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Greek house prices are rising again, as economy continues to recover

Lalaine C. Delmendo | February 02, 2019

Greece house pricesAfter seven years of falling house prices, things are turning around, thanks to improving economic conditions.

In Greece’s urban areas, house prices rose by 2.51% during the year to Q3 2018, the highest annual increase in house prices since Q1 2008, according to the Bank of Greece. When adjusted for inflation, house prices increased 1.53%. Quarter-on-quarter, house prices in urban areas were up 1.2% in Q3 2018 (2.01% in real terms).

This improvement was also seen in the major cities:

  • Athens led the country’s housing market with an annual house price increase of 3.71% in Q3 2018 (2.71% in real terms). In fact, it was the capital’s best performance since Q4 2007. During the latest quarter, house prices rose 1.65% (2.48% in real terms).
  • In Thessaloniki, the country’s second largest city, house prices rose by 1.9% (0.9% in real terms) y-o-y in Q3 2018, in contrast to last year’s 1.3% annual fall - the highest growth since Q1 2008. Quarter-on-quarter, prices increased slightly by 0.5% (1.3% in real terms) in Q3 2018.
  • In other cities (excluding Athens and Thessaloniki), house prices rose 1.2% (0.2% in real terms) during the year to Q3 2018, an improvement from y-o-y decline of 0.5% a year earlier. In a quarterly basis, prices increased 0.6% (1.4% in real terms) in Q3 2018.

Greek residential property prices have fallen by 42.7% (-46.3% in real terms) from 2008 to 2017.

During the first eight months of 2018, the number of residential property transfers recorded at the Athens land registry surged by 59.6% from a year earlier.

During the first nine months of 2018, the total number of construction permits rose by 9% to 10,817 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. In 2018, the 6.3 million property owners in Greece are being required to pay a total of €3.15 billion in property tax (ENFIA), up from €500 million in 2009. Rental taxes have also increased. For the first €12,000 annual rent revenues, the tax rate 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 2% in 2018, according to the European Commission (EC) – an improvement from last year’s 1.5% expansion and the highest growth since 2007. After a short-lived recovery in 2014, Greece’s economy returned to recession in 2015, with GDP contracting by 0.3% and by another 0.2% in 2016, amidst the imposition of capital controls and the closure 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.

The EC expects the Greek economy to grow by 2% this year but the International Monetary Fund (IMF) is more optimistic, projecting 2.4% growth.

Tracking the decline

Greece price dwellings index

Once upon a time Greece was a happy country, and property owners were specially 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 house price for in Athens:

HOUSE PRICE INDEX, ANNUAL CHANGE (%)

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 -0.39 -1.21
Sources: Bank of Greece, Global Property Guide

Between 2008 and 2017, house prices in Athens fell by 44.1% (-47.6% in real terms).

The great Greek debt crisis

Greece’s debt problem is deeply rooted and, unfortunately, there is no easy solution.

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.

Greece budget deficit

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.

Euro adoption by Greece led to a cycle of debt-financed growth and deficit-spending. Access to cheap funds allowed it to continually pump-prime the economy, leading to higher growth.

With higher growth, government officials found it right to reward themselves with higher incomes and pensions and generous leave credits and bonuses. The bureaucracy was also bloated and overstaffed.

The increase in spending pushed the national debt from €224.2 billion in 2006, to €319.2 billion in 2013, a 42.4% increase. By 2018 is had reached €344.4 billion. In terms of percentage share of GDP, national debt went up from 103.6% of GDP in 2006 to 183.5% of GDP in 2016. The national debt declined slightly to 181.8% of GDP in 2017 but was estimated to have risen again to 188.1% of GDP last year.

Greece’s bailout finally ends

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.

Seeking a fresh mandate, the New Democracy Party called for a snap election two years earlier than required, and was soundly defeated by the Pan-Hellenic Socialist Movement (PASOK) headed by George Papandreou, who then became prime minister. But after assuming office in October 2009, 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.

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 4% economic contraction in 2010.

Violent protests, rallies, and strikes followed.

The EU offered another bailout loan worth €130 billion in February 2012, saving the country from leaving the Euro. The bailout loan, however, included as condition that Greece should approve a further austerity package.

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.

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.”

“Greece’s economy is growing again, there is a budget and trade surplus, and unemployment is falling steadily,” said Mário Centeno, the chair of the European Stability Mechanism.

Construction activity rising again

Greece building permits

Residential construction in Greece is rising again, after almost a decade of declining activity. In 2017, building permits rose by 9% y-o-y to 13,785 units, after annual 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. During the first nine months of 2018 (based on figures from Hellenic Statistical Authority):

  • Number of permits: 10,817 units, up 9% from a year earlier
  • Floor space: 2.35 million sq. m., up 17.9% from a year earlier
  • Volume: 10.17 million cu. m., up 15.7% from a year ago

Mortgage interest rates remain low

Greece interest rates

For new housing loans, the average interest rate with initial rate fixation (IRF) of up to one year stood at 2.92% in November 2018, up from 2.67% in November 2017 but far lower than the interest rate of 5.35% in November 2008.

There are no interest rate figures for loans with longer IRFs, which implies that lending for these types of loans might have ground to a halt.

For outstanding housing loans:

  • Average mortgage rates for loans with IRF of between 1 and 5 years stood at 4.58% in November 2018, up from 3.99% in November 2017 but still down from 5.36% in November 2008.
  • Average mortgage rates for loans with IRF of over 5 years declined to 2.13% in November 2018, down from 2.35% in November 2017 and 5.08% in November 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.

Mortgage market continues to shrink

Greece new housing loans

The size of the mortgage market was equivalent to around 31% of GDP in 2018, the lowest level since 2009. Outstanding housing loans fell by 3.4% to €56.82 billion in November 2018 from a year earlier, according to Bank of Greece. Outstanding housing loans are down by almost 29% from the peak in 2010.

By maturity:

  • Up to 1 year: €780 million in November 2018, down 5.6% from a year earlier
  • 1-5 years: €953 million, down 16.1% from a year earlier
  • Over 5 years: €54.91 billion, down 3.1% from a year ago

The new loans market has virtually collapsed.  New housing loans did rise during the first eleven months of 2018 by 5% y-o-y, to €475.6 million.  However contrast this tiny figure with €6.6 billion loans in 2010 and €15.4 billion loans in 2006.   

Many house-owners cannot repay. Greek banks hold about €108 billion in bad loans, just under half of all loans given out. Of these, around 41% are delinquent mortgages.

Greece housing loans

The percentage of non-performing housing loans increased to 33.2% in 2017, from 32.4% in 2016, 31.8% in 2015, 28.6% in 2014, and 10% in 2010, according to the Bank of Greece.

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.

The "Katselis Law", enacted in 2010, provides 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. However these homeowners must pay at least 10% of their net monthly income towards their mortgage.

The law expired at the end of December 2018 but extended for another two months for the government to prepare a new protection model for primary residence owners.

Moderate rental yields; falling rents

Greece residential 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 of August 2018.

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%.

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

In Q3 2018, the central bank’s rent index for dwellings dropped 3.7% from a year earlier, after annual declines of 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 the Greeks are homeowners, with a homeownership rate of 73.3% in early-2018, according to the Eurostat. The rental market comprises about 20% of the dwelling stock.

Rapid urbanization has led to a sharp dichotomy between urban and rural areas. A report in 2001 revealed that around 34% 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, dwellings 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 the real estate’s value was clearly insufficient in reducing the high transaction cost, which adds to the burdens of first-time homebuyers.

Greek economy returns to growth

Greece gdp inflation

The Greek economy grew by around 2% in 2018, according to the European Commission (EC) – an improvement from last year’s 1.5% expansion and the highest growth since 2007. The EC expects the Greek economy to grow further by another 2% this year but the IMF is more optimistic, projecting a 2.4% growth.

After a short-lived recovery in 2014, Greece’s economy returned to recession in 2015, with GDP contracting by 0.3% and by another 0.2% in 2016, 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 surplus of 0.6% of GDP in 2018, after surpluses of 0.8% in 2017 and 0.6% in 2016, according to the European Commission. Greece registered an average budget deficit of 9.7% annually from 2009 to 2015. The county is expected to remain in surplus in the next two years.

Greece unemployment

The country’s debt is expected to fall to 174.9% of GDP this year and to 167.4% of GDP in 2020, according to the European Commission, down from 182.5% of GDP in 2018.

Unemployment was 18.6% in September 2018, down from 20.8% a year earlier, according to the Eurostat.

Inflation was 0.6% in 2018, from 0.7% in 2017, zero inflation in 2016, according to the Hellenic Statistical Authority. Inflation is projected to accelerate to 1.2% this year.

SOURCES:
Bank of Greece. Real Estate Market Analysis
Bank of Greece. Financial Markets and Interest Rates
Bank of Greece. Monetary and Banking Statistics
European Commission. Economic forecast for Greece
Global Property Guide. Rental returns are moderate in Greece
Hellenic Statistical Authority. Consumer Price Index (CPI) – National Index/December 2018
Hellenic Statistical Authority. Monthly Private Building Activity, number of permits, surface and volume, 2007-2017
International Monetary Fund. World Economic Outlook Database October 2018
Trading Economics. Greece Homeownership Rate

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