We have all heard a lot about how the financial crisis started and when it is going to end and what we hear is most times conflicting and confusing. However, the worst is believed to have passed while there is only one certain thing; that nothing lasts forever.
Let's see what has happened in Greece since the beginning of the crisis.
Unlike what happened in other countries, the Greek real estate market followed a different path. Sales started to drop a bit earlier at the end of 2006. That year's government pre-announced an increase in real estate objective values and taxes in newly built houses. As so, many buyers were forced to an earlier purchase, bringing a 35% increase in real estate sales. As expected, this caused a mini-bubble in the Greek real estate market, followed by a subsequent sales decrease that was continued in 2007 due to the financial crisis.
From 2006 to now, sales have dropped by over 70%, changing drastically the way the Greek real estate market operates and reacts. This huge drop, however, seems to exceed the damage the crisis should have caused. In his analysis, professor I. A. Mourmouras¹ states that factors such as the informal economy, the large number of public sector employees and the small number of exporting businesses have mitigated the impact of the financial crisis in Greece. What this means for the real estate market is that, those who want, need and can afford to buy property are more than those who actually buy. In other words, the crisis is present but it is not enough to explain the huge drop of real estate sales.
As many analysts, realtors and constructors state, sales reduction is mainly caused by the fact that buyers are waiting for prices to drop. This is also confirmed by our experience, as well as by the large number of potential buyers who, nevertheless, do not proceed to a purchase.
Real estate 2010 estimates
In general, analysts agree that the real estate turnover will depend on whether constructors are going to decrease selling prices, on the number of loans that banks are willing to dispose, on the Greek government measures to enhance the market, as well as on the overall condition of the Greek and global economy.
No matter how many these parameters are to get to a clear conclusion, more views support that there will be no significant change in the market of 2010 in comparison to 2009. The major argument to support this scenario is that banks have already announced their intentions, planning to decrease even more the number of those who are eligible for a loan. The government has also announced its intentions (increase of objective values while decreasing real estate purchase taxes, taxing farm land properties) and the measures it is willing to take are going to have little effect on how the market will operate within the following year. The Bank of Greece shows a small decrease in selling prices and this seems to be another negative factor. In 1994 someone needed 2.6 salaries to get a square meter of a house in a regular urban area. In 2006 this same rate rose up to 4.8, while in 2008 it dropped back to 4. The large increase of this rate within a little more than a decade is thought by many to be the sign of the Greek real estate bubble that is yet to burst.
Before you rush to agree with the above aspect, let's consider a few more facts. For every 10 real estate property sales in 2006, today only 3 are carried out. As explained above, this decrease is largely due to psychological factors. Moreover, the market is flooded with approximately 190.000 offered properties, number which is extremely large, considering the small size of the Greek real estate market. This large number of properties generates a huge competition among sellers, forcing them to drop selling prices by even 40% in comparison to the prices of 2006. The estimate is that the combination of the large number of potential buyers with the continuously growing number of bargains will soon set off sales, even though they are expected at moderate numbers. It will probably take time for the market to rise up to the levels of 2006, but what we believe is that there will be many seekers of quality properties offered at low prices during 2010.
Buyers know that at this moment there are many bargains out in the market. They also know that these bargains will not be there forever. There are many investors who can afford to buy and who will gradually start to empty the market of underpriced properties. The intentions of our clients also seem to be at the same direction and as the global market begins recovering, a few international buyers have also started showing some interest. We are only left to see what 2010 is going to bring but what we strongly believe is that the worst is behind us.
- «Naytemporiki» Newspaper: BoG: 48.8% reduction in real estate sales (in Greek)
- I. A. Mourmouras: The financial crisis and the prospects of real estate (in Greek)
- «To Vima» Newspaper: Hard times for the real estate market in 2010 (in Greek)
- «Imerisia» Newspaper: Properties: The BoG predicts new drop in house prices (in Greek)
- «I Kathimerini» Newspaper: There seems to be no recovery in 2010 (in Greek)
¹Ioannis A. Mourmouras is professor of Economic Sciences at the University of Macedonia and president of SOE.