Takeaways

• The Greek property market has entered a continuous development phase since 2017
• Prices and demand continued to grow through the pandemic (2020-2021)
• Key market drivers show signals of further strengthening, creating expectations for further growth

The Backdrop – Recent History of the Greek Property Market

1996-2008 – Development: The Greek property market developed, along with the country’s economic expansion. Global financial conditions (low interest rates and high levels of liquidity) and the liberalization of the banking sector led to ample lending activity, at low interest rates. Household disposable income increased and Greek consumers, who always demonstrated very high home ownership rates, saw real estate as an attractive and safe asset class.

2008-2017 – Recession: The global financial crisis coincided with (and partly led to) a recession of the Greek economy, which, burdened with high debt and a budget deficit, was forced to enter a bailout program. Increased property taxation, weak economic sentiment, slowing investment activity and a pause in building activity and lending all led to the deterioration of demand and a free fall in property prices.

2017-2019 – Recovery: The country managed to execute and exit the bailout program after 8 years (August 2018). Confidence strengthened as the economy recovered, with, increasing GDP growth and with employment and consumer confidence bouncing back. The tourism sector expanded rapidly and the short-term rental market developed. The country’s golden visa program attracted demand, facilitating investments in residential units, and development activity began expand.

The Property Market Now. Drivers and Prospects

The Greek property market retained the pace even through the pandemic, with countrywide apartment prices finishing Quarter 3 of 2021 up 11.6% compared to their levels at the end of 2019 (Bank of Greece), whereas even commercial property values, such as retail stores, increased. As an indicator of growing demand, private building activity is rapidly developing, with the number of issued permits in 9M 2021 recording an increase of 27%, following an increase in 2020 by 9%. Naturally, the evolution of prices and building activity varies across regions and micro-locations, since the real estate ‘product’ is always heterogeneous across submarkets. In this regard, urban areas, particularly Athens and Thessaloniki ,and tourist hotspots, such as islands in the Aegean Sea, attract the larger part of demand.

The strengthening of demand for Greek properties, even through the challenging 2020, in which the economy shrank by 9%, made apparent the existence and persistence of key drivers:

1. Very low development activity during the recession (continuous decrease in yearly new building permits through the 2008-2016 period) led to an undersupplied market. Modern, good quality spaces are increasingly scarce. Even though new projects now arrive in the market at an accelerated pace, new spaces are instantly absorbed at ever increasing prices. New residential projects in high-demand Athens submarkets are normally sold before completion and new, modern office buildings are also absorbed instantly. Similarly, a pipeline of new logistics projects is underway, as Greece is evolving into a transshipment hub and as last-mile logistics centers are employed to deal with rising e-commerce volumes.
2. The market is underpriced. Even following 4 years of continuous growth, the Bank of Greece’s residential price index remains 28% below its level in Quarter 3 of 2008. Residential units, even in sought-after urban areas, are also far cheaper than comparable properties in other Southern European markets. Similarly, retail, office and logistics offer higher yields versus other comparable markets, with office and retail prices still 19% below their level at the end of 2008.
3. The market share of the Greek tourism product is consistently expanding and tourism activity is on a positive long-term trend: it is notable that the number of yearly inbound travelers, which peaked at 16.2 million in 2007, dropped in the first 2 years of the economic crisis (2008-09) and then increased in each one of the following years, almost tripling to 34 million in 2019. Following a slump in 2020, a year with extended – in duration and intensity – lockdown measures, tourism revenues shot up in 2021, but are yet to reach 2019 levels. Besides the hospitality sector, tourism revenues feed the residential market in tourist hotspots and has become an engine upon which the country’s economy depends.
4. Foreign demand is strengthening year by year. The golden visa program started to recover, following a forced stop in 2020 (+10% in new residence permits in 2021), with an increased number of target markets globally. Overall, a growing number of government policies target foreign investors seeking non-dom status, digital nomads, and other market segments that generate demand for the local residential market. Considering that the market is perceived as undervalued, investors see opportunities for capital gains in a 3- to 5-year horizon. Overall, foreign direct investment in Greek real estate has exploded in the past 6 years: in the January 2016-September 2021 period, FDI to the Greek property market reached €4.9 billion, 6 times the respective amount of €0.8 billion in the previous 6-year period (2010-2015).
5. Besides private investors, investment funds are also very active in the market. Local REICs are continuously investing in the commercial sector, primarily office buildings and logistics centers, whereas interest in the residential sector is demonstrated through both redevelopment projects and land plot acquisitions. As concerns hospitality units, several new projects have been launched, notable transactions are moving forward, and a substantial list of redevelopment projects are underway. The number of 4-star and 5-star hotels reached 2,359 in 2020, up 53% compared to a decade earlier.
6. The Greek economy is on a recovery path. Household disposable income is expected to increase in the medium term, supporting demand from local buyers. It is worth mentioning that the segment of the ‘typical’ local home buyer may be enriched: a large portion of the population, who were in their 30s during the financial crisis, may now be motivated by improved economic and financing conditions to acquire a house.
7. Infrastructure and regeneration projects, such as the expansion of the metro lines in Athens, the Votanikos project, and the landmark project of Elliniko, are boosting the attractiveness of local property markets. The upcoming facelift of Athens, facilitated by the relocation of major corporate office users and the repositioning of such, is also set to spur a property market boom, impacting, among others, family apartments and furnished apartments in the short-term rental market. Transportation infrastructure (ports, airports, roads, railways) has also been improving consistently, following a privatization wave. A series of developments currently in progress are projected to increase the supply of business parks and data centers.
8. On the back of an ongoing macroeconomic recovery and considering the bank system’s progress in curtailing NPE exposure, banks are expected to revive the mortgage credit market. It is noteworthy that the property market recovery has so far been achieved in an environment of marginal credit expansion. Indicatively, the average yearly amount of new mortgages in the 2018-20 period reached €641M, versus €14.4B in the 2006-2008 period.
9. Greek governments have started to form a more stable and attractive tax environment. VAT tax on new buildings has been suspended, the ‘unified property tax’ (ENFIA) rate has been reduced and subsidies are provided to households investing in energy efficiency upgrades. In addition, while Greece has traditionally been a very ‘bureaucratic’ country by European Union standards, efforts to cut red tape are paying off, with several public services having been digitized in the past years.
10. Greece’s recovery and resilience plan, the European Union’s response to the COVID-19 crisis, will support investments and reforms in the 2022-2026 period. The program entails the disbursement of €17.8 billion in grants and €12.7 billion in loans, intended to push growth and job creation, as well as the country’s green and digital transitions. The plan consists of specific investment measures and reforms (174 in total) and its impact could boost Greek GDP by 2.1-3.3% by 2026 and add 62,000 jobs, based on initial estimates.

Looking forward, the conditions and developments hereby discussed seem solid and sufficient for the market to develop further, and potentially faster, in the medium term. The recently enacted legislative framework renders the current point in time (market timing) more ‘special’: Individuals whose domicile is in another country (non-doms) are motivated to invest and declare tax residence in Greece by the application of an alternative, flat tax rate on their foreign earned income. In addition, persons who decide to work and transfer their tax residence to Greece enjoy 50% deduction on income taxes for up to 7 years. Investment flows to Greek assets highlight that this could be an opportunity to acquire real estate in Greece at the beginning of a development phase.

Ioannis Ganos is General Manager of Alpha Real Estate Management & Investments SA (member of Alpha Bank Group) and a member of the Real Estate & Development Committee, American-Hellenic Chamber of Commerce.