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Special Insert: Investments & Real Estate in Greece

The Greek REO Market and Recent Developments

March 26, 2022
By Ellie Kakoullou

Greek Banks are finally putting their Non-Performing Loan years behind them and are now turning their full focus on their core business: lending. This comes at a time which coincides with the Greek economy’s successful emergence from a prolonged recessionary period followed by the disruption brought on by the pandemic. The Country’s economy has strongly rebounded, with robust GDP growth estimated at 8.5% for 2021 and forecasts for continued growth in 2022 driven by high investment activity supported by the EU’s Recovery and Resilience Facility (RRF) funds. For Greece, the RRF plan includes €17.77 billion in grants and €12.73 billion in loans over the next few years.

The steep build-up of distressed loans during the decade-long economic crisis has been reversed and banks are no longer key players in the Greek NPL market. International funds have taken over following the series of NPL reduction transactions concluded by the four systemic banks, Alpha Bank, Eurobank, Piraeus Bank, and the National Bank of Greece. Indicatively, total non-performing exposures on bank balance sheets fell from a total of over €100 bn in 2015 to approximately €21 bn on September 30, 2021, with large funds buying the bulk of the balance. Notably, these large NPL transactions attracted several large U.S. funds to the Greek market, such as Bain, Davidson Kempner, Fortress, and Apollo, who have successfully concluded NPL transactions in Greece.

The roles are currently being reversed in the market for repossessed assets (REOs) as well, with local banks actively engaged in a series of REO divestment transactions to monetize properties repossessed in previous years. These transactions differ in form and size depending on each Bank’s strategic objectives and range from small to medium sized REO portfolio transactions, with mixed property or thematic profiles (i.e. residential) to larger scale portfolios combined with carve outs.

With Bank NPL levels at record lows, further REO build up by Greek banks will be limited to a minimum. Increased activity, however, is expected over the next few years from the funds who purchased the non-performing loan portfolios in Greece, as they will proceed to selectively liquidate underlying collaterals wherever workouts fail and then move on to divest the repossessed properties. The market expects an inflow of REO properties across a range of asset sub classes, followed by direct sales from funds to end-users or wholesale transactions, wherever more efficient.

Whilst investors are traditionally more interested in yielding assets and not in the typical non-performing assets characterizing the majority of REO granular portfolios, investors engaged in development activities have found attractive returns in these portfolios, converting empty properties into yielding investments via retrofitting, renting and/or selling.

There are currently many players looking to invest in the Greek market, across a broader range of asset subclasses, where for prime properties demand continues to exceed supply.Investors are no longer looking only at offices, hospitality, logistics and residential housing but are considering previously less liquid assets such as social housing, retirement homes, and healthcare facilities, amongst others. Of course, high end residential properties, commercial real estate and logistics facilities in key urban locations with good transportation access for ‘last-mile’ delivery remain areas of key interest.

Rapid recovery is already evident in the Greek real estate market, where prices have been steadily edging up over the last three years to pre-crisis levels in prime locations, spurred by excess liquidity, scarcity of quality stock, and increased investment activity. Multiple large-scale projects are already underway (most notably the landmark Hellenikon Metropolitan Park project) in addition to a new wave of growing investment activity in the upgrading of older or energy inefficient buildings.

Liquidity is abundant from both public funds and private equity, with banks undertaking crucial intermediation activities for the disbursement of the new RRF funds in addition to refueling the economy with increased lending across all sectors. All four systemic banks have aggressive lending targets for the years ahead, spanning the full spectrum of the economy from residential loans to large corporate bond loans. The upsurge in economic investment activity fueled by these collective funds will be seen in the real estate market as well.

Over the last two years, digitalization has been expedited across all main government agencies, due to the COVID crisis, as it necessitated remote working for public services and functions. As a result, the government digitalized over 500 frequently needed services, eliminating paper-laden bureaucracy and outdated processes, with a very positive impact on all sectors including the real estate market.

In addition to the electronic land registry (cadaster) and the institution of an electronic identify for all property, the Single Digital Map platform is currently under development, which will unify the following categories of geospatial data, crucial in assessing investments in real estate: city plans, land parcels and land use, building terms and restrictions on construction, protected areas and archaeological sites, amongst many others. Adding to this very positive development are various digital sales platforms and other ‘proptech’ solutions, facilitating sales and adding much needed data integrity to the system.

These measures, in addition to new laws and regulations providing for a more coherent and cohesive urban planning framework, growing transparency and efficiency, and the steady upgrading of the Greek economy are all transforming the local real estate market into a more investor friendly market, drawing both private individuals and institutional investors, locally and internationally.

Investors are back, following the 2020 slowdown, with foreign direct investments in real estate picking up significantly in 2021, reaching €797M at September 30, 2021, compared with €592M during the same period in 2020.

The investment outlook for this year remains positive for the domestic real estate market in Greece, with upward trends across the board, despite uncertainties stemming from the pandemic, disruptions of the global supply chain, and amidst broader geopolitical considerations.

The real estate market in Greece has proven its resilience over difficult periods and has shown steady growth,expected to continue at a greater pace in the years to come. Furthermore, with low interest rates and low returns on alternative investments, real estate is reconfirming itself as an attractive investment haven, with strong yields in a variety of asset subclasses on offer, catering to a wide range of risk appetites and yield requirements.

Demand, liquidity, attractive yields, structural improvements and efficiencies, better fundamentals combined with strong economic growth prospects, are expanding the spectrum of attractive property investment opportunities and are driving increased investment in the Greek real estate market.

Ellie Kakoullou is head of Group Real Estate, National Bank of Greece and member of the Real Estate & Development Committee of the American-Hellenic  Chamber of Commerce.

 

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