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Is Greece in a housing bubble?

Apartment building
Investors are questioning whether property price hikes in Greece are sustainable.

With property prices continuing to rise in Greece, concerns are rising as to whether the country is experiencing a housing bubble and whether the current price hikes are sustainable.

Apartment prices have been racing ahead at a pace that exceeds the 10% mark in recent quarters, while household income levels have barely budged in a gap that is growing and threatening, some say, to swallow up the real estate sector.

However, market insiders and economists point out that real estate in Greece is being driven by two factors that are not characteristic of a bubble market, Business Daily reports. And those factors are: limited supply levels and high bank deposits being used to fuel buyer spending power.

The biggest determining factor protecting prices from dropping right now is seen as being the limited supply levels.

Construction activity remains low and is not expected to pick up substantially any time soon as vacant lots in urban areas are few and their prices have already skyrocketed.

One market expert says that “in order to see a sharp and sudden rise in supply we would have to see something like all foreign owners in Greece putting their house up for sale in order to get out of the country, in a move that would send prices tumbling.”

Something, of course, which is unlikely, he adds.

Tight supply may be propping up prices but some alarm signals have started appearing.

Data highlights that Greek households are under enormous pressure due to high housing costs suggesting that they could buckle soon.

Figures from Eurostat for 2021 show that Greece has the highest cost overburden rate, when total housing costs represent more than 40% of disposable income, in the EU at 32%. Coming in second place is Denmark at 22% and Netherlands at 15%.

Will prices keep rising?

Many have been caught by surprise from the strength of the upward movement in Greek property assets though the market is seen as soon pausing for breath.

In fact, the most common outlook is for a soft landing to take place in a market where prices have raced ahead by 40% in the last five years.

Keep in mind though that a large chunk of these price hikes are due to galloping inflation.

Once you strip out the effects of advancing consumer price inflation, which exceeded 9% in Greece last year, the price hikes are high but more moderate.

So when do we have a bubble market?

It is often difficult to spot a bubble market even when it is in front of you, experts say.

There are a variety of factors that shape the value of a home and opinions vary as to when the market is overheated and posing a threat to asset prices.

Beyond households struggling to pay for housing costs, signs that point to a bubble market include excessive bank lending and a slowdown in the economy that weighs on risk appetite.

In Greece’s case, the economy is expected to keep growing this year and next in excess of 1% despite interest rate hikes, while bank lending to housing is at very low levels.

Another telling sign includes developers racing to add newly built homes to the market - again a factor which does not apply to the Greek market.

Investors do though need to remain vigilant. Experts warn that the detection of a bubble market is often not possible until it is too late and the bubble has started to burst.

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