Real estate: what factors drive prices up - the role of Airbnb

The real estate market in our country continues to revive, with residential property prices steadily rising since the first quarter of 2018, while prices for commercial real estate - offices and shops - have remained on an upward trajectory until 2022, marking the seventh and sixth consecutive year, respectively.

At the same time, rental prices are increasing, albeit at a slower pace, as noted by Alpha Bank in its Quarterly Economic Development Report.

The trend in the real estate market is determined by both baseline effects and factors related to both supply and demand, such as:

• the return to positive economic growth since 2017 and its further strengthening over the past three years
• the upward trajectory of construction activity
• increase in investments, especially in construction, as well as foreign direct investment (FDI) in real estate
• the development of tourism and the economy of separation
• the Golden Visa program, which encouraged citizens of third countries to purchase real estate in the European Union (EU-27)
• saving money during the pandemic

In addition, Alpha Bank emphasizes that the residential real estate market in Greece currently differs significantly from similar markets in other developed countries, where, according to the latest data, there is either a slowdown in price growth or even a decline.

Bank economists expect these factors to continue supporting the housing market. In particular, in the first half of 2023, GDP grew by 2.4%, investments in housing increased by 47.5%, and investments in other construction work rose by 12.7% year-on-year (in constant prices, seasonally adjusted data).

At the same time, foreign direct investment in real estate increased by 33% in the first quarter of the year, while arrivals and tourist revenues rose by more than 20% in the first seven months compared to the same period in 2022, surpassing the corresponding figures from 2019, which set a record for Greek tourism.

Furthermore, the ongoing increase in the cost of raw materials is expected to create upward pressure on real estate selling prices.

However, there are other factors that can also influence property prices and rental rates to some extent, such as the increase in the threshold for obtaining a Golden Visa from €250,000 to €500,000 in certain areas of the country, effective from August 2023, and new tax measures recently announced by the government that are set to be implemented in 2024, concerning short-term rental landlords. For example, the requirement to start commercial activity for individuals offering three or more properties on a digital platform (with corresponding insurance contributions, business tax, and VAT on the first property), as well as the introduction of various fees (such as a fee for addressing the consequences of climate change).

How does short-term rental affect the housing market?

Short-term rentals within the sharing economy have significantly increased in recent years in our country, contributing to the growth of tourism, which means more visitors and corresponding tourism revenue.

Alongside the growth of this market, together with the Golden Visa program introduced in Greece in 2013, external investments in real estate have also increased, targeting the housing market.

Alpha Bank reflects, on the corresponding chart, on one side, the amount of available housing through the digital platform Airbnb, and on the other side, foreign direct investment in real estate from 2013 to 2022.

As can be seen from the chart, the two indicators have moved almost parallel over the last decade, with a rapid increase.

It is interesting to note that in 2013, during the economic crisis in Greece, foreign direct investment in real estate amounted to 156 million euros.

As for the real estate offered for short-term rental in selected areas that also show tourism activity, such as Athens, Thessaloniki, Crete, and the South Aegean, and evaluated by at least one client, there were almost 42,000 of them in 2022, while before 2016 there were fewer than 10,000.

It should be noted that the total number of registered accommodations on the platform in these four districts in 2022 was significantly higher, amounting to about 73,000, while nationwide it exceeded 100,000.

According to a study by the Center for Planning and Economic Research ("Short-Term Rental of Real Estate in Greece," November 2022) and related literature, one of the additional consequences of the development of the short-term rental market in the country is that it may limit the supply of properties for long-term rental and lead to an increase in rental prices. The extent to which this will happen depends, among other factors, on the characteristics of the short-term rental market, such as whether all properties or only part of them will be offered, notes Alpha Bank.

Moreover, according to a study by the European Commission, there is a significant percentage of real estate being rented out through short-term rental platforms in various EU-27 countries, including Greece, that was specifically purchased for this purpose (Greece: 11.3%, EU-27: 12.8% for one property; Greece: 30.2%, EU-27: 5.7% for more than one property). This corresponds to an increase in foreign direct investment in real estate and is one of the factors driving demand.