The dire economic situation meant that people were unable to pay back their loans. The share of non-performing loans reached a critical level of 51% in 2015.
In cases when people or companies were unable to service their mortgages, a bankruptcy procedure followed, followed by the sale of collateral. As a result, many properties were put onto the market. As banks and financial institutions tried to get rid of non-core assets as quickly as possible, these properties were often sold at deep discounts, which only exacerbated the fall in prices.
Why the situation will improve
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- Since 2010, the Greek government has taken many measures to reduce public debt and its budget deficit. This has produced results – the International Monetary Fund (IMF) has forecast Greece to achieve 1.8% GDP growth in 2017, and 2.6% in 2018.
- A strong fall in the value of Greek assets (along with an ease in social tension) is making them more attractive to foreign investors. According to a press release from the Greek Ministry of Economy, foreign direct investment is expected to reach €4 billion in 2017, which is 42% more than in 2016.
- Austerity measures adopted by Greek government yielded dividends in form of a surplus in the state budget, even though this exacerbated the decline in demand at the height of the crisis several years ago. The parallel development of privatisation programs allowed the state to receive additional revenue, and also attracted large foreign investors to participate in the development of transport and energy infrastructure in Greece. For example, Chinese company COSCO acquired 51% of the Port of Piraeus, Italian company Ferrovie dello Stato Italiane bought out Greek railway operator TrainOSE, and the joint venture Fraport Greece began managing 14 state airports.
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- According to the World Tourism and Travel Council, the number of international tourists grew from 14.9 million in 2009 to 24.8 million in 2016. This has caused an increase in demand for short-term rental properties, despite higher taxes. This makes residential property more attractive for investment. In October 2017 media published news about a Chinese investor who acquired more than 100 apartments in central Athens, in the neighbourhood of Exarchia in one transaction.
- Greece’s “Golden Visa” program, launched in 2013, is attracting private investors to the country’s residential and commercial real estate market. As of September 2017, 2014 primary applicants have received a Greek residency permit.
- Greek government bonds have stabilised at 2-6%, depending on maturity. In July 2017 the country has managed to place five-year government bonds on the market with a 4.5-5% yield for the first time in three years. As such, Greece has restored access to low-cost external financing, which is having a positive effect on private and corporate lending.
- The unemployment rate improved from 27.8% in 2013 to 20.6% in 2017. Although the Greek labour market cannot be called positive, the peak of the employment crisis has passed.
- In 2014 the Greek government adopted amendments to legislation relating to how it deals with non-performing loans (NPL). The amendments simplify the procedure for selling NPL and protect borrowers from the forced sale of collateral. The amendments also allowed the Greek government to set up specialised institutions to purchase and manage portfolios with bad debts. In the future, this will allow private banks to “clear” their balance sheets and reduce the required reserves to further reduce the cost of financing loans.
The measures taken by the Greek government under the pressure of its EU creditors have helped the country avoid bankruptcy. Greece has moved on from resolving issues related to its creditors and avoiding bankruptcy and is now looking for sources of economic growth. The stage is set for a rapid recovery, and an increase in property prices should soon follow.
