Real Estate: Stouranar's Warning on Housing Prices - When Will Housing Prices Drop - Economic Courier - ot.gr

The Bank of Greece is raising an alarm about rising housing prices due to the growth of short-term rentals and interest from investors obtaining "Golden Visas" in areas with permanent residency. It points to the emergence of serious questions regarding the possible introduction of measures by the state. Despite a slight slowdown observed in the last quarters of 2023, housing prices remain at record high levels. The Annual Report by Governor Yannis Stournaras emphasizes that measures aimed at increasing housing supply and limiting investment demand (such as short-term rentals and the "Golden Visa") could slow down the rate of price and rent increases, and may even lead to adjustments in some regions.

Foreign investments reached a record 2.13 billion euros in 2023. The interest of foreign investors is clearly reflected in the data from the "Golden Visa" program, as well as in the statistics from the Bank of Greece regarding net capital inflows into the real estate sector from foreign investors. In particular, in 2023, net inflows from foreignreal estate purchases remain high, accounting for 42.5% of the total investment volume in the country and exceeding 2 billion euros, which is an 8% increase compared to 2022 (2.133 billion euros compared to 1.975 billion euros in 2022).

Expectations for the Greek real estate market in the near future remain cautiously optimistic, despite ongoing global geopolitical uncertainties. Conditions related to rising inflation, increasing construction costs, and higher interest rates are negatively impacting investment returns, which could, in the long term, also affect housing prices that have largely been fueled by foreign investments in recent years. Nevertheless, in the short term, as long as demand from foreign buyers remains high, prices will continue to rise in the high-end real estate segment, which will also elevate prices in less developed markets.

In 2023, the Greek real estate market continued to show a high level of demand both from abroad and domestically, especially in the high-quality housing segment. Global geopolitical factors and the impact of high inflation have not been able to halt price growth, and so far, this has not significantly affected construction and investment activity. The residential real estate sector, particularly with investment appeal, maintained the highest interest, which was reflected in a significant increase in prices. Additionally, this year saw the initiation or completion of major investments in eco-friendly office buildings, hotels, and high-quality commercial warehouses, as well as significant land purchases for new professional property developments.

The analysis of current prices and corrections at the European and international levels, combined with inflationary conditions, rising energy costs, and high interest rates, suggests that, if the current dynamics persist, these factors may lead to a slowdown in growth rates or even a correction in real estate prices at the local level, especially for properties with low demand.

The housing price report shows that, according to the apartment price indicators provided by the Bank of Greece, the housing market across the country continues to demonstrate strong annual growth rates, although there has been some slowdown in the last quarters of 2023. More specifically, the analysis of housing prices in 2023 at the national level shows an average price increase of 13.4% year-on-year, compared to an increase of 11.9% in 2022 and 7.6% in 2021. Throughout the quarters of 2023, the annual price growth rates were 15.4%, 14.7%, 12.1%, and 11.8%, respectively.

In 2023, prices for older apartments (over 5 years old) increased on average by 14.2%, which is slightly higher than for new apartments (12.4%). When looking at the data by region, the highest annual price growth rates for apartments are observed in large cities. Specifically, in Thessaloniki, prices rose by 16.2%, in other major cities by 14.5%, and in Athens by 13.7%. Meanwhile, in other regions of the country, the growth was less significant at 10.8%.

Among the key factors contributing to the growth of the residential real estate sector in 2023, the following can be highlighted:

• A high level of investment interest, especially from foreign investors.
• Low housing supply, especially of high quality.
• Successful development of the tourism industry and short-term rentals
• There is a high demand for the subsidized housing program for young people.

The dynamics of the market is also confirmed by the increase in investments in housing, which rose by 20.7% in 2023 compared to 33.7% in 2022, although it remains at a low level relative to GDP (1.9%).

Since the beginning of 2023, there has been an increase in construction activity across the real estate sector, reflected in both the number of new permits and the volume of construction.

It should be noted that, despite significant development in the Greek residential real estate market, the overall volume of new mortgage loans has remained low after six years of continuous growth, and in 2023 it decreased by 1.9% compared to a 20.7% increase in 2022. According to recent studies, there has been a steady decline in demand for mortgage loans over the past almost two years (except for the second quarter of 2023) due to rising interest rates.

There has been a sharp increase in prices in the commercial real estate sector. According to data from the Bank of Greece, in the first half of 2023, prices for high-quality office spaces rose by 6.6% year-on-year, while prices for commercial properties of the same quality increased by 6.9%. In Athens, the price growth rate for offices was even higher at 7.2%, while in other regions of Greece, the increase was 7.3% after a long period of relatively stable prices. In Thessaloniki, there was also a slight decrease in prices compared to the previous year (-0.5%).

Regarding high-quality stores, in the first half of 2023, significant positive changes were noted in price indicators in Athens (8.4%) and Thessaloniki (9.8%), while in other regions of the country, this figure was 3.7%. Overall, across the country, the rent for both offices and stores increased by 5.6% over the year.

Investment interest is stimulating construction activity. Over the eleven months of 2023, construction activity for commercial properties has been predominantly positive, with various positive changes across different categories. In particular, the number of new building permits for offices increased by 44.8%, although their total volume in cubic meters decreased by 10.1% compared to the same period in 2022.

New hotel construction permits have decreased by 31.1%, with a corresponding volume reduction of 4.0%. In conclusion, construction activity in the retail segment has significantly increased in quantitative terms (280.5%), although in terms of new permits, the growth was more moderate (13.9%). Positive trends in obtaining new permits for offices and retail spaces confirm the ongoing investment interest and activity of users regarding properties with modern characteristics.

In investments, "green" offices prevailed. According to data collected by the Bank of Greece, throughout 2023, the majority of funds from investment companies and funds were primarily directed towards the market or the development of high-quality office spaces, especially those with modern environmental features. Hospitality-type properties, professional warehouses, and specialized investment real estate also attracted significant amounts of capital. According to the commercial real estate market research, in the first half of 2023, the minimum yield of high-class offices in economically advantageous areas of the capital ranged from 5.5% to 6.6%, which was on par with similar values from the previous half-year, while the minimum yield for stores in the best locations in Athens was between 5.3% and 6.0%.