Greek Real Estate Market Review : A frozen sector of the Greek Economy .
The Greek property market has been facing a strong recession for five years, national real estate prices have hit the lowest levels of the last decade. According to Taylor Scott International’s annual report for the year 2014, property values in Greece have dropped over 50% since the onset of the crisis. According market reports, prices declined over the past year but with slower pace compared to the sharp price drops of 2012 and 2013 respectively.
Nationwide, prices for re-sale properties decreased by 9.6%, while the new builds decreased by 7%. In Attica prices for re-sale properties dropped by 11% and new builds by 7.7% respectively. Greece’s second largest city of Thessaloniki saw drops of 12.5% and more. The rest of the country saw drops of 4.3% for used and of 1.5% for newly constructed was the result of the market analysis conducted from Taylor Scott International .
One of the main key points of Taylor Scott International market review is the absolute luck of new development and construction activity around the country. Nationally, From 2005 until today the number of completed residential projects has fallen by a massive 95%.
Another interesting fact is that despite the lack of new builds and extremely slow construction activity, there remains a very big “excess” of housing supply, and there is also a very large stock of unsold properties around the country.
The actual number of properties available for sale is hard to be estimated, but Taylor Scott International estimates that it is over 200,000 units. This large number can partially be attributed to homeowners and construction companies seeking to reduce their tax burden by liquefying their holdings.
Another factor that can be blamed for excess market inventory is the considerable drop in demand due to high unemployment rate, a sharp fall in households disposable incomes, the upsurge in real estate taxation, the political instability due to the relationship of Greece with its European partners and a possible Grexit. All that combined with a massive liquidity shortage against the backdrop of banks tightening credit standards have been the main reason for the virtual collapse of the credit market over the last five years, although mortgage rates are at a reasonably low rate.
Mortgage rates that actually increased between 2006 and 2011 reaching on average (depending on the type) a 4.5% respectively ,started declining from mid-2011, and in January 2015 the mortgage rates for new loans with initial rate fixation (IRF) of up to one year fell to 2.44% while the average mortgage rates for outstanding housing loans with IRF of between 1 and 5 years declined to 3.9% (from 4.29 on January 2014) and for over 5 years declined to 2.84% in January 2015 from 3.02%.
Nowadays, Greek investors are aware of “loan risks” when it comes to real estate investments ,and the fact that the Greek housing market is vulnerable to interest rate movements as the majority of housing loans have IRF of up to one year, is something to be considered. It is important to note that since the second half of 2009, 70% or more of new housing loans have had interest rates adjustable at least annually.
By end of 2014, outstanding mortgage backed home loans in Greece had reached 38.16% of GDP or €69.4 billion, this is only a 2.3% decline from the previous year. This number is not indicative of a booming mortgage market, but the fact that many house-owners simply cannot repay.
The above is a interesting point that could affect the near future of the Greek Real estate market pushing the market further into rescission. As of January 2015, around 120,000 homeowners who are unable to meet their mortgage payments are likely to face default and foreclosure. The law(s) protecting foreclosures of primary homes expired at the end of 2014, and although banks are trying to come to a settlement with the debtors offering them different options and extending their payment period and even temporally freezing payments, it seems like there is no integrated solution so far in order to stop the increase of the number of “red” loans.
The direct impact of the above will be that an extra huge amount of properties will be added to the existing available inventory of the country causing a big shock to the market. There will also definitely be social consequences with political and financial effects that could change the whole countries status.
According to Taylor Scott International’s market overview, more than 8 out of 10 properties that were sold last year are of residential status (apartments & villas / houses), while land plots as well as commercial properties had a small market share of 5% & 12% respectively.
In Attica, over 80% of the sold property was residential. Land plots reached only 3%, while important was the participation of the commercial real estate with a 14.2% of the total sold properties.
In Thessaloniki, the trading focused almost exclusively (with a 92+%) in residential, while the participation of the commercial real estate just reached 3.8%, and land plots were only around 0.2% of the market.
The rest of Greece (outside Athens and Thessaloniki) residential has been the most popular property asset class with an impressive 81.5% market share. Commercial property was just 12.5%, while the land plots were limited to 6%.
Continuing the trend of previous years buyers preferred re-sale prperties (more than 5 years old) with an 89%, over the new builds (up to 5 years) that have just received 11% .(The market ignored and brand new buildings under construction, representing only 3% of the market ) . There was a strong interest in houses of 6-15 years represented with a 36% of total transactions, while the most preferred category was the one for buildings older than 25 years old representing 39,2% respectively.
In Attica, on average 1 in 2 (47%) of properties sold where over 25 years. The newly built together with new (to 5 years) just reached 6%, while 6-15 years garnered almost 1/3 of preferences (31%) and finally the intermediate category 16-25 years just surpassed 15%.
In Thessaloniki the most popular residential dwellings are those that are over 25 years old (almost 6 out of 10), while the newly constructed properties together with properties that are up to 10 years of age have a 36% market share.
Remarkably,Taylor Scott International’s review noted the complete absence of properties of the category 11-20 years of age .
In the Rest of Greece (outside Athens and Thessaloniki) Taylor Scott International’s review observed differences compared to the major urban centers. Thus we see that the houses to 15 years were preferred by almost 6 out of 10 customers (57%) (50 +% more than in Attica and Thessaloniki). The old houses (over 25 years) reached 36%. Particular preference showed 1/3 of buyers in homes 6-10 years old. There was practically a nonexistent interest in the brand new buildings representing only 2% of the market .
Market sales compared with property size.
Medium-sized dwellings (ie. Area 71-110 m2.) were the most popular in the market, preferred by 44.5% of buyers, while some were interested in categories 1-50 m2 and 51-70 m2 (19% and 18% respectively), as well as large houses over 130 m2 (18.5%).
In Attica medium size properties have been preferred by approximately half the buyers (49%) (ie. sizes of 71-110 m2.) with the most popular category of 91-110 m2 in size, representing a 30% market share. Remarkable is the presence of large houses (over 150sqm) with a 20+% , which is more than double the nationwide average.
In Thessaloniki, the most popular category was the one of 51-70 m2 which was also preferred from one in every three buyers; second-choice were apartments of 91- 110 m2 (20%). Also high in preference were the categories of71-90 m2 and 111-130tm (with an approx of 16% each).
In the rest of Greece (outside Athens and Thessaloniki) Taylor Scott International observed a strong preference of almost 33% in small apartments ( 50 m2), while over 40% chose the category 71-110 m2. Quite small (6%) was the interest for large houses (over 150sqm).
The Greek property market market in 2015
Although the market had shown signs of improvement by the end of 2014 with the interest of foreign investors growing, instability took place in the beginning of 2015. With the new coalition government demanding to repeal austerity measures attached to European funding ,the European finance ministers showing no signs of backing off from their position that Greece would have to work harder to get its economic house in order to continue borrowing, the possibility of a Grexit is scaring investors inside and outside the country ,and political uncertainty is already affecting the local market.
The National debt is growing and reached a 176.3% of GDP in 2014 (National debt is expected to fall to around 170.2% of GDP in 2015) , unemployment in Greece growing as well, In 2015, Greece´s GDP growth is forecast at around 2.9%, followed by 3.7% growth in 2016. According to the Bank of Greece, it is likely that the economy will return to a steady growth path in coming years.
The future of the Real Estate market in Greece and predictions for 2015 are not very bright. According to Taylor Scott International’s report the fact that Real Estate Constructions in 2007 represented the 10.8% of the Greek GDP , and in 2014 represented only the 1.1% is actually the real picture of the market and what investors should expect in the short term. The signs under the current circumstances are not good and promising. It is a fact though that markets are volatile and fluctuate. Investors should be aware and alerted about the political changes and news of the country .Greece remains a very popular tourist destination .With the current market prices reaching decade’s lows, investing in holiday houses in Greece could be a good opportunity for those who like to invest in the medium to long term .
Kosta Kioleoglou ~ REValuer
Chief Strategist (CSO) for the East African Region
Director of Engineering – Property Appraisal & Valuations
Civil Engineer Msc – DBM
Taylor Scott International