Greece and the Pandemic. How the Tourist Mecca Deceived All Expectations

Before the outbreak of the pandemic, the Greek market was in a great mood: local demand began to recover by the end of 2018, which led to a serious price increase¹ of more than 7% in 2019 alone.

Against the background of such news, Greek Prime Minister Kyriakos Mitsotakis even managed to announce² a three-year suspension of VAT payments on any new construction permits. Then the government considered that the economy was strong enough for risky measures that were designed to increase construction activity and sales.

Net foreign direct investment in real estate increased by 172% in 2018 and 28% in 2019. As a result, by the end of 2019, analysts made the boldest forecasts for the future, assuring that the price increase would continue³ and amount to about 10%. Was such optimism even justified?

How the Year 2020 Had Began

The flames of the pandemic were just flaring up when everyone was waiting for everything to end. Soon after, various countries began to introduce a regime of restrictions. And this could not but affect Greece.

In the first half of 2020, the number of bookings in the country sharply decreased⁴ due to Covid-19. Industry experts assured that by the summer of 2021, demand would recover and the previous excitement would return to the market. But even they were waiting for stabilization only in tourist hot spots.

Short-term rentals in busy city centers such as Athens and Thessaloniki turned out to be even more dependent on a return to normal life, as more and more owners began to switch to a long-term format.

The coronavirus effects had only begun. In the second quarter of 2020, foreign investors put⁵ just €140.6 million in Greek facilities, which is 60% less than in the second quarter of 2019. The difference is noticeable, as it turned out to be the lowest figure since 2017. But even then, the inflow of funds from foreign investors grew continuously, amounting to €170 million in July-September, marking the beginning of a golden period of prosperity for sellers of Greek real estate. But everything ends sometime.

Time to Act

The situation in the market was developing according to the infamous scenario: real estate began to rise in price. According to a report by DBRS Morningstar3, prices increased by an average of 4.6% in 2020. The most noticeable growth was recorded in Athens (7.6%) and Thessaloniki (4.8%). However, prices in unpopular areas of the country among investors remained at the same level. 

The overall development of the residential real estate market in Greece long before the pandemic was closely linked to the demand for tourism-related investments. Naturally, the closure of borders and the fear of the virus led to their decline, especially in the second quarter of 2020. 

After that, the government began active measures to rescue drowning people. And it did not go wrong, because political containment of the negative consequences of the pandemic helped to mitigate its impact on the real estate market.

To stabilize the situation, renovation taxes were reduced, the objective values of the property value were adjusted, which affect the property tax and stimulate housing transactions. Moreover, government agencies have begun work to reduce bureaucracy and improve the efficiency of public administration in order to simplify planning and speed up sales.

There were government schemes to save jobs, tax deferrals, loan guarantees and interest rate subsidies, which, together with bank loan moratoriums, supported households and businesses. Even non-residents who are ready to transfer tax residents to Greece have received tax benefits.

What It Has Lead to

The Association of Real Estate Agents of Athens-Attica notes⁷ that the rent in the capital has only been growing for the fourth year in a row, and amounted to 25-30%.  Now renting an apartment with an area of 80 squares can reach €700. The similar situation is identical for other regions. 

Market representatives are desperately waiting for the resumption⁸ of investment flows into the hotel sector by the end of 2021. Expectations have increased due to the abundance of investment funds and the increased volume of available liquidity, creating favorable forecasts for capital investments. 

The restoration of the tourism sector is expected no earlier than 2023, but with the current lockdowns and this is written with a pitchfork on the water. However, people get used to everything, which means that the leaders of different countries will have to become more loyal to the rigidity of the measures taken. 

Approaching the end of the year, experts from PwC⁹ and the Urban Land Institute have become so inflated that they predict unprecedented prosperity for Athens in 2022 on the basis of capital gains and rents in the near future. 

It is clear that tax incentives and government measures have played a role in reviving the local market. And all the existing trends allow us to boldly and publicly declare that in the near future the growth of rates, rents and prices will continue at the same pace, and maybe faster. And yet, it all boils down to the fact that the key factor that caused the crisis has not disappeared from the field of view of analysts, sellers, investors and ordinary people. Therefore, it will be possible to talk about the final results of Greece's recovery only after it finally copes with the pandemic and its consequences.

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Source: 1. Bank of Greece; 2. Greek Reporter; 3. Ekathimerini; 4. Greek Reporter; 5. Ekathimerini; 6. DBRS Morningstar; 7. Ekathimerini; 8. Ekathimerini; 9. Ekathimerini.

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