There’s more potential to make money in the country’s real estate than most people think.
The majority of Europe’s real estate markets are overheated but Greece is one of the few countries where buying property is still relatively cheap.
Today, ready-to-move-in residential property in central Athens sells at an average of €2,500/m². Compare this to Barcelona or Berlin, for example, where the standard is around €6,000/m², and the difference becomes loud and clear. Prices in the Greek capital are now 25% higher compared to 2017 when the midpoint was as low as €1,800/m², but they’re still nowhere near the pre-crisis level.
Back in 2008, apartments in Athens were selling for €3,500-4,000/m². Prices are now 30-35% cheaper. According to our estimates, if no significant external economic changes happen, they will continue to rise by about 10-15% per annum in the capital, eventually hitting €3,500/m² again in 2-3 years.
During the past 18 months, the price hike has been fuelled by two principal factors:
– a higher demand from foreign investors;
– an increasing number of tourists.
From 2015-19, Greece’s inbound tourism revenue swelled by more than one-third. Rental rates shot up as well, rising by more than 9% in 2018 alone. A huge amount of residential real estate was converted into apartments and continues to be leased through the likes of Airbnb and Booking.com, often for one night at a time (Greece does not restrict short-term property leases).
Institutional investors have also started paying more attention to Greece. For example, since 2017, funds from the US, the Middle East, China, and Turkey have all pumped money into major commercial and residential property development projects in Athens. The total volume of investment in these projects is approaching €1B.
The change of Greece’s ruling party following the 2019 elections has given the country’s economy a timely boost. The government formed by the New Democracy party has reduced both personal and corporate taxes. Property tax has been slashed (by 10-30%, depending on the property value) and corporate income tax has been cut from 29% (2018) to 24% this year. What’s more, the capital outflow restrictions in place since 2015 have been abolished. The government also recently confirmed that from 2020-22, the sale of new buildings will be exempt from VAT, which will help reboot the greenfield development market and fuel the construction of more homes.
These financial exemptions have become possible thanks to Greece’s economic recovery. The GDP per capita has been growing since 2015 by an average of 2.5% per annum, while the unemployment rate has fallen by 8% annually. Despite this, Greece’s unemployment figures are among the worst in Europe (17.4% in Q2 2019).
The Greek golden visa program, which grants residency to investors and their families in return for an injection of €250,000, is maintaining the flow of foreign money into the country. In H1 2019, 645 investors signed up for the scheme, marking an 8% increase from the previous year. Greece also plans to offer citizenship for an investment of at least €2.5M. I think this will attract investors to Athens who have already looked into golden passports offered by other nations, particularly neighboring Cyprus, where the average property price has already exceeded €8,000/m².
Demand for real estate in Greece is certain to rise after the country’s banks started issuing mortgages to locals earlier this year. History shows that cheap mortgage loans stoke demand for housing, but in Greece, it marks a turning point because it’s been all but impossible to get a mortgage in the last decade, so demand is high.
According to Numbeo, in H1 2019 the price-to-income index (the ratio of median apartment prices to median familial disposable income) in Athens was 10.4, in Paris it hit 21, and in Moscow – 19. The price-to-rent index in Greece is also significantly lower than the European average, which may suggest high residential property liquidity. As the price-to-rent index rises, more people are opting for long-term rental contracts over buying, which makes it harder to sell properties. The price-to-rent index runs at 20.2 in the center of Athens and 23.9 on the outskirts. By contrast, it’s 30 in central Berlin and 28 on the outskirts, while in London it’s 34 and 29 respectively.
“Due to these factors, we believe Greece – more precisely Athens – is one of Europe’s most promising investment destinations in 2019/20.
Balkan Properties is currently running several different projects in the capital, including apartment renovations (both single residences and entire blocks), and we’re already seeing yields of 10-15 % per annum from those we’ve completed. Regarding budgets, it’s better to work with investors who are able to inject a minimum of €300,000 into Greek real estate because it’s then possible to snap up and renovate 3-5 apartments, and profits will be much higher. As for collective development investments, we offer a 10% fixed yield from a minimum investment amount of €100,000, but this return is not guaranteed.”
The only potential risk worth considering when investing in Greece is not the threat of the country’s own economy crashing, but the potential of a global recession, which has been warned by many experts. However, this risk can be neutralized by purchasing property without bank financing. Therefore, even in the event of a new crisis, the investor will retain the properties and capital. In the worst-case scenario, investments will be put on hold for 3-4 years, while yielding about 5% per annum in rental return, and we will have to wait for the next growth period to sell the properties.
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