Pandemic slows house price growth in Greece

Lalaine C. Delmendo | March 02, 2021

Greek house prices are still rising, but more slowly than last year.  2019 was a year of an amazing recovery in house prices, but since then house price rises have been slowing amidst the imposition of strict lockdown measures to prevent the spread of the new coronavirus.

In Greece’s urban areas, house prices rose by a modest 3.38% during the year to Q3 2020, less than the previous year’s 8.49% growth and the slowest expansion in two years, according to the Bank of Greece. When adjusted for inflation, house prices rose 5.38%. Quarter-on-quarter, house prices in urban areas were up slightly by 0.56% in Q3 2020 (2.3% in real terms).

Greece house prices

This slowdown was also seen in the major cities:

  • Athens led with an annual house price increase of 5.61% in Q3 2020 (7.65% in real terms) but it was a sharp slowdown from the prior year’s 11.66% growth. During the latest quarter, house prices rose by 0.73% (2.47% in real terms).
  • In Thessaloniki, the country’s second largest city, house prices rose by 4.26% (6.28% in real terms) y-o-y in Q3 2020, a slowdown from an annual rise of 7.75% in Q3 2019. Quarter-on-quarter, prices increased slightly by 0.1% (1.9% in real terms) in Q3 2020.
  • In other cities (excluding Athens and Thessaloniki), house prices fell slightly by 0.35% (but increased 1.58% in real terms) during the year to Q3 2020, in contrast to a y-o-y rise of 5.37% a year earlier. During the latest quarter, prices increased 0.5% (1.58% in real terms) in Q3 2020.

Greek residential property prices fell 42.5% (-47.7% in real terms) from 2007 to 2017. The housing market started to recover in 2018, with house prices in urban areas rising by 3.51% and by another 7.56% in 2019. In fact, Athens registered an even stronger house price growth of 11.57% in 2019 (11.47% inflation-adjusted).

Foreign demand has fallen sharply due to closed borders and other coronavirus-related measures. In the first three quarters of 2020, capital inflows from abroad for the purchase of properties declined 42.5% from a year earlier, to just €593 million. But it remains 43% higher than the 2017 level.

The property market accounted for 25.3% share of total foreign direct investments (FDI) in Greece, down from 32.3% in the previous year.  Revenues from the Golden Visa program plunged, with the number of permits issued in 2020 unlikely to exceed 20% of the total in 2019. In 2019, a record number of permits were issued, at 3,428, with about €1 billion investments, according to the Migration Policy Ministry. However in the first nine months of 2020, only 368 permits were issued.

The Golden Visa program was launched in 2013 to revive the housing market from a prolonged slump. It offers residency to non-EU investors purchasing or renting property worth over €250,000, similar to Hungary, Spain and Portugal. The plan is valid for five years and is open to renewal.

The government is now considering the introduction of new incentives for foreign investors.

Construction activity remains robust despite the pandemic. During the first nine months of 2020, the number of permits rose by 15.5% y-o-y to 13,568 units, following annual rises of 13.5% in 2019, 10.1% in 2018 and 9% in 2017, according to the Hellenic Statistical Authority. The floor space and volume of permits also increased by 14.5% and 10.7%, respectively. But the total is far below the 70,000 to 80,000 permits issued annually from 2004 to 2007.

Greece, which saw a quarter of its GDP shattered by almost a decade of financial crisis, finally emerged from recession in 2017 – growing by 1.5% in 2017 and by 1.9% annually in 2018 and 2019.  But the Greek economy is believed to have contracted by 9.5% in 2020, mainly due to the adverse impact of the COVID-19 pandemic, according to the International Monetary Fund (IMF). In fact, in the central bank’s latest view, the economy is projected shrink by as much as 11%.

Tax cuts boost the housing market

Aside from the Golden Visa program, several other measures introduced by Prime Minister KyriakosMitsotakis of the centre-right New Democracy party have buoyed the housing market recently:

  • Suspension of VAT payments on new building permits: Mitsotakis announced in October 2019 a three-year suspension of VAT payments on any new building permits and unsold properties built after January 1, 2006.
  • Reduction of the single property tax (ENFIA): The ENFIA for individuals was reduced last year: 30% reduction for properties valued up to €60,000; 27% for those valued up to €70,000; 25% for those valued up to €80,000; 20% for those valued up to €1 million; and 10% for properties valued more than €1 million. A further 10% reduction, on average, will apply on all property owners from the year 2020.

High property taxes had discouraged many potential buyers, because property taxes had increased seven times since the global financial crisis.

Reducing taxes has been one of the priorities of the Mitsotakis government.

Moderate rental yields; stable rents

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, according to Global Property Guide research.

The gross rental yield for apartments located in suburbs of Athens is slightly higher, at about 4.5%.

Houses in the suburbs have very low yields, ranging from 2.6% to 3.2%.

Greece residential rents

In Crete, gross rental yields of apartments are around 3%. As in Athens, smaller apartments tend to earn higher yields.

During 2019, the central bank’s rent index for dwellings was unchanged after many years of rent declines:  there were annual rent declines of 3.2% in 2018, 2.2% in 2017, 2.6% in 2016, 4.4% in 2015, 7.7% in 2014, 6.8% in 2013, and 2.1% in 2012, according to the Bank of Greece.

In Athens, monthly rents per sq. m. range from around €9 to €16 per sq. m., according to Global Property Guide. In Crete, monthly rents per sq. m. of apartments range from around €4 to €7 per sq. m.

Around three fourths of Greeks live in owned homes, with an expected homeownership rate of 72.4% by end-2020, according to Trading Economics. The rental market comprises about 20% of the dwelling stock.

Rapid urbanization has led to a sharp dichotomy between urban and rural areas. Based on the 2011 census, more than 35% of the housing stock is vacant, mostly in rural areas. These units are typically dilapidated, or in need of total rehabilitation.

On the other hand, dwelling units in urban areas are amongst the most crowded in Europe. Most children continue to live with their parents after they enter adulthood. The reduction of notary fees from 1.2% to 1% of real estate’s value was clearly insufficient in reducing the high transaction cost, which adds to the burdens of first-time homebuyers.

Housing boom and bust

Once upon a time Greece was a happy country, and property owners were especially happy! Real estate agents reported 30% to 40% annual price rises for properties near the sea in 2004. In Athens, house prices rose 11.2% in 2006, before slowing to 6.2% in 2007.

When the crisis hit, residential property prices began falling dramatically. Here are the house prices in Athens in the past decade:


Year Nominal Inflation-adjusted
2008 -0.77 -3.57
2009 -4.21 -6.04
2010 -5.83 -10.40
2011 -8.00 -10.49
2012 -12.91 -13.88
2013 -11.45 -9.47
2014 -6.80 -5.04
2015 -4.99 -4.41
2016 -0.91 -0.47
2017 -0.45 -1.27
2018 4.67 3.53
2019 11.57 11.58
Sources: Bank of Greece, Global Property Guide

Between 2007 and 2017, house prices in Athens fell by 44.5% (-49.5% in real terms).

Greece price dwellings index

The housing market started to recover in 2018, with house prices in Athens registering an increase of 4.67% (3.53% in real terms). In 2019, house price rises in the city centre accelerated by 11.57% (11.58% in real terms).

Why Greece had eight years of crisis

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 official currency. Euro adoption brought access to cheap funds allowing the Greek government to pump-prime the economy.

In November 2004, however, Greece admitted that it had fudged its figures to gain entry into the Eurozone. Since 1999 its budget deficit had never been within 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.

When it became clear that the spending spree was unsustainable, creditors and the EU together with other international institutions such as the IMF demanded that Greece cut its spending, including wages and pensions.

This was met with severe resistance, manifested in public protests and rioting.

After assuming office in October 2009, Prime Minister George Papandreou revealed that the deficit was much higher than the previous government had claimed. He vowed to downsize the public sector and fight rampant tax evasion.

Greece budget deficit debt

In May 2010, European leaders and the International Monetary Fund (IMF) agreed to a three-year, €110 billion bailout for Greece which was tied to additional austerity measures. These moves lead to a 5.5% economic contraction in 2010, following a decline of 4.3% in 2009.

Violent protests, rallies, and strikes followed.

The continued demand for cuts and more cuts in the face of already-high levels of public misery led to the rise of the radical leftist party Syriza, a coalition of diverse elements. Its leader, Alexis Tsipras, led Syriza to victory when the government’s majority collapsed. Syriza assumed office on January 26, 2015.

Despite Tsipras having earlier pledged "No more bailouts, no more submission, no more blackmailing," Greece and its creditors agreed a third bailout worth €86 billion in August 2015, imposing further spending cuts. As part of the deal, the government passed a pension and tax reform bill in May 2016, which aimed to raise taxes and increase social security and pension contributions for most Greeks to bring about €5.4 billion in budget savings.

Greece exited bailout program, finally!

The economy started to recover in 2017, registering real GDP growth of 1.5%, followed by expansions of 1.9% annually in 2018 and 2019.  In August 2018, Greece finally exited its eight-year bailout program. But it remains subject to scrutiny from its European creditors.

“We have had eight very difficult years, often very painful years, where we have had three successive programmes. But now Greece can finally turn the page in a crisis that has lasted too long,” said Pierre Moscovici, the European commissioner for economic and financial affairs. “The worst is over.”

The government’s finances were improving. Greece had budget surpluses of 0.5% of GDP in 2016, 0.7% in 2017, 1% in 2018 and 1.5% in 2019. Public debt also dropped to 180.9% of GDP in 2019, from 184.8% in 2018.

In the July 2019 elections, centre-right New Democracy party won a landslide victory receiving 39.7 of all votes, defeating Tsipras’ incumbent leftwing Syriza party. Its leader, KyriakosMitsotakis became the new prime minister. The New Democracy’s victory was mainly attributed to Mitsotakis’ efforts to persuade centrists and to the conservatives’ ability to obtain votes from Golden Dawn by taking a tough stance on immigration and on an accord struck by Tsipras resolving a long-running name row over Macedonia, Greece’s neighbor to the north.

Greek economy to see its worst contraction this year

With the second wave of the virus forcing the government to impose a new set of lockdown measures, the pandemic now threatens to undo all the improvements achieved in recent years and in fact, could make things worse.

The Greek economy is expected to contract again by a huge 9.5% in 2020, according to the International Monetary Fund (IMF) – in contrast to last year’s 1.9% growth. In fact, in the central bank’s latest forecast, the economy is now projected shrink by as much as 11%.

Greece gdp inflation

In September 2020, Mitsotakis announced an additional stimulus package worth €6.8 billion to fight the impact of the COVID-19 pandemic on the economy. This is on top of the €24 billion aid unveiled in spring.

Greece is projected to record a budget deficit of 6.9% of GDP this year, in stark contrast to a surplus of 1.5% in 2019, according to the European Commission.

The country’s debt is expected to surge to 207.1% of GDP this year, according to the European Commission, sharply up from 180.9% in 2019 and 184.8% in 2018.

Greece unemployment

Unemployment was 16.1% in September 2020, down from 16.5% in the previous month and 16.9% a year earlier, according to the Hellenic Statistical Authority. Despite this, Greece’s jobless rate remains one of the highest in the EU.

Overall inflation stood at -2.1% in November 2020, down from 0.2% a year earlier, according to the Hellenic Statistical Authority. Inflation is projected to slow to -1.3% this year from 0.5% in 2019, based on projections from the European Commission.

Mortgage loans continue to fall, despite very low interest rates

The new loans market has virtually collapsed. New housing loans fell sharply by 12.8% y-o-y during the first ten months of 2020, to €382.6 million, continuing the declines of recent years. Contrast this tiny figure with €6.6 billion loans in 2010 and €15.4 billion loans in 2006. Outstanding housing loans were down by more than 38% in 2020 from the peak in 2010.

Greece new housing loans

The average interest rate for new housing loans with initial rate fixation (IRF) of up to one year stood at 2.49% in October 2020, down from 2.91% a year earlier and far lower than the interest rate of 5.92% in October 2008. For new housing loans with IRF of 5-10 years, the average interest rate was 3.46% in October 2020, down from 4.85% in October 2016 and 5.48% in October 2008.

For outstanding housing loans:

  • Average mortgage rates for loans with IRF of between 1 and 5 years stood at 4.18% in October 2020, down from 4.35% in October 2019 and still lower than the interest rate of 5.54% in October 2008.
  • Average mortgage rates for loans with IRF of over 5 years declined to 2.01% in October 2020, slightly down from 2.06% in October 2019 and 5.19% in October 2008.

The Greek housing market is vulnerable to interest rate movements as the majority of housing loans have an IRF of up to one year only. Since the second half of 2009, 70% or more of new housing loans have had interest rates adjustable at least annually.

Greece interest rates

By maturity (euro-denominated housing loans from domestic credit institutions) the present situation is:

  • 1-5 years: €384 million, down 39% from a year earlier, according to Bank of Greece
  • Over 5 years: €43.96 billion, down 5% from a year ago

Since the global financial crisis, cash-basis property transactions have accounted for about 80% of all transactions with only 20% relying on bank loans, according to the Bank of Greece.

Construction rising

Despite the weak mortgage market, residential construction in Greece is rising again, after almost a decade of declining activity. In 2019, building permits rose by 13.5% y-o-y to 17,229 units, following annual growth of 10.1% in 2018 and 9% in 2017 and y-o-y declines of 5.3% in 2016, 0.6% in 2015, 18.2% in 2014, and 28.1% in 2013. Despite this, it remains far lower than the 70,000 to 80,000 permits issued annually from in 2004 to 2007.

The recovery extended last year, despite the pandemic. During the first nine months of 2020 (based on figures from Hellenic Statistical Authority):

  • Number of permits: 13,568 units, up 15.5% from a year earlier
  • Floor space: 2.86 million sq. m., up 14.5% from a year earlier
  • Volume: 12.35 million cu. m., up 10.7% from a year ago

Construction activity has partly been buoyed by Mitsotakis’ announcement of the suspension of VAT on new properties and on unsold properties built after January 1, 2006. The suspension runs for three years, between December 12, 2019 and December 31, 2022.

Greece number of permits

The VAT exemption is also applicable to situations known as “antiparochi”, where owners provide land to builders in exchange for a number of future apartments.

The Greek banking system improving gradually

While the country’s banking system is still among Europe’s weakest, Greek banks continue to make improvements in reducing their bad loans to sustainable levels. From almost half of total loans in 2016, the ratio of non-performing loans (NPLs) to total loans fell to about 35% at the start of 2020. Yet this remains very high as compared to the EU-wide ratio of below 3%.

If several transactions will be finalized this year, the NPL ratio will fall closer to 20%. In late-November, Alpha Bank, one of the country’s four biggest lenders, announced that it was in the final stages of selling NPLs worth €10.8 billion to U.S. investment firm Davidson Kempner Capital Management LP – it would be the largest-ever NPL sale in Greece. Two more big banks, National Bank of Greece and Piraeus Bank, each plans to sell about €7 billion NPLs this year.

All of these transactions will be under Hercules – a new state-supported securitization program designed to help Greek banks rid themselves of toxic debts. Approved in October 2019, Hercules Asset Protection Scheme allows the Greek government to guarantee a portion of bad loans that banks sell on to investors. It would enable Greek banks to reduce bad loans by up to €30 billion.

Greece housing loans

The scheme was first used by Eurobank SA in June 2020 to dispose of €7.5 billion bad loans.

The “Katselis Law” or Household Insolvency Law, enacted in 2010, provided protection for primary residences, especially to families with incomes below the poverty line. The law freezes foreclosures on houses with outstanding mortgage debt worth up to €200,000, where a family’s annual income is lower than €35,000. The law expired at the end of February 2019.

Banks have started to help solve the problem and sold €12.5 billion of NPLs to investors in 2018, according to Evercore. But this is not enough to bring the amount of bad loans at sustainable levels.

“The four systemic banks have agreed among themselves to reduce the non-performing loans between now and 2021 by €50 billion,” said the CEO of Piraeus Bank.

“€50 billion is almost 28% of the GDP of this country. It is a significant percentage vis-à-vis the actual percentage being produced by this country,” the Piraeus Bank CEO added. The four banks include the National Bank of Greece, Piraeus Bank, Eurobank, and Alpha Bank.

The pandemic is forecast to add €5 billion in total new NPLs - not so much, compared to the €61.3 billion NPLs  already in the Greek system as of June 2020, according to the ECB.


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