Greece is one of the last real estate markets in Europe that is still seeing a capital drought and has not recovered since 2008. Prices of real estate in Athens are 42% below pre-crisis levels.

Today, property in Greece is several times cheaper than in most of its neighbouring countries. According to Statista, it is one and a half times cheaper than in Spain and Germany, twice less than in the Netherlands and Sweden and almost three times cheaper than in Italy and Austria. But why is this so? 

Demand

The global financial crisis, which began in 2008, exacerbated Greece’s budget deficit and external debt obligations, which exceeded 145% of GDP by 2010, resulting in nationwide economic collapse. Moreover, the foundation of these problems was laid in the Greek economy long before the recession entered an acute phase in 2010. The government distorted economic statistics and declared a budget deficit of about 3% of GDP. This allowed Greece to pursue a policy of active borrowing, which helped to cover the real gap in the budget. One of the consequences of this behaviour was a sharp drop in property prices, which led to a collapse of the real estate market.

1. Fall in real incomes

The crisis hit all branches of the economy, and prompted a series of bankruptcies of enterprises and layoffs. In 2008 The unemployment rate in Greece grew from only 7.6% in 2008 to 27.8% in 2013. According to Statista, the average income reached its lowest in 2013, having fallen by 22% from 2009 to €17,400.

Problems related to the payment of public debt forced the government to reduce state support programs, subsidies and salaries of civil servants. According to Greek Reporter, the number of public sector employees fell from 936,000 in 2011 to 567,000 in 2016.

2. Credit problems 

A collapse in global capital markets forced investors to pursue a more restrained policy, even for large institutional borrowers such as sovereign investment funds. Against the backdrop of the scandal over the falsification of state statistics, investors were even more seriously concerned about the possibility Greece failing to fulfil its debt obligations. This revaluation of risks led to investors selling their Greek bonds en masse, boosting their yield to almost 40% in 2012. This affected liquidity in Greek markets. This also affected the sale of Greek corporate bonds, boosting their profitability and increasing the cost of business lending at times. The increase in interest rates in the corporate sector made retail and mortgage lending less affordable. As a result, there were fewer property transactions.

3. Tax hikes

To reduce its budget deficit, the Greek government was forced to raise taxes. As a result, the public has even less disposable income. Income taxes were about 27% in 2006, but grew to 34% by 2014, which had a negative impact on the purchasing power of the population. Simultaneously, the state raised taxes on real estate and taxes for non-residents, which were raised almost threefold.

4. Emigration

According to Greek media reports, more than 5% of the indigenous population of Greece (about 500,000 people) have left the country since 2007, which added to the weakening domestic demand for residential real estate.

The combination of these factors caused a sharp drop in property demand. As a result the number and volume of transactions decreased. According to PwC, the number of real estate transactions in Greece decreased by 72% between 2008 to 2014, with the average transaction value falling from €158,000 to €45,000.

Supply

1. Overabundance of housing

Fuelled by a growth in mortgage lending, the real estate market in Greece experienced a boom in the early 2000s, becoming one of the main sectors for investment.

From 2002 to 2007, the volume of affordable housing increased by about 1.5% per year. Even after 2008, when the pace of construction slowed, developers continued to launch new construction projects.

Today there are about 6.4 million residential properties in Greece, or approximately 71 housing units per 100 people or 1.7 per family. In the EU, there are 60 properties for every 100 European residents (2014 data).

2. The implementation of collateral real estate

The dire economic situation meant that people were unable to pay back their loans. The share of non-performing loans reached a critical level of 51% in 2015.

In cases when people or companies were unable to service their mortgages, a bankruptcy procedure followed, followed by the sale of collateral. As a result, many properties were put onto the market. As banks and financial institutions tried to get rid of non-core assets as quickly as possible, these properties were often sold at deep discounts, which only exacerbated the fall in prices.

Why the situation will improve

• Since 2010, the Greek government has taken many measures to reduce public debt and its budget deficit. This has produced results – the International Monetary Fund (IMF) has forecast Greece to achieve 1.8% GDP growth in 2017, and 2.6% in 2018.
• A strong fall in the value of Greek assets (along with an ease in social tension) is making them more attractive to foreign investors. According to a press release from the Greek Ministry of Economy, foreign direct investment is expected to reach €4 billion in 2017, which is 42% more than in 2016.
• Austerity measures adopted by Greek government yielded dividends in form of a surplus in the state budget, even though this exacerbated the decline in demand at the height of the crisis several years ago. The parallel development of privatisation programs allowed the state to receive additional revenue, and also attracted large foreign investors to participate in the development of transport and energy infrastructure in Greece. For example, Chinese company COSCO acquired 51% of the Port of Piraeus, Italian company Ferrovie dello Stato Italiane bought out Greek railway operator TrainOSE, and the joint venture Fraport Greece began managing 14 state airports.



• According to the World Tourism and Travel Council, the number of international tourists grew from 14.9 million in 2009 to 24.8 million in 2016. This has caused an increase in demand for short-term rental properties, despite higher taxes. This makes residential property more attractive for investment. In October 2017 media published news about a Chinese investor who acquired more than 100 apartments in central Athens, in the neighbourhood of Exarchia in one transaction.
• Greece’s "Golden Visa" program, launched in 2013, is attracting private investors to the country’s residential and commercial real estate market. As of September 2017, 2014 primary applicants have received a Greek residency permit.
• Greek government bonds have stabilised at 2-6%, depending on maturity. In July 2017 the country has managed to place five-year government bonds on the market with a 4.5-5% yield for the first time in three years. As such, Greece has restored access to low-cost external financing, which is having a positive effect on private and corporate lending. 

• The unemployment rate improved from 27.8% in 2013 to 20.6% in 2017. Although the Greek labour market cannot be called positive, the peak of the employment crisis has passed.
• In 2014 the Greek government adopted amendments to legislation relating to how it deals with non-performing loans (NPL). The amendments simplify the procedure for selling NPL and protect borrowers from the forced sale of collateral. The amendments also allowed the Greek government to set up specialised institutions to purchase and manage portfolios with bad debts. In the future, this will allow private banks to “clear” their balance sheets and reduce the required reserves to further reduce the cost of financing loans.

The measures taken by the Greek government under the pressure of its EU creditors have helped the country avoid bankruptcy. Greece has moved on from resolving issues related to its creditors and avoiding bankruptcy and is now looking for sources of economic growth. The stage is set for a rapid recovery, and an increase in property prices should soon follow.

Artem Shitkov, real estate analyst at Tranio.com