58% increase in real estate prices with increasing foreign investment

The housing market has recovered from the crisis and is only 7% away from the high prices of 2007. Foreign investment approached 3 billion from the beginning of 2022 to the third quarter of 2023. A correction is possible, the BoE emphasizes.

The destruction that occurred during the crisis incl Greek housing market, with the price level “knocked down” to 41% below 2007 levels, the market is rapidly outperforming as prices rise 58% between the first quarter of 2017 and the third quarter of 2023, according to data from the Greek central bank. In recent years, they have set the tone for the rise foreign investors with billions in investment, while funding from banks remains muted. The Bank of Greece estimates that a slowdown in price growth is imminent, without ruling out a move repair.

Data given by TöE in the latter Interim Report on Monetary Policy and are recorded in more detail in the service open data central bank to confirm recovery the domestic housing market since the unprecedented collapse of the previous decade.

It is characteristic that House Price Index published by the BoE, which hit its lowest price during the crisis in the first quarter of 2017, down 41% from 2007 levels, is now in a distance of only 7%. from this reference point, that is, from what was considered a very favorable time for the housing market, before it was swept away by the country’s economic collapse.

As seen in the BoE chart, buying a house has again become a good investment option in recent years, not only because of the cumulative increase in nominal prices by 57.5% since 2017, but also because even during the inflationary boom of recent years, real property prices continue to grow at a satisfactory pace, i.e. they covered the “loss” from inflation. THE culmination The pace of price growth came in at 15.3% year-on-year in the first quarter of this year, and has since slowed (to 11.9% in the third quarter), but has maintained a double-digit rate of change.

“In the nine months of 2023, house prices (in nominal terms) rose by 13.9% year-on-year, compared with an increase of 11.2% in the same period in 2022”, the Bank of Greece observes.

House price index (Q1 2017 – Q3 2023)

Because 2023 is not 2007

Although the price growth is starting to resemble the good times of 2007, the special features of the current market are very different since when price growth was primarily driven Greek buyers and bank financing.

As can be seen from the data of the Bank of Greece, in this period the difference in the market is formed foreign investors, while purchases from Greeks are limited and carried out with equity as banks’ mortgage lending remains extremely slow – its analysts National Bank pointed out that many home purchases by Greeks are made with the funds they chose from banks during the crisis for security reasons. At the same time, it plays a particularly important role in price increases low supply of housing.

As pointed out by the Ministry of Finance, “Despite the current uncertainty, the housing market remains dynamic and stands out strong, especially investment, demand and low supply. The positive trend of tourism and short-term rentals, preferential housing programs for young people and increased investment interest from abroad in the purchase of real estate, including the “Golden Visa” program, continue to strengthen the dynamics of the market, as recorded by other relevant indicators”.

Foreign investment of 2.9 billion in 21 months

Impressive are the data for capital inflow for buying housing in Greece:

  • In 2022 alone and for nine months of 2023, foreign direct investment in the real estate market amounted to 2.9 billion euros.
  • In fact, the pace of inflows is accelerating significantly this year, even though 2022 was the year with the highest foreign real estate investment on record.
  • “During the nine months of 2023”, bank notes, “Foreign direct investment in real estate achieved a net inflow 1,644 million euros, exceeded by 28.7% the corresponding revenue level recorded in 2022 (€1,277 million)’. as announced by the Bank of Greece.

On the other hand, Greeks interested in housing cannot rely on easy bank financing because, as the Bank of Greece points out, “despite the increased interest in residential real estate, bank financing is at a low level, with the total number of new mortgages falling by 4.9% year-on-year in the first ten months of 2023.

Recovery in construction, but from a low base

On the housing supply side, it does not seem to revival of construction activity from a very low base, it is enough to satisfy strong demand, which plays in favor of higher prices. The BoE notes a very strong recovery in construction activity, but notes that as a percentage of GDP, housing investment remains very low.

“In the eighth month of 2023 construction activity for residences (ELSTAT data) saw positive year-on-year changes in the number and volume of new building permits for residences at country level (22.5% and 14.5% respectively), which significantly strengthened compared to the slight decrease in the corresponding period of the previous year. year (-1.3% and -4.1%)”, points to TtE.

And he adds that investment in housing in the country as a whole, they strengthened significantly year-on-year by 40.2% in the nine months of 2023 (compared to 12.1% in the same period in 2022), although they are still at a very low level as a percentage of GDP (2.0%). At the same time, positive business expectations for the construction of single-family homes (IOBE data) are further strengthened by 13.3% on an annual basis in the eleventh month of 2023.

A slowdown or even a correction is coming

With housing prices already within reach of 2007 highs, the Bank of Greece’s restrained estimates for the domestic real estate market as a whole (including commercial real estate) and the emphasis, for the first time by TtE during the rally of recent years, that a corrective price movement is likely in the next period, especially in properties with low demand. In addition, the BoE clearly indicates that the market may experience turbulence as it remains highly dependent on inflows of foreign investment capital.

In particular, as the bank points out,

  • “Preliminary indicators related to the domestic market, but also to the development of prices at the European and international level, may point to upcoming price correction period, specifically for less demanding real estate use, function and location.
  • Expectations for the next period remain slightly positive, under the influence of international developments and the environment of high inflation, increased interest rates and uncertainty, which directly affect Europe and the global economy as a whole.
  • At the same time, the change in demand characteristics that began during the pandemic period continues to this day, and specific categories of real estate and locations attract disproportionately high investment interest, strengthening the image of the market different speeds.
  • To that extent demand from abroad will be maintained and the supply of quality real estate will remain limited, it is estimated that prices will continue their upward trend in the high-end segment of the market and pull prices up in the secondary markets as well. However, the pace of price growth is expected to moderate, because the current situation does not allow investors to be satisfied with the medium-term development of market conditions”.

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