IMF: House prices in Greece have risen by 29%

Housing prices in Greece have reached an overvaluation zone after a prolonged rally that began in 2017. The International Monetary Fund has identified risks to the banking system and the real economy, recommending that the Bank of Greece take measures to mitigate risks for banks. The Fund's analysis, attached to the Article IV report on Greece, shows an imbalance in the real estate sector.

Housing prices have significantly increased across all indicators since 2017, exceeding 50% in nominal terms and 35% in real terms. Demand has risen not only from residents of the country but also from non-residents, who have increased their investments in real estate, taking advantage of, among other things, the Golden Visa program.

However, the response to the proposal was significant, with investments in housing as a percentage of GDP and the issuance of building permits doubling since 2016.

Rising costs, undervalued house prices add to the risks of the banking system. Systemic risk, albeit limited, has increased since last year and the financial sector faces significant challenges ahead. Macroeconomic risks associated with further financial contraction could lead to deterioration in bank balance sheets and house price adjustments.

To mitigate risks associated with the real estate market, the IMF recommends effectively utilizing macroprudential oversight tools and implementing restrictions similar to those in other European countries, setting limits on household loans and the financing percentage for home purchases.