The Greek Real estate market has been hit significantly after another round of financial turmoil that led to the implementation of capital controls in the Greek banking system. More particularly, after the government announced a referendum in late June on the European Rescue package, investment interest in real estate took a big dive and has remained very low ever since.
From property ownership perspective, the failure by the Greek government to secure €7 billion bridge loan to meet a payment to the European Central Bank (ECB) and the €86 billion third bail-out would have led to a commercial disaster. More specifically, if Greece ended up exiting the Euro (€) and re-adopted the drachma (its former national currency), it would have resulted to a sudden and considerable value decrease in asking property prices.
It was therefore fortunate that European leaders managed to reach an agreement with the Greek government on a third bailout plan. An urgent and strict bailout plan that the Greek parliament had to approve to pull Greece out of its bankruptcy. Despite its inherent risk of implementation, the parliamentary ratification is the first step to the stabilization of the economic condition, irrespective of the capital controls, which will remain for the foreseeable future. However, the real estate sector will take longer to stabilise and return to normality. It will depend on how the Greek economy will respond in the coming months.
In the meantime, landlords will need to remain focused on any add value improvement to preserve commercial values and marketability of their property portfolios. Landlords will need to become more engaged in day to day asset management independently of the location of their properties and occupancy by creditworthy tenants. Our recent commercial properties valuations have shown that property values have substantially decreased the last 6 years, demand has weakened and yields are adjusted upwards to reflect the prevailing political, market and economic risks. Under the current conditions, landlords with the valuable support of their real estate advisors have a series of strategic calls to make.
Despite the country’s macroeconomic situation, we believe that the local real estate will continue to attract interest from international investors, who are looking for acquisition bargains, distress situations and real estate NPLs. International as well as domestic players will continue to explore the local real estate market, especially in hospitality real estate given the strong fundamentals and recent growth in tourist visitor numbers. After all, tourism in Greece remains a major element of the economic activity and is one of the country's most important sectors.
It is well known that the institutional real estate investment industry does not work with impulsive transactions. Thus, in order to ensure that this registered interest will be translated into transactions in the local real estate market, the economic and political situation has to settle and improve. If the country’s debt becomes sustainable in the long run, then foreign direct investment will most probably increase substantially. Next political decisions are therefore crucial and critical to the local real estate industry. The real estate market will rely on them.
Assuming the situation improves in the next 15-18 months, whether the majority of the local real estate service market will follow suit and improve its business offering is entirely another matter...
Viewpoint by Nikos Kountouriotis and Ioannis Orfanos on behalf of Arbitrage Real Estate.