By Chrysostomos Tsoufis

As – even during the pandemic crisis – property prices continued to rise, the ECB warned at the end of 2022 of market bubbles in many areas of the Eurozone as “price dynamics exceeded fundamentals”.

At the same time he warned – given that one increase in interest rates followed another – for a violent correction of prices in some cases and a significant increase in the cost of servicing loans, he calculated that for every 2% increase in interest rates, the cost of servicing increases by 8%. Her next report in May is awaited with great interest, especially when interest rate increases have already reached 3.5% and we are not done yet.

Countries such as Scandinavia, the United Kingdom, Germany, the Netherlands and Switzerland are some of those where real estate markets have become dangerously inflated. In fact, like Sweden, the violent adjustment of prices has started with a drop of up to 15%.

In Greece anyway, 2022 closed with another increase in real estate prices, and in fact a double-digit increase of 11.1%. This is the fifth consecutive increase as since 2018 prices have only gone up. The newest -five years old- increased by 11.8% and the older ones by 10.5%. 13% on average are the increases in its properties of Athens and 11.8% in those of her Thessaloniki.

The maintenance of this dynamic according to the Bank of Greece report is mainly due to the strong external investment demand (investments in housing increased 36% in 2022 and 27.3% in 2021) but also tourism which positively affects housing mainly through short-term leases.

Frankfurt estimates that the future is not auspicious for the European real estate market. The increase in interest rates will lead to less demand for mortgages, and already the percentages of households that declare in the various surveys that they do not intend to buy or build a house are falling. At the same time, the expectations of the construction companies, which saw an increase in construction costs for 2023, are decreasing. In fact, the ECB warns that these factors will further increase the pressure on the construction industry and this will result in bankruptcies or a reduction in investment in the best case scenario.

We see some of these signs of “fatigue” in the Greek market as well, even though prices are “flying”. After 5 years of growth the number of building permits in the 11th month of 2022 decreased by 1.1% and the volume decreased by 4%. Also, the cost of constructing new buildings increased by 8.8% (previously another increase of 3.2% in 2021). And mortgages are increasing but at a significantly slower rate, 20.7% in 2022 versus 46.2% in 2021). According to the data of the Bank Loans Survey, there is a decrease in the demand for housing loans for the third quarter in a row, after two years of continuous growth in demand.

The Bank of Greece however, he is not in a hurry to sound the alarm bell and estimates that overall, despite the uncertainties, expectations for the Greek real estate market remain positive. This is because price growth rates in previous years have not been as strong as in Europe and yields are still attractive. All the hyperlocal renovations that are underway or have already started will also work as a support, as well as the improvement of existing buildings mainly through the Recovery and Stability program.

As – even during the pandemic crisis – property prices continued to rise, the ECB warned at the end of 2022 of market bubbles in many areas of the Eurozone as “price dynamics exceeded fundamentals”.
At the same time he warned – given that one increase in interest rates followed another – for a violent correction of prices in some cases and a significant increase in the cost of servicing loans, he calculated that for every 2% increase in interest rates, the cost of servicing increases by 8%. Her next report in May is awaited with great interest, especially when interest rate increases have already reached 3.5% and we are not done yet.

Countries such as Scandinavia, the United Kingdom, Germany, the Netherlands and Switzerland are some of those where real estate markets have become dangerously inflated. In fact, like Sweden, the violent adjustment of prices has started with a drop of up to 15%.

In Greece anyway, 2022 closed with another increase in real estate prices, and in fact a double-digit increase of 11.1%. This is the fifth consecutive increase as since 2018 prices have only gone up. The newest, five-year ones increased by 11.8% and the older ones by 10.5%. 13% on average are the increases in properties in Athens and 11.8% in those in Thessaloniki

The maintenance of this dynamic according to the Bank of Greece report is mainly due to the strong external investment demand (investments in housing increased 36% in 2022 and 27.3% in 2021) but also tourism which positively affects housing mainly through short-term leases.

Frankfurt estimates that the future is not auspicious for the European real estate market. The increase in interest rates will lead to less demand for mortgages, and already the percentages of households that declare in the various surveys that they do not intend to buy or build a house are falling. At the same time, the expectations of the construction companies, which saw an increase in construction costs for 2023, are decreasing. In fact, the ECB warns that these factors will further increase the pressure on construction industry and this will result in bankruptcies or reduced investment at best.

We see some of these signs of “fatigue” in the Greek market as well, even though prices are “flying”. After 5 years of growth the number of building permits in the 11th month of 2022 decreased by 1.1% and the volume decreased by 4%. Also, the cost of constructing new buildings increased by 8.8% (previously another increase of 3.2% in 2021). And mortgages are increasing but at a significantly slower rate, 20.7% in 2022 versus 46.2% in 2021). According to the data of the Bank Loans Survey, there is a decrease in the demand for housing loans for the third quarter in a row, after two years of continuous growth in demand.

However, the Bank of Greece is not in a hurry to sound the alarm bell and estimates that overall, despite the uncertainties, expectations for the Greek real estate market remain positive. This is because price growth rates in previous years have not been as strong as in Europe and yields are still attractive. All the hyperlocal renovations that are underway or have already started will also work as a support, as well as the improvement of existing buildings mainly through the Recovery and Stability program.