As the Covid19 pandemic wreaks havoc worldwide, we have been closely following reports, forecasts, and opinions on its implications on the economy. Although the discussions are filled with conflicting views, the evidence strongly supports our view that 2020 will be a great year to invest in Greek real estate.
In turbulent times, when governments are discussing stimulus packages and cash injections, it is wise to invest in inflation protection, i.e. invest where you can protect against high inflation rates or even benefit from inflation – real estate is an obvious example. Other market reports from investment consultancies advise against investing in the overpriced US and are in favour of investing in emerging markets.
Greece has surprised the world with its remarkable response to the pandemic, solidifying the favourable opinion that foreign governments, creditors and investors have of the new Greek government. The comparatively low number of infections and deaths (2,591 confirmed cases and 140 total deaths, as of May 1st 2020), resulting from swift and decisive measures implemented early in the development of the pandemic, is particularly impressive considering Greece was one of the first European countries with a confirmed case of Covid19 (February 26th 2020). The infection rate is 249 per million (compared to 5,125 in Spain, 3,398 in Italy, 2,523 in the UK, 2,561 in France and 1,947 in Germany) and the total deaths stand at 13 per million (compared to 525 in Spain, 463 in Italy, 394 in the UK, 373 in France and 79 in Germany).
The government raced to implement online interaction with the public sector, suggesting an accelerated general shift towards e-governance. The establishment of the new Ministry of Digital Governance in 2019, and announcing specific plans to tackle unnecessary bureaucracy by unifying the multiple numbers obtained by citizens for interacting with the public sector (ID number, tax number, social security number, etc.) will have a huge impact on productivity and economic growth. Thus, the unexpected coronavirus will accelerate the implementation of this shift to e-governance. Most importantly, Greece entered the pandemic with much stronger economic indicators compared to the previous economic recession of 2010, with a budget surplus (1.5% of GDP compared to a budget deficit of between 3.6% to 15.1% in the period of 1995-2015).
Henley & Partners, a London based office/consultancy specialising in residence/citizenship by investment, issued a report stating that the pandemic will encourage their clients to invest in safer countries to protect against a) economic crises and b) health crises. The remarkable success that Greece has shown combating the coronavirus, coupled with the fact that Greece has a high standard of healthcare, and a lifestyle and climate considered one of the healthiest worldwide, Greece will be seen as a safe haven from future crises. We are already receiving reports of a sudden increase in interest from foreign buyers (20-30% increase from 2019 for April-May), which is even more encouraging considering many are from countries which have not shown interest in the Greek property market until now.
Market reports from China – whose residents have been big buyers of Greek real estate over the last few years – show that the purchase of Chinese real estate (and interestingly, automobile sales) is already back to pre-pandemic levels, suggesting that the market is quick to forget. Equally encouraging signs are found in the Greek real estate market, where our contacts at Chinese residence-by-investment offices are reporting capital inflows and positive forecasts of Golden Visa applicants, which will continue to boost Greek real estate.
However, it is important to analyse each category of real estate separately, as the pandemic will not affect each category equally. For example, logistics will not be affected in the same way as office spaces. Resolute Asset Management’s initial report on the implication of the coronavirus on the different categories of real estate forecasts downward pressure on residential real estate because of distressed new developments, etc. yet Greece had not yet recovered from the previous economic crisis, so the number of new developments is not significant, and most of them have been financed without leverage. Ironically, not having had enough time to escape the previous financial crisis has prevented Greek developers from exposing themselves during the chaos caused by the pandemic.
Furthermore, projections of Athens property prices falling are to be taken with a pinch of salt. The range of property prices is so big that no one can say with certainty what kind of drop we will see, if any, because no one knows what the prices currently are. For example, with prices of renovated apartments in the central Athens neighbourhood of Pagrati at EUR 1,800 – 2,800 per sqm (online listings, Q1 2020), how can anyone make a serious projection? At Fractal we aim to sell at just under EUR 2,000 which even in the case of a 20% drop from average online list prices is still competitive.
Finally, at Fractal we have shown foresight with advising against investing in properties for short-term rental (Airbnb, etc.), even during the golden years of 2017-2018. The short-term rental market was suffering even before the coronavirus outbreak, with decreasing occupancy rates and average prices. (Demand increased (increased bookings) but average occupancy rates fell by 15% to 38.6%. 2018 also saw a decrease in occupancy from 52.7% in 2017. Average income per property decreased 9.4% from 2018, which previously saw a 28% decrease from 2017.) As owners of short-term rental properties have realised that they invested in a long-term plan (minimum 5 years for the investment model to work) in which the terms have changed for the worst after the second or third year, they are making the switch to long-term rental en masse. We will continue to advise with caution and against transient market trends.
In conclusion, real estate continues to be a good investment following the pandemic and Greece is in a uniquely advantageous position to emerge relatively unscathed, As the world sees strong growth in 2021 as expected – if we are to assume the forecasts are correct – investments in Greece made this year will ride the wave and generate strong profits in the short to medium-term next year and onwards.