Property in Greece? Tempting, but buyers are holding back

This is the 14th in a series of stories on global property that examines the shifts and trends in the housing market on the international stage.

You can be forgiven for thinking a Greek vacation home would be a bargain – as attractive as a Greek holiday.

Greece’s debt crisis has created an economy of bargains for foreigners. Tourists have been coming in droves. A record number of visitors came to Greece in 2014, at least 22 million according to the Bank of Greece (up 23 per cent from 2013), all deciding that now’s the time to take in the Parthenon or Aegean Coast at discount prices.

And by all accounts, the residential real-estate sector is said to be a buyer’s market for foreigners. Good homes are available at practically any price for which a buyer may be looking.

But that where the similarity between real estate and tourism ends.

Tourism on upswing

Foreigners are said to be keenly eyeing Greek property as much as they ever have. They just aren’t actually buying. The debt crisis and the continual brinksmanship in negotiations have created too much uncertainty, even if a Greek exit from the euro zone is unthinkable among most real-estate watchers. Still, there’s a major risk in a Greek property investment becoming illiquid in badly suffering economy.

On the Greek island of Rhodes, however, a favourite of foreign buyers, where the typical winter temperature is 17 C, foreign interest has continued and could see renewed buying if the crisis were to ease.

“The demand has increased, for many reasons. The most important one, you could say, is that people all over Europe are looking for somewhere to put their money,” said Emmanouil Zervos, managing director of German real-estate company Engel & Volkers’ office in Rhodes.

“And of course the prices in Greece, at the moment, are attractive to them. So, a lot of people are watching Greece. They are coming to visit properties. The thing is that they are still waiting to do the final move. Requests [to see properties] are higher, but not the sales.”

Rhodes has weathered the crisis relatively more easily than other parts of Greece, with sales declining by roughly 10 to 15 per cent, Mr. Zervos said. The limited number of properties on the market has tempered that fall, and demand for high-end properties with sea views and beachfronts catering to the wealthiest foreign buyers have remained comparatively stable, he said.

“We don’t have too many properties in stock. The constructors here didn’t do big investments,” large apartment blocks or major developments. “So, there are not so many properties, and that has kept the prices stable,” Mr. Zervos said.

The average price of a five-room villa with a sea view in Rhodes is very roughly €1.5-million ($2.08-million Canadian), compared with a similar sized property in Ibiza which costs around €4-million ($5.56-million) or in Miami for €10-million ($13.88-million), according to Engel & Volkers.

‘It’s a paradise for buyers.’
Stratos Paradias, president of the Hellenic Property Federation, representing property owners.

“Rhodes was always an attraction for foreign buyers, because Rhodes is one of the two places in Greece where we have a land registry,” Mr. Zervos said.

Created during the Italian occupation of the island from 1912 and into the Second World War, the land registry is still seen as a major advantage compared with much of Greece which doesn’t have similar registries. So, property in Greece is often sold without clear boundaries in terms of precise lot size or zoning. It’s worse outside urban centres.

Rhodes’s status as a major tourist destination and more flights from the rest of Europe in recent years have naturally kept potential buyers at least interested during the crisis.

Yet, like the rest of Greece, the market remains in limbo.

“There will be a resolution to the problem. That’s how Europe always works,” said Stratos Paradias, president of the Hellenic Property Federation, representing property owners. “The prices are down, and they will be down a long time, for the foreseeable future.”

However, he added, “there is an interest … I believe there is a market. It’s a small market, and it’s a buyer’s market.”

Without much actual buying though: As a report this month from the Greek bank Alpha Bank noted, investment in housing decreased 51.5 per cent in 2014, coming after a 27.7-per-cent drop in 2013. In the first three months of 2015, residential property investment fell 30.5 compared to the first quarter last year, the bank said.

Last fall, the bank issued a report hoping for some stabilization in real estate. “It is expected for residential investment to gradually recover from early 2015 in line with easing lending conditions for mortgages,” the report said. It predicted a bottoming out of the housing market in 2014 and a recovery “supported by a booming tourism season and a substantial increase of the capital inflow for investment in housing …”

Again, there’s the link in logic between tourism and housing, which may not be as direct as some think. A new annual property tax is seen pushing sellers to sell, but it is also seen as discouraging buyers.

Among the latest issues of contention within Greece are new tax measures to raise money, including higher land taxes. Recent Greek governments have also continued to attract foreign real-estate buyers, such as granting residency visas to buyers from outside the European Union spending at least €250,000 ($347,000) on Greek property.

“There is a sky-high annual taxation upon real-estate property, which has been imposed,” Mr. Paradias of the property owners federation said, “an unbelievably and unacceptably high level which is unsustainable.” He sees this forcing some to sell: “It’s a paradise for buyers.”

Mr. Paradias blames the property tax as the main reason for the drop in prices. “The market is not actually functioning at this moment because of this unbearable taxation,” he argued. And if a property owner makes income from the property, that is taxed, too.

And yet he doesn’t anticipate a quick normalization or herd mentality in new real-estate deals if the crisis suddenly were to improve. “No, it will start gradually,” he said.

It’s impossible to gauge what would happen if the crisis were to escalate, however, or if Greece even left the euro zone altogether, which some Greek law makers who have opposed the austerity measures demanded by the international lending community have suggested. Mr. Zervos of Engel & Volkers said it was unfathomable to guess how real estate would hold up with the return of, say, the Greek drachma.

“Nobody knows what would happen” – maybe sales would improve if home prices fell even further if they were listed in drachmas, he said with a laugh.

A more likely outcome, if the situation continues, could be the fall of the current government of Greek Prime Minister Alex Tsipras, who was voted in last January on an anti-austerity platform, from which he has had to pull back, to the consternation of factions within his Syriza party.

“And if this government falls, there will be a boom in real estate,” speculated economist Theodore Pelagidis, an economics professor at the University of Piraeus in Greece.

Speaking by phone from the island of Rhodes, however, Mr. Zervos is staying upbeat. “There is an increase in inquiries, not in sales. But that’s a sign for us to be optimistic.”


Leave a Reply