worries as prices stay put, transactions decline
12 May 2008
One of the pillars of strong Greek economic growth since the late 1990s,
the construction business, is not doing well according to data and
various people working in the sector, raising concerns about its impact
on other related sectors and the country’s economy in the quarters
Much depends on the course of the local residential market, which has
been sending signs of greater fatigue for quite some time.
According to civil engineers, architects, workers and others active
in the private construction sector, things are not looking good. Of
course, it is not the first time in the last eight years or so of booming
business that these professionals have expressed concerns about the
conditions in their industry. Many had done so in the months leading
up to the Summer Olympics in Athens in 2004, when they feared a severe
slowdown which never materialized.
This time though things look a bit different because they are backed
by disappointing figures and an international credit crisis spreading
into different European markets, such as the UK, Spain and Ireland.
According to the National Statistics Service (NSS), construction activity
fell by 13.4 percent year-on-year in the January-February period based
on new building permits issued, and by 2.5 percent in terms of volume
measured in cubic meters.
Private construction activity, which constitutes the bulk of total
construction, fell by similar percentages. But the fate of construction
is to a large extent tied to the status of the residential real estate
market. Although no official statistics are available, the residential
market is widely thought to account for 80 percent or more of the Greek
real estate industry.
The balance is split between retail, office, logistics, hotel and other
sub-sectors. The value of residential real estate is estimated at more
than 700 billion euros and is believed to account for more than 80
percent of Greek household wealth.
One would expect industry executives, advisers and agents to agree
on the current status of the markets. However, it is easier to find
consensus between supporters of Greece’s top soccer teams than among
them. This is no surprise, given the fact that it is a fragmented market
with different trends prevailing even in neighboring districts of the
The stock of unsold houses is an example. According to a handful of
real estate agents and advisers, there are some 400,000 unsold apartments
and other houses throughout Greece, a high number by any standard.
Still, the large majority puts them at 100,000 units or less. It should
be noted that the surplus is not the result of weak demand but the
rush of many construction companies to obtain building permits in the
second half of 2005 and erect houses before the introduction of the
unpopular VAT (value-added tax) on new houses which made them more
In reality, all these are rough estimates and nobody knows the exact
number of unsold houses.
However, this example highlights the sharp differences of opinion in
the industry. Judging from the signs of new houses for sale in some
Athenian suburbs, one would side with the pessimists, but just looking
at the center or other areas one can easily conclude things are not
Impact on buyers
Still, these numbers, in conjunction with the news of the slump in
foreign real estate markets, with record foreclosures and the sharp
drop in selling prices of houses, appear to have had an adverse impact
on the psychology of potential Greek buyers.
The fact that banks have become more selective and cautious in lending,
along with the increases in interest rates, has also caught the attention
of the local media and consequently the individuals interested in buying
Most banks no longer advertise special mortgage offers, which until
recently included below-market introductory lending rates for the first
few years of the mortgage loan, to lure customers and/or offer to pay
At this point, most new mortgage loans for 15 to 20 years or longer
carry an interest rate in excess of 5.5 percent, according to senior
bankers specializing in retail banking.
One could also add worsening labor and incomes conditions but this
theory is not supported by facts. The pay of the average Greek employee
in the private sector is projected to rise by more than inflation again
this year and there are no signs that employment will stop growing.
This means the disposable income of the average Greek worker will go
up after adjusting for inflation.
Moreover, the vast majority of Greek buyers think they are being asked
to pay too much when they want to buy an apartment or a detached family
This is one of the reasons half or more of the buyers have switched
to more affordable used apartments rather than brand-new ones in the
last six months or more, according to the data of some of Greece’s
largest real estate brokerages.
However expensive, a top apartment in a prime area of Athens cannot
fetch the 36,825 euros per square meter asked in London at the end
of 2007 or the 35,000-euro tag in France’s Courchevel or the 32,500
euros per square meter in Monaco.
Still, the majority of the Greek population appear to have become more
pessimistic in assessing the impact of the global credit and housing
crisis on the local residential real estate industry.
This translates into broadly steady prices since the start of the year
and a lower volume of transactions compared to the same period in the
previous two years.
Whether the dent in psychology can translate into a protracted stagnation
as argued by some industry officials or a blip in an otherwise upward
trend remains to be seen.
A lot will depend on general macroeconomic conditions, where there
is a two-way interaction between the residential property market and
construction on the one hand and economic growth on the other.