Real estate market in crisis
Athens News, 27 November 2009

The real estate and construction sectors in Greece saw dramatic double-digit declines in the first nine months of this year, a recent report by Alpha Bank showed.

Property sales were down by more than 10 percent for the first nine months of 2009 year-on-year, while construction activity dropped by 29 percent, the report said.

As is to be expected, the global credit crisis has made both consumers and businesspeople nervous about the future.

"Those that have property or cash are sitting tight and not willing to take any risks," said Dimitris Maroulis, manager of Alpha's economic analysis division.

"While there are signs of recovery in the non-durable goods sector, like clothing and accessories, there are no signs of recovery in the housing sector as yet," he added.

"Only when consumers and businesses feel a strong sense of security will they go out and begin buying high-end goods again - and investment in property will probably come after other high-end products, such as cars," Maroulis said.

The Greek housing sector is in the midst of a substantial slowdown, which began in 2007 and is expected to continue into 2011, observers say.

In 2006, there was an extraordinarily high level of residential investment, following a tax-related explosion in building permits in 2005. But those tax breaks have now disappeared.

"Residential investment is set to fall further in 2009 and 2010," Alpha Bank reported.

Real estate values in Greece also dropped, although not as dramatically as in other European countries. The market is stagnant, with no one selling or buying, experts say, a fact exacerbated by the tightening of the credit sector and ensuing difficulties experienced by would-be homeowners unable to find mortgages.

Alpha's report charts the dip. In 2006, housing credit grew by 26.3 percent over the previous year, by 21.9 percent in 2007 and by 11.5 percent last year. But in the first nine months of 2009, it grew by just 4.4 percent.

Housing price inflation, which had slowed to around 1.5 percent in 2008, has now turned negative, with an average 4.4 percent drop, year- on-year, in house prices.

The impact on employment has been sharp. While no precise figures are available, it is generally understood that over the last quarter 100 real estate agents have gone out of business across Greece, with another 200 facing a similar fate, Stratos Paradias, president of the Hellenic Property Federation, said in a telephone interview on November 25.

The government's proposed revenue-generating measures, such as the expected annual Large Property Tax (FMAP), inheritance taxes and increases in the evaluation of real estate for tax purposes are all going to cause further drastic impact, Paradias said.

"The new tax proposals are a disaster," he added. "They will kill off an already dying market."

Paradias said not only real estate agents have seen a dramatic contraction in income. "Lawyers, notaries and banks are all impacted," he said.

However, foreign buyers are seen as one possible boost to the market.

The Alpha Bank report noted that Greece's status as a favoured tourist destination, in combination with its increasing attractiveness as a place to establish summer homes for European citizens, may enable both tourism and the housing sector to benefit from the expected recovery of the European economies in 2010.