The increase in real estate prices continues unabated, according to official figures that have been published, while at the same time estimates speak of a continuation of the upward trend in prices, which concerns hundreds of thousands of households who are in the process of looking for a property to buy or rent.

But what are the factors pushing prices up? Where is the cost of building residential real estate today and what are the estimates?

Bank of Greece: Housing is a particularly important issue for Greek households

In 2023, but also in the first months of 2024, the rise in property prices continued at a high rate, especially in the higher end of the market. The housing market saw the biggest price increases, with demand for investment property remaining high and the supply of quality or new stock limited, as the Bank of Greece points out in its Monetary Policy Report released last week passed us by.

As emphasized by the BoE, housing is a particularly important issue for Greek households, as the continuous increase in prices, which is fueled by demand from abroad, and the increased cost of construction and borrowing shape price levels disproportionate to disposable income, making it difficult the acquisition of a first home and driving up both substandard house prices and rents.

In the housing market, according to the apartment price indices published by the Bank of Greece, the upward trend in prices continued during the first quarter of 2024 with high annual growth rates. More specifically, according to the assessment data collected by the credit institutions, in the first quarter of 2024 the nominal prices of the apartments were increased on an annual basis by 10.4% (provisional data), while for the whole of 2023, based on revised figures, apartment prices rose significantly, at an average annual rate of 13.8%, although on a quarterly basis, despite strong annual growth rates, there has been a slowdown over the last four quarters House prices are just 4.1% lower than the historical high recorded before the financial crisis (third quarter of 2008), while compared to the lowest price recorded in the third quarter of 2017, prices are up by 66.4%.

As stated in the Monetary Policy Report of the Bank of Greece, with expectations for the Greek real estate market remaining positive and with tourism, the improvement of infrastructure and the gradual renewal of the building stock as driving forces, it is estimated that the upward trend in prices will continue . However, broader geopolitical instability, increased inflation and high construction costs, combined with deteriorating household purchasing power and limited bank lending, are significant factors of uncertainty. Also, ongoing changes in legislation and taxation are estimated to be negatively impacting investment and construction activity, at a time when demand is not being met by supply and values, especially of housing, are increasing at significantly higher rates than the disposable income of households. The recent interventions aimed at limiting the investment demand for residential properties in first home areas (short-term leases, Golden Visa) are considered to be moving in the right direction, but further measures are deemed necessary to facilitate and strengthen the supply of affordable housing.

D. Kapsimalis: The increases in construction costs are very large

According to ELSTAT data, the revaluations in building materials continued in May, marking a new increase of 5.5%. In particular, revaluations were recorded in: Bricks (13.5%), Copper conduits (9.9%), Plastic pipes ( 8.3%), Safety glass panels (8.1%), Plastic, synthetic, fiber cement pipes (7.4%), Heaters (7.2%), Solar water heaters (7%), Electricity distribution panels (6 .8%), Switches (6.7%), Parquet (6.4%), Tiles in general – floor, wall (6.2%), Cement (6.1%), Aluminum frames (6%), Reinforcements mortars and ready-mixed concrete (5.5%), Marble slabs (5.1%), Plastic, acrylic, water (4.9%), Ready-mixed concrete (4%) and Rebar (3.7%). On the contrary, in Electricity prices decreased by 13.8%. As announced by ELSTAT, the general price index of materials for the construction of new residential buildings showed an increase of 5.5% in May 2024 compared to the corresponding index of May 2023, against a 7.8% increase noted when comparing the corresponding indices in 2023 with in 2022. At the same time, the general index showed an increase of 0.5% in May 2024 compared to the April 2024 index, compared to an increase of 0.6% when comparing the corresponding months in 2023.

With reference to the increase in the construction costs of residential real estate and constructions in general, the president of the Union and Federation of Building Builders of Greece Dimitris Kapsimalis, points out that the increases are actually much higher than the recent figures of ELSTAT that saw the light of day (for the building materials).

In particular, as Mr. Kapsimalis reports to APE/MPE, construction costs today are twice as high as in 2020. The high demand for real estate after a long period of economic crisis, the increases in building materials, as well as the very large increase in prices of plots of land in Attica, have pushed construction prices and by extension real estate prices to prohibitive levels for ordinary individuals and an average household. At the same time, the huge labor shortage, especially for small building residential projects, as many large projects are underway that absorb whatever potential is available, has also pushed up construction costs.

Finally, Mr. Kapsimalis referred to an issue that has influenced, as he said decisively, the developments in the construction of real estate and it is the decision no. in terms of building heights. A solution should definitely be found, he adds, while the case has been referred to the Plenary Session of the Council of State.

Alpha Bank – The reasons why the Greek real estate market endures

Real estate prices in Greece increased even during the pandemic, despite the negative impact it had on economic activity, while rates of increase have accelerated over the last two years, Alpha Bank analysts estimate, in the Bank’s weekly Economic Developments Bulletin .

The durability of the housing market in Greece – in contrast to the Eurozone where the prices of both residential and commercial real estate have been decreasing in the last year – Alpha Bank analysts point out lies in:

Firstly, in the fact that real estate prices in our country have not fully recovered compared to the levels recorded before the financial crisis. In particular, house prices remain 4% below the highest point reached in the third quarter of 2008, while office and shop prices are 10% and 3.5% respectively compared to their highest prices in the first half of 2010. Additionally, while in the four years 2014-2017 real estate prices in the Eurozone were increasing, in Greece they continued to follow a downward trajectory, parallel to the drop in demand and economic activity in the country.

Secondly, to the positive rates of economic growth in Greece from 2018 onwards, which, in the last three years, were significantly higher than the European average. According to the available forecasts, the GDP in Greece is expected to continue growing at a rate higher than that of the European Union (EU-27) over the next two years, a fact confirmed by the results of the first quarter. In particular, the real GDP increased by 2.1% on an annual basis in our country, in the first quarter of 2024, against 0.5% on average in the EU-27. Alongside the rise in GDP, labor market conditions are also improving, with employment having strengthened significantly and the seasonally adjusted unemployment rate gradually falling to 10.8% in April 2024, from 20.1% in the same month of 2018.

Thirdly, in tourism performance and the development of the sharing economy. Tourism arrivals and receipts recorded historically high levels in both 2019 and 2023, which is reflected, among other things, in the remarkable rise in accommodation nights available on digital platforms through the sharing economy. The size in question was formed, based on Eurostat’s experimental statistics, at 36.4 million in 2023, from 20.3 million in 2018.

Fourth, in the strong Foreign Direct Investments (FDI) related to real estate in Greece, which amounted to Euro 2 billion in the two years 2022-2023, against an average of Euro 0.4 billion in the previous decade. The implementation of the Golden Visa program, which gave incentives to citizens of third countries to acquire real estate in the European Union, gave a significant boost to FDI in real estate in our country. The high interest of foreign investors may, however, be mitigated by the increase in the limits of the said program which were implemented from August 2023 onwards.