Property in Greece is several times cheaper than in most of its neighbouring countries. According to Statista, it is one and a half times cheaper than in Spain and Germany, twice less than in the Netherlands and Sweden and almost three times cheaper than in Italy and Austria. But why is this so?
The global financial crisis, which began in 2008, exacerbated Greece’s budget deficit and external debt obligations, which exceeded 145% of GDP by 2010, resulting in nationwide economic collapse. Moreover, the foundation of these problems was laid in the Greek economy long before the recession entered an acute phase in 2010. The government distorted economic statistics and declared a budget deficit of about 3% of GDP. This allowed Greece to pursue a policy of active borrowing, which helped to cover the real gap in the budget. One of the consequences of this behaviour was a sharp drop in property prices, which led to a collapse of the real estate market.
1. Fall in real incomes
The crisis hit all branches of the economy, and prompted a series of bankruptcies of enterprises and layoffs. In 2008 The unemployment rate in Greece grew from only 7.6% in 2008 to 27.8% in 2013. According to Statista, the average income reached its lowest in 2013, having fallen by 22% from 2009 to €17,400.
Problems related to the payment of public debt forced the government to reduce state support programs, subsidies and salaries of civil servants. According to Greek Reporter, the number of public sector employees fell from 936,000 in 2011 to 567,000 in 2016.
2. Credit problems
A collapse in global capital markets forced investors to pursue a more restrained policy, even for large institutional borrowers such as sovereign investment funds. Against the backdrop of the scandal over the falsification of state statistics, investors were even more seriously concerned about the possibility Greece failing to fulfil its debt obligations. This revaluation of risks led to investors selling their Greek bonds en masse, boosting their yield to almost 40% in 2012. This affected liquidity in Greek markets. This also affected the sale of Greek corporate bonds, boosting their profitability and increasing the cost of business lending at times. The increase in interest rates in the corporate sector made retail and mortgage lending less affordable. As a result, there were fewer property transactions.
3. Tax hikes
To reduce its budget deficit, the Greek government was forced to raise taxes. As a result, the public has even less disposable income. Income taxes were about 27% in 2006, but grew to 34% by 2014, which had a negative impact on the purchasing power of the population. Simultaneously, the state raised taxes on real estate and taxes for non-residents, which were raised almost threefold.
According to Greek media reports, more than 5% of the indigenous population of Greece (about 500,000 people) have left the country since 2007, which added to the weakening domestic demand for residential real estate.
The combination of these factors caused a sharp drop in property demand. As a result the number and volume of transactions decreased. According to PwC, the number of real estate transactions in Greece decreased by 72% between 2008 to 2014, with the average transaction value falling from €158,000 to €45,000.