Y-o-y rise in nominal apartment prices in 2019
Increase in construction activity in 2018
Contribution of construction sector
Number of homes put on home-sharing platforms across Greece (between June 2018 and May 2019)
Real estate has once again become a dinner-table conversation topic in Greece.
Prices in residential housing are on the up, institutional investors are busy hunting around for prime assets, and foreign buyers are snapping up hotels. But problems in the industry remain, and their resolutions may be far off.
Low disposable income levels are holding back pent-up demand, taxes remain high, and bank lending low.
Real estate took a strong beating during the country’s crisis. Prices in housing between 2008 and 2017 plummeted by 42%. Most Greeks simply turned their backs on the asset class. According to some estimates, 280,000 Greeks rejected property inheritances between 2017 and 2018, unable to pay the taxes attached to the home.
The biggest burden for many is the Enfia property tax. Introduced in 2011 as part of austerity measures, Greece saw its implementation a necessity to clinch rescue funding from international creditors and avoid going bankrupt.
Higher taxes and weak market conditions created big problems for many households in Greece – a country where home ownership rates are among the highest in Europe.
But in 2018, market dynamics shifted. For one thing, Greece’s economy began to grow again. And as Greece exited the last of its bailout programmes, it was clear that the country had left the worst of the crisis – and with it, the risk of falling out of the eurozone – behind. Two other factors were also helping: Greece’s strong tourism sector, which is giving a strong boost to the short-term rental market, and the country’s visa-for-investment programme, Golden Visa.
In 2018, the property market broke its record slide. According to the Bank of Greece’s (BoG) Deputy Governor, Theodoros Mitrakos, apartment prices increased at an accelerating pace in individual quarters, recording an average annual rate of 1.8%. The upward trend continued in 2019, with provisional data indicating that nominal apartment prices increased by 7.2% versus 2018. The strongest price surge was registered in Athens and Thessaloniki, Greece’s second largest city.
The real estate sector’s upturn was also reflected in the number and volume of building permits, says Mitrakos, with growth rates of 59.3% and 43.2% registered in Athens and Thessaloniki, respectively, in the first ten months of 2019, against the same interim in 2018.
And it appears investors are seizing the opportunity. Net capital inflows from foreign investors into domestic real estate increased by a staggering 55.1% in the first 9 months of 2019, versus the same period in 2018. A cut in the Enfia property tax is also seen as helping provide the market with a lift. In July 2019 the then-newly-elected conservative government, led by Prime Minister Kyriakos Mitsotakis, announced a cut to Enfia – a year ahead of schedule – by an average of 22% for property owners. The move is considered to benefit 3.9 million taxpayers.
Greece’s Finance Minister, Christos Staikouras, expressed his intention in January 2020 to further reduce Enfia However, the move is subject to additional fiscal space and a positive nod from Greece’s creditors in the Eurogroup set for March 2020.
The positive outlook of the Greek economy, improvement in households’ disposable income, increase in consumer confidence, and additional progress in the management of NPLs are all factors that are expected to exert a positive impact on internal demand and subsequently mortgage lending, explains Mitrakos.
“Needless to say, a positive boost will come from the implementation of a series of reforms, necessary to ensure a more investment-friendly environment. Finally, the recent suspension of Value Added Tax (VAT) on new constructions for three years and the reduction in property capital value taxation are expected to have a positive impact on the real estate market,” the deputy governor adds.
Credit ratings agency Moody’s also sees better days ahead for the housing market.
In April 2019, Moody’s Assistant Vice President-Analyst Miguel Lopez Patron said that expectations were set on housing prices continuing to rise during the following 12 to 18 months, bringing the trend well into 2020. He added, however, that this was expected to take place at a moderate pace given high taxes, a declining population, high interest rates on new mortgages, and limited expansion in bank lending.
The short-term rental market has brought on the largest changes seen in Athens’ real estate map in more than fifty years. The heart of Athens has become a hotspot for buyers. This is also the case in Athens’ southern coastal area, dubbed by some as the Athens Riviera.
Property experts say the Hellinikon real estate development, considered Europe’s largest urban regeneration project, will have a significant impact on the retail property market, especially on the Athens Riviera, pushing up prices further for both rental and residential properties for years to come. However, some property agents warn of a potential longer-term bubble in the making in certain areas where prices have already skyrocketed.
Meanwhile, in districts close to the Acropolis, such as Monastiraki, Psyri, Koukaki, and Thiseio, the number of homes available for sale has just about dried up. In some of these neighbourhoods, brokers reported price gains of approximately 27% during 2019.
The type of businesses operating out of the centre of Athens is also changing.
Supermarkets have popped up in a bid to meet demand from tourists staying nearby, while the number of restaurants and bars has also increased. Yet the spike in demand is pushing up rents for retailers and forcing some businesses, normally smaller family-run operations, to relocate. Also, specialised retailers such as hardware stores are closing to make way for tourist-orientated enterprises.
There is a big downside to this, point out traders, who say that central Athens may soon become overly catering to tourists and could soon lose its appeal among Athenians as a shopping district.
This would hurt property owners in the area should a downturn in the tourism sector hit.
According to a report by the Greek Tourism Confederation (SETE), during the period between June 2018 and May 2019, a total of 170,542 properties were leased for short-term rental via home-sharing platforms such as Airbnb and HomeAway. Revenues during the period totalled €1.15 billion.
Like in many parts of the world, short-term rentals on platforms such as Airbnb have provided many Greek homeowners with a financial boost.
And yet, not everything that glitters is gold. “The impact of Airbnb has been huge in many areas, especially downtown. Airbnb has driven rent prices up to very high levels, creating issues that include a decline in property availability for long-term rentals, says Vaggelis Kteniadis, President of V2 Development.
High supply levels have also started to take their toll, weighing on rental revenues. This is prompting more homeowners to rethink their strategy – considering pulling their apartment from the short-term rental market and leasing it again on a regular long-term agreement.
“The concept [the ‘Airbnb phenomenon’] had raised parts of the residential market from the dead, fuelling considerable rental and price increases in city-centre locations,” says Tassos Kotzanastassis, Chair of Urban LandInstitute Greece and Cyprus and Managing Director of 8G Capital Partners. “Intense competition, however, has caused daily rates to flat spin and it’s now apparent to many investors that operating costs are actually much higher than envisaged,” he adds.
Down by the Athens Riviera, demand has also picked up. Buyers from non-EU nations looking to clinch a residency permit in Greece via the Golden Visa programme are snapping up beachside properties in suburbs such as Glyfada and Voula.
Industry figures show that by the end of 2019 some 6,300 residency permits had been issued since the programme started in 2012, with Chinese investors leading the charge.
Greece broadened the criteria under which investors can qualify for residency permits in November, 2019, introducing options including buying government bonds and depositing money with local lenders.
The country’s strong tourism market has also resulted in a large wave of investments in hotels – a trend that is expected to continue over the next few years. This is so much so that asset manager Pepper Hellas sees investments of more than €700 million in new hotels (4- and 5-star) in Athens over the next three years.
Although a lot of smaller boutique operations are making their mark in the Greek hotel market, some global players are spending big in the sector.
Canada’s Four Seasons opened its first hotel in Greece in 2019 in a €650 million investment. U.S. real estate company Hines opened a luxury hotel on Syngrou avenue in Athens, while the Anglo-German TUI Group has also been expanding operations across Greece.
But there are risks, experts warn. The sharp increase in accommodation is outpacing the expansion in visitor arrivals, and growth in the tourism sector is expected by many to ease in 2020.
Improved business sentiment is boosting demand for office space, while buying interest for stores located in key shopping areas is pushing prices higher.
For some industry specialists, however, the price rises are happening too quickly for an economy that has only recently started to recover.
A 2019 Cushman & Wakefield report showed that Ermou street, which leads to Syntagma Square in central Athens, was the 15th most expensive shopping street in the world in 2018, climbing four places from the previous year. In fact, renting retail space on Ermou street costs more than leasing space in the main shopping districts of Amsterdam and Prague.
Other property assets with appeal include large stand-alone assets on highways, such as supermarkets, car dealerships, and do-it-yourself (DIY) stores.
Strong upside potential and yields that stand above European averages are drawing foreign investors to the sector. In April, the UK’s Invel Real Estate Management upped its majority stake in NGB Pangaea REIC (Pangaea), the largest real estate investment company (REIC) in Greece. The amount invested by Invel (and its partners) in Pangaea totals more than €1 billion since it initially took a position in the Greek REIC in 2013. U.S. investment firm Värde Partners also owns a majority stake in Trastor REIC.
“We saw an opportunity to invest in the country’s long-term recovery and ultimately became interested in Trastor when Piraeus Bank was looking to sell part of its interest. Using the Trastor platform, we had the chance to buy prime assets in a city of nearly 5 million people alongside a high-quality partner at an attractive price, which helps mitigate downside risk,” says Tony Iannazzo, Senior Managing Director and Global COO of Real Estate at Värde Partners.
“These are important ingredients for investing in a country in the early stages of economic recovery,” adds Iannazzo.
Alongside the upbeat views, there are three key threats facing the sector: a lower-than-anticipated gross domestic product growth rate in Greece and a slower-than-forecast recovery of bank lending. Closely related to the latter is the overhang in the property market. Roughly a third of Greek mortgages are not being serviced, and banks are reclaiming properties – adding to their already large real estate holdings.
“Macroeconomic risks mainly stem from the external front, related to a possible further slowdown of global economic activity amid fears for trade protectionism, geopolitical risks, and vulnerabilities in emerging market economies,” points out BoG Governor Mitrakos.
“Regarding credit availability, the marked improvement in the liquidity position of banks in the course of 2018 and 2019 paves the way for a gradual recovery of mortgage lending, albeit from an extremely low level,” he adds.
Following years of dramatic decline during the crisis, the Greek real estate market has experienced a healthy recovery with Chinese investors, spurred on by the Golden Visa programme, leading the way, says Vaggelis Kteniadis, President of V2.
