times force mortgage holders to sell
2 June 2008
An increasing number of Greek property owners now seem to be willing
or have been forced to take the tough decision of selling their places.
Selling a two- or three-year-old apartment was a rather unusual move
some years ago.
As a means of comparison, the same phenomenon in the past affected
only 5 percent of the market, with most of the apartment sellers doing
so in order to make a profit, i.e. to capitalize on the great surplus
value offered by the market from 2000 onward.
“A year ago, we could speak of only one in 10 residencies being sold
because of failure or difficulty to repay a loan. Now this number has
simply doubled,” commented a real estate professional with one of Athens’s
Two in 10 homes are now sold because of loan repayment difficulties.
The trend is more evident in the lower- to middle-class areas, where
apartment costs are relatively cheaper, and mainly concerns places
of up to 100-120 sq.m. of floor space, at prices of between 200,000
and 300,000 euros.
“As a rule, such places are resold by people who cannot repay their
mortgages,” another professional said, adding that what lies behind
homeowners’ difficulty to repay is primarily poor planning and the
failure to take into account possible future interest rate hikes.
For some, reselling their home certainly means avoiding the eventuality
of it being repossessed and auctioned by the bank.
However, seen in a different light, the higher number of used apartments
for sale is an indirect help for the market as this specific segment
now is recording the highest demand.
What is now different than in previous years, apart from generally
dropping demand, is the limited amount of business in general and the
low number of property transactions.
A crucial period that the market would allow for the estimation of
future trends will be from September onward, when demand normally rises.
If business is as low as its current levels, it is very likely that
property values could drop considerably.
Renting a newly built home is again becoming a popular practice among
developers. Offering new apartments for rent was a thing of the past
for many years, but is now being seen as a way out of property market
trouble. Higher bank pressures on developers who have borrowed drives
them into leasing their apartments for a number of years, and this
at least helps them to service their loans.
But rentals significantly increase amortization, with property market
returns dropping to extremely low levels, even below 5.0 percent. So
renting out an apartment would normally be a developer’s last choice.
But again, when it comes to the falling apartment prices, the construction
contractors are viewing things as altogether negative. They say profit
margins have dropped to alarming levels.
Most prospective home purchasers are now considering either buying
an older home or renting a place, instead of buying new. Data provided
by property market sources show that in 2007 used-home purchasing deals
accounted for 70 percent, compared to 20 percent in 2005.