Given the high reliance on foreign demand, the outlook of the Greek housing market this year will largely depend on the evolution of the pandemic and the pace of recovery of the major foreign buyers’ markets, their appetite for travel and to some extent their confidence in Greece’s flexibility and handling of the crisis, DBRS Morningstar said in a report released on Thursday.
The credit rating firm said that the longer term outlook of the Greek housing market will depend on Greece’s ability to recover from the pandemic without experiencing any permanent damage in its labor market and its ability to strengthen investors’ confidence by improving the long term prospects of the Greek economy and continuing with structural reforms.
The recovery of the Greek residential property market gained pace in 2019. After experiencing a massive contraction between 2009 and 2016, falling cumulatively by 54%, house prices continued on an upward trend for a second consecutive year. Following a marginal decline in 2017 and moderate growth of 1.8% in 2018, house prices grew by a solid 7.3% last year.
Along with the improved conditions in the Greek economy, growing foreign investors’ demand and the status of Greece as a popular tourist destination have contributed to the recovery of the real estate market. Greece’s residency by investment program, initiated in 2013 which involves a five-year resident permit in return for a € 250,000 investment in real estate has also contributed to the surge in FDI inflows since 2016.
Net capital inflows from abroad for property purchases soared by 172.1% in 2018 compared to the previous year, while it increased further in 2019 by approximately 30%. Direct Investment from euro area countries to Greece account for almost 80% of total inflows, mainly from Germany and the Netherlands, and the remaining 20% from non-EU residents, mainly from China, Russia and Arab countries.
Furthermore, increasing demand for short-term rentals in Athens and other tourist areas has grown significantly over the last few years, leading to increased construction activity. High uncertainty about the evolution of the virus and the economic outlook will weigh on consumer sentiment and affect the capacity of Greek households to buy properties. The pandemic is set to derail the recovery of the economy as forecasts point to a severe contraction this year due to the high reliance of the economy on tourism, which contributes directly more than 10% of GDP and accounts for about 16% of total employment.
DBRS Morningstar views that a sustainable economic recovery after the health crisis along with addressing remaining structural weaknesses by simplifying public administration procedures and promoting e-governance, a stable taxation system and continued improvement in the financial health of banks are key drivers for the ongoing recovery of the Greek housing market.