Foreign demand for property on the slide
Athens Plus, 30 October 2009

The downturn in the Greek property market over the last 18 months has been partly due to a fall in foreign demand. The latest data on capital inflows from abroad for property investment show a drop to 67 million euros in the first half of the year, against 110 million in the same period last year. For their part, developers and realty agents in tourist destinations estimate the fall at 45-55 percent up to the end of September.

In the years prior to the outbreak of the economic crisis, foreign property investors financed their buys mainly through bank borrowing. This year, however, European banks in general have been especially tight-fisted in approving mortgages. Credit expansion in general in the eurozone has been negative.

One important factor that has influenced demand is the highly competitive environment internationally. In this respect, one characteristic example is Spain, where prices have declined considerably, while construction companies have put together "special offer packages" that include financing.

Analysts also point to the institutional problems affecting the Greek market, particularly relative to its competitors. For instance, the restrictions applying to border areas for non-EU citizens has been deterring a significant number of middle-income Russians, who might otherwise be willing to buy property in these areas, many of which are already popular with foreign visitors. Developers have been offering solutions to bypass the restrictions but very few individual investors seem to be accepting them.

At the same time, the construction model of holiday homes with lofts and basements - the aim of which are to increase space - is not what the vast majority of Western Europeans are looking to buy in Greece, so many turn to old houses which they renovate.

Additionally, the promotion campaign for Greek holiday homes has been much weaker this year, especially in the traditional source markets of the UK and Germany, where Greek developers do not have extensive networking.

Meanwhile, many entrepreneurs in various tourist destinations say the drop in construction is having a direct adverse impact on their local economies.