House price growth slowing
House prices are still rising in Greece, but there’s been an obvious slowdown. Prices barely rose during the first quarter of 2007, and the y-o-y increase in prices to Q1 was 7%. All indications are that the trend is down.
These figures are for ‘other urban areas’ – bizarrely, no official house price statistics are now reported by the Bank of Greece for Athens. In fact, Athens house prices appear to be slowing earlier than the rest of Greece.
Average annual GDP growth from 1995 to 2005 was 3.8%, among the highest in the EU and OECD. The economy grew by 4.2% in 2006 and is expected to expand by 3.9% in 2007. From 1994 to 2005, real wages were rising by an average of 7.5% annually. Real wage growth in 2006 was 5.8%
With Greece’s accession to EU membership, a remarkable drop in interest rates was observed, around 8 percentage points between 1995 and 2002. In May 2007, mortgage rates on new loans ranged from 4% to 4.56% while rates for outstanding loans ranged from 4.70% to 5.56%. Financial liberalization has led to lower interest margins on mortgages and higher loan-to-value ratios.
The rise in house values has produced a substantial wealth effect for homeowners, as housing is the single biggest component of household wealth, comprising 80% to 90% of total household wealth, according to the National Bank of Greece. Homeownership rate is high at 80% of all households.
Cradle of Civilization
There is also remarkable demand for real estate in Greece’s southernmost and biggest island, Crete. Known as the Cradle of European Civilization, Crete is a popular tourist destination. Britons and Northern European love the long, hot summers and wonderful beaches. Also popular among tourist are the Ruins of the ancient Minoan civilization.
Prices in Crete are still low compared to more popular sites in Southern Europe such as Spain, France and Italy. Holiday homes and villas are sold at around €900 to €1,500 per sq. m. This is much lower than the prices of coastal Spanish properties, at €2,500 to €3,000 per sq. m., according to Global Property Guide figures.
Even properties in Athens, the capital of ancient and modern Greece, are relatively low. City-centre condominiums are priced at around €1,400 to €1,850 per sq. m.
High transaction costs
According to a research by Global Property Guide, Greece has one of the highest roundtrip transaction costs in Southern Europe at 15.5%. And if the property is new, total costs are much higher because of the 19% VAT imposed in lieu of transfer taxes (7% to 11%).
Issues of property ownership tend to dampen demand. The lack of a central land registry and complicated inheritance laws lead to spurious and unreliable titles. Several family members are often signatories to titles and deeds.
Further, non-EU nationals must seek special permits from the Local Council for the acquisition of properties near national borders and in some islands. Foreigners also need a permit to rent out their property.
With strong demand, sharp price increases were observed in Crete. Real estate agents reported 30% to 40% annual price rises in the past for properties near the sea. The boom has been facilitated by improvements in local infrastructure and building quality.
