the greek real estate market : recent developments and prospects

BANK OF GREECEEUROSYSTEM

The Greek real estate market: recent developments and prospects

Theo MitrakosHead of Real Estate Analysis Section

Bank of Greece

February 2012


Outline

Available short-term indicators for the monitoring and analysis of the real estate market in Greece

Specific features of the Greek housing market

Residential property prices in EU and Greece

Number of transactions in the Greek real estate market

Private building activity and residential investment

Business expectations in construction

Financing of the real estate market and financial stress

Real property taxation and “objective” values

Real estate developments and prospects in Greece: final conclusions


Initiatives in the Bank of Greece

Data collection from credit institutions

Quarterly Residential Property Price Indices (Press Releases)

Short-term Indicators for the Greek real state market (revised every two weeks)

Quarterly survey among the real estate agencies

Data on transactions in the real estate market from various sources

Regular monitoring and reporting of short-term developments and prospects in the housing market in the publications of the BoG


Available short-term indicators

Price indices on residential property and rents

Indices of residential property transactions

Construction cost Indices for new residential buildings

Construction activity

Business expectations in construction

Investment in construction and capital inflows

Financing of the real estate market (outstanding

amount of housing loans, interest rates)

Indicators of financial stress

ELSTAT: Hellenic Statistical Authority, BoG: Bank of Greece, DSA: Athens Bar Association, Ktimatologio: Hellenic National Cadastre


Residential Property Prices across euro area countries(average annual percentage change)

Source: BIS and ECB Monthly Bulletin, November 2011 (http://www.ecb.int/pub/pdf/mobu/mb201111en.pdf )

Residential property prices (nominal) in the euro area

Weight 1999-2008 2009 2010 2011 H1 Q1 Q2

Belgium 3.8 8.9 -0.4 5.4 3.1 3.2 3.0 Germany 26.7 -0.3 0.6 2.3 - - - Estonia 0.2 - -35.9 0.1 6.4 2.2 10.7 Ireland 1.8 9.3 -13.7 -15.5 -11.8 -11.1 -12.4 Greece 2.6 9.7 -3.7 -4.7 -4.9 -5.2 -4.5 Spain 11.7 12.2 -6.7 -2.0 -5.5 -4.1 -6.8 France 21.3 10.9 -7.1 6.4 8.3 8.9 7.7 Italy 17.0 6.9 -0.4 0.1 0.9 - - Cyprus 0.2 - -4.1 -2.5 - - - Luxembourg 0.4 10.9 -2.1 4.5 4.0 2.4 5.7 Malta 0.1 8.3 -5.0 1.1 -1.3 -2.6 0.0 Netherlands 6.4 7.3 -3.3 -2.0 -1.6 -1.2 -1.9 Austria 3.1 1.7 3.6 5.7 - 3.9 - Portugal 1.9 3.1 0.4 1.8 0.4 0.6 0.2 Slovenia 0.4 - -8.2 2.8 - 1.1 - Slovakia 0.7 - -11.1 -3.9 -2.7 -2.5 -2.8 Finland 1.9 5.8 -0.3 8.7 3.7 4.2 3.2 Euro area 100.0 6.4 -2.9 1.9 1.7 2.3 1.1

(annual percentage changes) 2011


Residential Property Prices across euro area countries(average annual percentage change)

Source: ECB Monthly Bulletin, November 2011 (http://www.ecb.int/pub/pdf/mobu/mb201111en.pdf )

The annual growth of Euro Area house prices decelerated in the first half of 2011, from 2,8% in 2010 H1

1999-2008: +5.6%, 2009: -2.9%, 2010: +1.9%1999-2008: +5.6%, 2009: -2.9%, 2010: +1.9%

2011 H1: +1.7% 2011 H1: +1.7% (2011 Q1: +2.3%, Q2: +1.1%)

Only in few countries house price growth continued to recover (Estonia, Luxembourg, France)

Divergent developments across euro area countries, with highest price growth in Estonia and France and lowest in Greece, Ireland and Spain.

Demand side: uncertainty with regard to income and affordability has been increasing

The overvaluation of euro area house prices built up prior to financial crisis has gradually declined, from its peak of around 15% in 2007 to around 10% in 2011.


Specific features of the Greek housing market

The construction industry in Greece is fragmented (particularly in the residential market, 10-15,000 firms)

High rate of home ownership (80%) and low mobility of land market

Significant impact of fiscal measures in the housing market

High transaction costs and low trading volume over the stock

Non-homogeneous product (residential property)

The supply responds slowly and with a significant lag in demand signals (lack of land, construction time, issuing building permit and financing, etc.)


Residential Property Prices in Greece

Cumulated adjustment of -21,5% in real terms and -12,9% in nominal terms since the current financial crisis (2009 - 2011 Q3)

Source: BoG

Residential Property Prices

-6

14

34

54

74

94

114

Ι ΙΙΙ Ι ΙΙΙ Ι ΙΙΙ Ι ΙΙΙ Ι ΙΙΙ Ι ΙΙΙ Ι ΙΙΙ Ι ΙΙΙ Ι ΙΙΙ Ι ΙΙΙ Ι ΙΙΙ Ι ΙΙΙ Ι ΙΙΙ Ι ΙΙΙ Ι ΙΙΙ Ι ΙΙΙ Ι ΙΙΙ

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Ind

ex: 2

007=

100

-10

-5

0

5

10

15

20

% C

han

ge

y-o

-y

Growth rate (right-hand scale)NominalReal


-15

-10

-5

0

5

10

15

20

2004I

III 2005I

III 2006I

III 2007I

III 2008I

III 2009I

III 2010I

III 2011I*

III*

Urban areasAthensOther urban areasPrice Index of Rents

Indices of Prices of Dwellings and Rents(Average annual percentage change)

The rate of change in rents has declined slightly but has remained positive during the current financial crisis (2008: 3.9%, 2009: 3.6%, 2010: 2.4%, 2011 10months: 1.0%)

Source: House Price Index (BoG), Price Index of Rents (ELSTAT)


Residential Property Price Indices: recent developments

Relative strong persistence of apartment prices (2008: 1.7%, 2009: -3.7%, 2010: -4.7%, 9months 2011: -4.6%)

Stronger decline in the prices of "old" apartments during the crisis and relatively stronger persistence of newly-built apartments typically available for sale by construction firms

Stronger decline in house prices according to real estate agencies

Annual percentage changes 2008 2009 2010 2011 (9M)New (up to 5 years old) 2,3 -2,0 -4,2 -3,5Old (5 years old and above) 1,3 -4,8 -5,0 -5,2

Athens 0,9 -4,6 -3,2 -5,8Thessaloniki 1,5 -6,0 -7,4 -6,3Other cities 1,8 -2,7 -5,3 -3,6Other areas 3,3 -1,9 -5,8 -2,4

Source: BoG


House price-to-rent ratio (overvaluation)

Sources: House Price Index (BoG), Price Index of Rents (ELSTAT)

The house price-to-rent ratio has been declining continuously, reaching levels seen in 2001, indicating that in some extent a correction of overvaluation of house prices has already taken place.

House price-to-rent-ratio

-10

-5

0

5

10

15

20

I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I* II*III*

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

60

65

70

75

80

85

90

95

100

105

110

115Average annual change in the house price index (left-hand scale)Price-to-rent ratio (2007=100, right-hand scale)


Construction Cost Indices of (new) residential buildings(average annual percentage change)

Despite the recession, construction costs and particularly construction materials remained high in 2010 (Total cost: 1.8%, Materials: 3.0%) and in the first 9 months of 2011 (Total cost: 1.2%, Materials: 2.9%).

The high cost of replacement of old residential buildings with new impedes a further decline in prices.

Source: ELSTAT

-4

-2

0

2

4

6

8

10

2004I

III 2005I

III 2006I

III 2007I

III 2008I

III 2009I

III 2010I

III 2011I*

III*

Total CostMaterials CostLabour Cost


Index of Residential Property Prices and number of transactions-appraisals

The current crisis in the real estate market reflected also in a strong decline in the number of transactions-appraisals.

Source: BoG

Index of Residential Property Prices (nominal) and transactions

80

85

90

95

100

105

Ι ΙΙΙ Ι ΙΙΙ Ι ΙΙΙ Ι ΙΙΙ Ι ΙΙΙ Ι ΙΙΙ

2006 2007 2008 2009 2010 2011

Ind

ex

: 2

00

7=

10

0

0

5

10

15

20

25

30

35

40

45

Number of transactions (inthousands, right-hand scale)

Index (left-hand scale)


Residential property transactions: recent developments

On the supply side, existence of a substantial stock of new houses, which stabilized in 2010 and 2011 (150,000-180,000 housing units)

Significant drop in the number of transactions: 2008 2009 2010 2011 (9M)

Bank appraisals (residential) -21.7% -35.7% -0.2% -43.0%

Number of notarial acts on real estate -5.8% -13.9% ….. …..

Number of real estate transfers ….. -14.0% -13.0% -25.5%

Contracts in the presence of a lawyer* -10.0% -18.0% -16.3% -31.2%

Transfers in Athens Land Registry ….. ….. -15.5% -26.2%

Much stronger reductions in the volume (in square meters) and mainly the value of transactions

Buyers’ preference shifted towards smaller and more affordable properties

Greater fall in the number of transactions in Athens

Increase in the number of cash transactions* Transactions in Athens area only


Number of transactions in the real estate market

Source: ELSTAT (2004-09), *BoG estimates (2010-11)

*Turnover: Ratio of transactions to stock of housing units (%)

Number of transactions in the real estate market

166.0

215.1

172.9 167.7158.0

136.0

110.0

82.0

23.0

0

50

100

150

200

250

2004 2005 2006 2007 2008 2009 2010* 2011*

Nu

mb

er

of

tran

sacti

on

s (

in t

ho

us.)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Perc

en

tag

e

Total GreeceAthensTurnover* (right-hand scale)


Private building activity(average annual percentage change)

Source: ELSTAT, * provisional data

Large decrease in building activity during the current crisis and even sharper reduction in the first 7 months of 2011

-31.9

-10.9

-44.0

-19.8-23.7

-39.4

-14.3

-35.4

-60

-40

-20

0

20

40

2005 2006 2007 2008 2009 2010 2011-7months*

% C

hang

e y-

o-y

Number of Building PermitsFloor Space of Buildings (in square meters)Volume of Buildings (in cubic meters)Cement Production Volume


Residential investment and real house prices

Sources: House Price Index (BoG, Real house prices deflated with HICP), Residential and Construction Investment, HICP and GDP (ELSTAT)

Strong decline in residential investment (peaking at 11,7% of GDP in 2006, it declined rapidly to 5,0% in 2010 and 3,1% in 2011 H1).

3.1

6.0

79.8

0

2

4

6

8

10

12

14

16

18

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011H1

50

60

70

80

90

100

110Residential Investment in % of GDPConstruction Investment in % of GDPReal House Price Index (2007=100, right-hand scale)


Business expectations in Construction

Significant and sustained decline in all indices of business expectations in construction during the period of the current crisis

An equivalent reduction of business expectations in public works (2010:-1.0%, 2011 10-months: -40.8%) and an even more significant reduction in residential construction (2010: -32.4%, 2011 10-months: -45.1%)

The months of assured production in residential property construction fell to 3.1 in October 2011, from 8.3 in 2010 and 11.0 in 2009

Total Construction 2009 2010 2011-Oct.

General Index of Business Expectations -31.4 -27.4 -30.8 Activity relative to previous quarter -16.1 -39.0 -36.1 Planned future activity -42.8 -63.2 -85.0 Prospects of employment, 3-4 months ahead -32.1 -46.4 -37.5

Particularly important the role of business expectations in the recovery of the real estate market

Expectations of further decline in prices in the next quarter (according to survey among the real estate agencies)

Source: ΙΟΒΕ


Domestic MFIs credit to households

Source: BoG

Continuous deceleration of the rate of change in outstanding loans to households and a significant tightening in the financing of residential property market.

Cautious attitude of households to house purchase and selective attitude of banks to finance new mortgages

-3.1-2.1

-10

-5

0

5

10

15

20

25

30

35

Ja

nM

ar

Ma

yJ

ul

Se

pN

ov

Ja

nM

ar

Ma

yJ

ul

Se

pN

ov

Ja

nM

ar

Ma

yJ

ul

Se

pN

ov

Ja

nM

ar

Ma

yJ

ul

Se

pN

ov

Ja

nM

ar

Ma

yJ

ul

Se

pN

ov

Ja

nM

ar

Ma

yJ

ul

Se

pN

ov

Ja

nM

ar

Ma

yJ

ul

Se

p

2005 2006 2007 2008 2009 2010 2011

(%)

12

-mo

nth

ch

an

ge

Total Loans (stock)

Housing Loans (stock)

Stock of housing loans:

December 2005: 33.5% -//- 2006: 25.9% -//- 2007: 21.5% -//- 2008: 11.2% -//- 2009: 3.7% -//- 2010: -0.3% September 2011: -2.1%


Housing loans interest rates

Continuous decline in mortgage rates from November 2008 to mid-2010. Recovery since March 2010 for the rates of new mortgages.

Source: BoG - Including charges other than interest (handling fees, mortgage registration fees, etc.).

4.8

5.8

3.6

5.3

3.9

5.2

3.63.5

4.0

4.5

5.0

5.5

6.0

Jan

Mar

May Ju

lS

epN

ov Jan

Mar

May Ju

lS

epN

ov Jan

Mar

May Ju

lS

epN

ov Jan

Mar

May Ju

lS

epN

ov Jan

Mar

May Ju

lS

epN

ov Jan

Mar

May Ju

lS

epN

ov Jan

Mar

May Ju

lS

ep

2005 2006 2007 2008 2009 2010 2011

(%) p

er a

nnum

Interest rates on all new housing loans including charges

Interest rates on outstanding housing loans with initialmaturity of over 5 years


Indicators of financial stress: Non-Performing loan ratio

Continuous increase in households financial stress during the current crisis

Source: BoG

3.6 3.4 3.6

5.3

7.4

6.3

5.44.5

5.0

7.7

12.8

10.4

11.9

10.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

2005 2006 2007 2008 2009 2010 2011 Q2

Non

-per

form

ing

loan

rat

io (%

) Total loans

Housing loans


Real property taxation: recent reforms

Increased tax burden and higher in taxation on real estate property

3.7 billion additional public revenues in 2012 through the taxation on real estate property, according to the new government budget

The “objective” values in residential property are lower than the market values (ratio of about 0.63, but increasing)

Higher ratio (“objective” to market value) in commercial real estate (0.66 in June 2011). However for approximately 10% of the commercial property units of REITS, the administrative value is higher than the market value (REITs Analysis: Eurobank Properties, Trastor, MIG Real Estate)

The expected increase in administrative values as from 2012 will put additional burden on property owners and make the recovery of the market more difficult.

The increase in administrative values should be combined with abolition of other taxes or reduction in tax rates (taxes on transactions, etc)


Administrative to Market Value of Residential Properties

Continuous increase in the ratio of “objective” to market value since 2006

Source: BoG

0,47

0,63

100

110

120

130

140

150

160

170

180

190

200

I III I III I III I III I III I III

2006 2007 2008 2009 2010 2011

(In

th

ou

san

d e

uro

s)

0,40

0,45

0,50

0,55

0,60

0,65

0,70

Market value per housing unit

Ratio of "objective" to market value (right-hand scale)


Administrative to Market Value of Residential Properties

The “objective” values in residential property are lower (about 2/3) than the market values

Source: BoG

Ratio of Administrative to Market Value of Residential Properties (2011)

0.64

0.61

0.65

0.56

0.63

0.50

0.52

0.54

0.56

0.58

0.60

0.62

0.64

0.66

0.68

0.70

Athens Thessaloniki Other cities Other areas Total Greece


Ratio of Administrative to Market Value of Residential Properties in Athens: 2011

Source: BoG

0.77

0.76

0.68

0.65

0.63

0.63

0.61

0.56

0.55

0.50 0.55 0.60 0.65 0.70 0.75 0.80

Center (Omonia, Vathis, Kypseli etc)

Center (Kolonaki, Filopappou, Acropoli etc)

South (Argyroupoli, Alimos, Paleo Faliro etc)

Piraeus (center)

East (Agia Paraskevi, Papagou, Cholargos etc)

South (Voula, Glyfada etc)

West (Peristeri, Petroupoli, Chaidari etc)

North (Kifisia, Dionysos, Penteli etc)

West (Ilion, Acharnes etc)


Real Estate Agents and Consultants Survey


Assessment of the current situation in the housing market (1/2)

Deterioration of the housing market conditions

Over-supply of houses

Continuing rationalisation of the house prices

Source: BoG

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Much worse 7% - - - - 6% - -Worse 34% 21% 67% 8% 24% 29% 73% -Unchanged 59% 59% 33% 92% 76% 66% 20% -Better - 21% - - - - 7% -Much Better - - - - - - - -

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Much higher Supply 86% 97% 90% 75% 74% 89% 93% -Higher Supply 7% 0% 7% 25% 19% 6% 7% -Balanced - 3% - - 3% - - -Low Demand 7% - - - 3% 3% - -Much LowerDemand - - 3% - - 3% - -

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Very under-priced - - - - 3% 11% - -Under-priced 21% - - - 3% - 7% -Rational 17% 21% 7% 17% 18% 49% 60% -Over-priced 59% 72% 90% 79% 74% 31% 20% -Much over-priced 3% 7% 3% 4% 3% 9% 13% -

A1: What is your assesment of the current situation compared to 3 months ago

2011

A2: In your view, what is the balance between Supply & Demand

2011

2010

2010

A3: What is your assesment of the current house price level

20112010


Strong reduction in house purchase transactions (also confirmed by the data of the Hellenic Cadastre)

Prices showed a continuous decrease during 2011

Assessment of the current situation in the housing market (2/2)

Source: BoG

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Much Lower 17% 14% 23% 12% 15% 8% 40% -Lower 21% 17% 40% 17% 41% 34% 40% -Unchanged 41% 48% 33% 67% 38% 57% 13% -Higher 21% 21% - 4% 6% - 7% -Much Higher - - 3% - - - - -

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Much Lower 21% - - 25% 3% - 7% -Lower 55% 90% 53% 21% 73% 71% 80% -Unchanged 24% 7% 43% 54% 21% 26% 13% -Higher - 3% 3% - 3% 3% - -Much Higher - - - - - - - -

A4: What is your assesment of the current volume of house transactions compared to 3 months ago

20112010

A5: What is your assesment of the current house prices compared to 3 months ago

20112010


Expectations in the housing market

Worsening expectations in the housing marketLower number of transactionsFurther weakening of house prices

Source: BoG

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Much worse 17% 14% 37% - 6% 3% 7% -Worse 55% 34% 23% 21% 18% 18% 80% -Unchanged 24% 48% 30% 46% 44% 68% 7% -Better 3% 3% 10% 33% 32% 12% 7% -Much Better - - - - - - - -

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Much Lower 14% 14% 20% - 6% 3% 7% -Lower 59% 34% 40% 21% 18% 32% 80% -Unchanged 24% 45% 27% 29% 47% 62% 7% -Higher 3% 7% 13% 50% 29% 3% 7% -Much Higher - - - - - - - -

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Much Lower - - - - 3% 3% 7% -Lower 66% 83% 83% 79% 68% 54% 87% -Unchanged 34% 17% 17% 21% 29% 43% - -Higher - - - - - - 7% -Much Higher - - - - - - - -

B1: What are your expectations about the housing market sitution in the next quarter

20112010

B2: What are your expectations about the volume of house transactions in the next quarter

2011

B3: What are your expectations about the house prices in the next quarter

2011

2010

2010


Assessment of the current situation in the commercial real estate market

C1: What is your assessment of the current situation in the commercial real estate market compared to 3 months ago

Source: BoG

Economic Sentiment Index in the Commercial Real Estate Market

-60

-50

-40

-30

-20

-10

0

10

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q

2009 2010 2011

Offices

Stores

Industrial


Expectations in the commercial real estate market

C9: What are your expectations about the commercial real estate market situation in the next quarter

Source: BoG

Expectation Index in the Commercial Real Estate Market

-70

-60

-50

-40

-30

-20

-10

0

10

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q

2009 2010 2011

Offices

Stores

Industrial


Conclusions: Recent developments and prospects in the housing market (1/2)

Relative reluctance on the demand side and tightness on the financing side

On the supply side, the existence of a substantial property stock (available for sale)

Relative strong persistence of house prices with a slight downward tendency in the next few months

The overvaluation in house prices has been corrected gradually and its adjustment is probably not finished yet.

Buyers’ preference shifted towards smaller (average area from about 97m2 in 2006 to 91m2 in 2011), existing (older) and more affordable apartments

Cautiousness in developing new investment projects and general shift to more affordable commercial properties


Overall increase of empty commercial premises, rent decline, elimination of goodwill factor, renegotiation of lease contracts

Negative short-term expectations (economic, employment, taxation, etc.) with a significant effect on the real estate market

Expectations of a further small adjustment in prices in the housing market, with being rather low the risk of an abrupt change

Increased tax burden and higher taxation on real estate property

The recovery of the property market is linked directly to improving the expectations of households and businesses, reducing the prevailing uncertainty, financing the market by the banking system, but also the overall prospects for dealing with the problems of the Greek economy (fiscal, structural, etc.).

Conclusions: Recent developments and prospects in the housing market (2/2)


Bank of Greece: Real Estate Market Analysis Section

Thank you!

For any queries, please contact:

Bank of Greece Economic Research Department Real Estate Market Analysis Section 21, E.Venizelos Avenue, GR-102 50 Athens, Greece Telephone: + 30 210 320 2376, 3837Fax: + 30 210 320 2660, 2423

Email: [email protected]

URL address: http://www.bankofgreece.gr/Pages/en/Statistics/realestate/default.aspx

the greek real estate market : recent developments and prospects

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