prices declined by 1.62%. During the latest quarter, house prices in urban areas fell slightly by 0.06% but actually increased 1.18% when adjusted for inflation.
This improvement was also seen in the major cities:
- In Athens, the average price of apartments fell slightly by 0.44% (-1.39% in real terms) during the year to Q3 2017, the lowest y-o-y decline since Q2. Quarter-on-quarter, prices increased 0.1% (1.34% in real terms).
- In Thessaloniki, the country's second largest city, there was a slight house price drop of 0.7% (-1.7% in real terms) y-o-y in Q3 2017, an improvement from last year's 2.1% annual fall and the lowest decline since Q1 2009. Quarter-on-quarter, prices fell by 0.2% (increased 1% in real terms) in Q3 2017.
- In other cities (excluding Athens and Thessaloniki), house prices fell by 1% (-2% in real terms) during the year to Q3 2017, an improvement from y-o-y declines of 2% in the previous quarter and 1.8% a year earlier. In a quarterly basis, prices increased 0.1% (1.3% in real terms) in Q3 2017.
Greek residential property prices have fallen by 42.8% (-45.9% in real terms) from the peak year of 2008.
Property transactions and construction activity are both rising again, but are still far below their peak levels. During the first three quarters of 2017, the number of residential property transfers recorded at the Athens land registry rose by 16.2% from a year earlier.
During the first ten months of 2017, the total number of permits rose by 10% to 11,205 units from the same period last year, according to Hellenic Statistical Authority. But it remains far below the 70,000 to 80,000 permits issued annually from in 2004 to 2007.
To revive the housing market, the Greek government recently offered residence to non-EU investors purchasing or renting property worth over €250,000. The residence plan is similar to measures adopted by Hungary, Spain and Portugal. The plan is valid for five years and is open to renewal.
However, high property taxes in Greece continue to discourage demand. In fact, property taxes have increased seven times since the global financial crisis. For September 2017 to January 2018 alone, about 6.3 million owners are required to pay €3.15 billion in property tax (ENFIA), up from €3 billion in 2014 and from just €500 million in 2009. Rental taxes have also increased. For the first €12,000 of annual rent revenues the tax is 15%, up from 11% until 2015. For rent revenues between €12,000 and €35,000 per year the rate soars to 35%.
The Greek economy grew by around 1.6% in 2017, according to the European Commission - in contrast with last year's 0.2% contraction. After a short-lived recovery in 2014, Greece's economy returned to recession in 2015, with GDP contracting by 0.2%, amidst the imposition of capital controls and the shutting down of most of its banks. Before this, the country's real GDP had contracted by 3.2% in 2013, 7.3% in 2012, 9.1% in 2011, 5.5% in 2010, 4.3% in 2009 and 0.3% in 2008, according to the International Monetary Fund (IMF). The recovery is expected to continue this year with a projected real GDP growth rate of 2.5%.
Rental returns are moderate in Greece.
How much will you earn? In the centre of Athens gross rental yields on apartments are moderate, at around 4.2% for apartments of 120 square metres (sq. m), but proportionately more for smaller apartments. To define terms, the gross rental yield is the rent the landlord will earn - before taxation, vacancy costs, and other costs - compared to the purchase price of the property.
The gross rental yield in suburbs of Athens is about 4.5%. Again, smaller apartments will earn proportionately more.
How much do apartments cost? In our latest survey, the average price per square sq. m. in Central Athens ranges from around EUR 2,800 to EUR 3,300.
In the suburbs of Athens, i.e., Ekali, Kifisia, Psychiko, Glyfada, the average price per sq. m. of apartments ranges from around EUR 2,200 to EUR 2,650, while houses cost around EUR 3,200 per sq. m.
Apartments in Crete cost around EUR 1,400 per sq. m. while villas cost around EUR 2,500 per sq. m. Yields are lower here than in Athens, at least for apartments (for which we had yields research the year before last, but not this year) at around 3%.
How easily will you rent your property? Properties are reasonably easy to let. Athens is a large city with traffic problems, and many people need to rent. Crete has a thriving Airbnb letting scene.
When buying property, take into account the fact that round trip transaction costs are quite high in Greece. See our Residential transaction costs analysis for Greece and Residential property transaction costs in Greece, compared to the rest of Europe.
Income tax is moderate to high in Greece
Rental Income: Rental income is taxed at progressive rates, from 15% to 45%.
Capital Gains: Capital gains realized from the sale of property held for less than 5 years are taxed at a flat rate of 15%.
Inheritance: Inheritance tax is levied at different rates depending on the relationship between the deceased and the beneficiaries.
Residents: Residents pay taxes on their worldwide income at progressive rates.
Total transaction costs are moderate in Greece
The total roundtrip transaction cost, i.e., the cost of buying and selling a property, ranges from 6.88% to 11.04%. Transfer tax is levied at a flat rate 3% as of 01 January 2014.
Tenant protection laws are neutral in Greece
Rent: Rents are freely negotiable between the tenant and the landlord. There is no legal limit on the deposit.
Tenant Security: All residential rentals have a minimum legal duration of three years. If a contract for a lesser period is negotiated, the three years period applies to the landlord, but not to the tenant. A contract for three years or longer terminates automatically at the end of the contract period, without need for notice.
Greek economy continues to recoverThe Greek economy grew by around 1.6% in 2017, according to the European Commission - in contrast with last year’s 0.2% contraction. The recovery is expected to continue this year with a projected real GDP growth rate of 2.5%, mainly due to an upsurge in tourism.
The economy is expected to grow further by another 2.5% in 2019.
“The prospects of the Greek economy over the next months are overall good for several reasons. First of all economy starts from a low base, then there are some reforms that have been having a positive impact, but primarily there is political stability,” said Nikos Vettas of Athens-based think tank Foundation for Economic and Industrial Research (IOBE).
“There is not much controversy to the EU partners, Greece is also benefitting from the external environment which has been positive,” Vettas added.
After a short-lived recovery in 2014, Greece’s economy returned to recession in 2015, with GDP contracting by 0.2%, amidst the imposition of capital controls and the shutting down of most of its banks. Before this, the country’s real GDP had contracted by 3.2% in 2013, 7.3% in 2012, 9.1% in 2011, 5.5% in 2010, 4.3% in 2009 and 0.3% in 2008, according to the IMF.
Greece saw a budget deficit of 1.2% of GDP in 2017, in contrast to a surplus of 0.5% of GDP in 2016, according to the European Commission. The country is, however, expected to return to a budget surplus this year, equivalent to 0.9% of GDP.
The national debt was 180.2% of GDP in 2017, from 159.6% of GDP in 2012 and 103.6% of GDP in 2006, according to the IMF. However, the country’s debt is expected to fall to 177.8% of GDP this year and to 170.1% of GDP in 2019, according to the European Commission.
The seasonally-adjusted unemployment rate stood at 20.7% in October 2017, down from 23.3% in the same period last year but still far higher than the average of just 9.6% between 2001 and 2009. The jobless rate is expected to remain above 20% this year.
Consumer prices in Greece are also rising gradually. Nationwide headline inflation stood at 0.7% in 2017, up from zero inflation in 2016, -0.2% in 2015, -2.6% in 2014, and -1.7% in 2013, according to the Hellenic Statistical Authority.