Editor’s note: This analysis of the Greek real estate market was originally posted on the Tranio blog. It’s reposted here with their permission.)
Real estate investments are made to last – the average investment term is about five years. For this reason, before buying property in Greece, foreign investors weigh up factors including national economic growth, political stability, and the likelihood of market overheating. Ruslan Galimov, analyst for international real estate platform Tranio, explains how European investors find the answers to these questions, and why Greek real estate is currently so attractive.
What the statistics show
At the end of Q2 2019, Greece’s residential real estate market witnessed a 6-percent spike in apartment prices compared to Q4 of 2018, marking the sharpest growth in the sector in more than a decade. However, despite the significant six-month increase, the current prices are 36-percent lower compared to 2008.
According to the National Bank of Greece, foreign direct investment in Greek real estate totalled 736 million euros, over the first two quarters of 2019. By contrast, the country attracted 415 million euros in foreign real estate investment over the course of 2017.
According to Nordea, direct investment from the Eurozone accounts for 70–to-80 percent of annual foreign property investment in Greece. Investing countries include the Netherlands, Luxembourg, Germany, France, Belgium, Italy, and Spain.
Is Greece’s residential property market overheated?
To evaluate the market, investors usually ask three questions:
• One: how affordable is the particular country’s real estate to the local population?
• Two: do people benefit from buying residential property?
• Three: is it possible to receive a rental income?
Greece’s apartment and home purchase affordability index can be determined by comparing property prices to the average national income. This can be done by using a special index known as the price-to-income ratio. When real estate is affordable to residents, investors will usually be able to resell the apartments at a profit in a few years because there will be buyers.
In Greece, the price-to-income ratio is pretty attractive right now according to Numbeo. In H1 of 2019, in Athens it hit 10.4. This means a middle-class family will spend approximately 10.5 annual incomes on buying a residential property that’s around 90 m² in size. This figure is low in comparison to other European capitals.
For comparison, the price-to-income ratio was about 22 in London, 21 in Paris, 19 in Moscow, 11.5 in Berlin during the same period.
The price-to-rent index demonstrates how cost-efficient it is for the residents of any given country to buy residential property. In Athens, the mid-year 2019 index stands at 20.2 in the city centre and 23.9 on the outskirts. This means an investor who buys a central apartment in Athens and starts leasing it will make their money back after 20 years. An apartment on the outskirts of Athens will start generating profit after about 24 years. Therefore, the higher the price-to-rent ratio, the more difficult the properties are to resell.
For reference, in London, it’s about 34 in the city centre and 29 on the outskirts, in Paris 39 and 42 respectively, 25 and 21.5 in Moscow, 30 and 28 in Berlin.
The availability of rental income is another indicator potential investors use to evaluate the residential property market. Tourism – a lynchpin of Greece’s economy – is a major factor affecting the country’s rental business.
Between 2015 and 2019, Greece’s inbound tourism revenue grew by over a third and reached €18.5B. In 2018, the country welcomed 33M visitors. Tourism is currently fueling a 25-percent annual growth rate of the short-term rental sector and generating roughly 2 billion euros annually for property owners. As a result, rental rates and property prices are on the rise. In 2018, the average rental rate in Athens increased by more than 9 percent.
Is the Greek economy growing?
Greece’s GDP had been growing steadily for three years and in 2018 it amounted to 218 billion euros, which was almost 2-percent higher than in 2017. The Greek economy is growing by an average of 0.5 percent quarter-on-quarter. Between July and September of 2018, Greece’s GDP quarterly growth was three times higher than the EU average. When contrasted with the steep downfall of the economy after 2009, the quoted figures represent a compelling argument in favour of the country’s high economic potential.
Is there political stability in Greece?
Industrial protests and public rallies are not rare in Greece. Unpopular legislative changes and foreign policy sometimes cause people to take to the streets. The 2008 riots and nationwide strike in 2010-2012 are noteworthy examples. However, over the last seven years the country has not experienced any prolonged periods of public unrest.
In July 2019, the ruling party was defeated in the Greek elections and the center-right New Democracy party won the parliamentary majority. Unlike its predecessors, New Democracy is more loyal to the EU, reducing taxes – including the property tax in Greece (ENFIA) – and plans to increase foreign investment. Greece is planning to completely halt capital controls by late September.
Major investors are pumping money into Greek property and buying up real estate. For example, Houston-based international development company Hines, which has invested about $70 million in Greece since 2014, bought one of Athens’ most upmarket office buildings in 2019.
Tranio is a Moscow-base broker with offices in Bryansk, Spain (Barcelona, Alicante, Torrevieja) and Germany (Freiburg). More than 11,000 people per day visit the Tranio website, and the company’s revenue grew by 18 percent in the past year. In 2017, 26 percent of all the company’s transactions involved foreign clients. In particular, Tranio closed several large commercial real estate transactions in Germany to nationals of Pakistan, Turkey and South Africa.