Will property prices fall in Greece?

Greece's real estate market is showing signs of resilience to the sharp recession brought on by Covid-19 but there are concerns that once measures to support the economy are withdrawn, the bottom may fall out of the housing sector.

The country's banks have just extended a loan moratorium by three months until the end of the year, which means that mortgage holders do not have to make any payments until 2021. This will help prevent an increase in mortgages from going sour but the move is also indicative of how fragile the property sector is despite prices and rents holding ground in the last few months.

Bank of Greece, the country's central bank, says the impact in the broader real estate market from the pandemic will be uneven and that the recovery in the medium to long term will vary, depending on the features of each property.

In its monetary report released last week, the bank said that "in the short-term housing prices are seen coming under pressure, particularly in urban areas, mainly due to the sharp drop in interest for short term rentals for tourism."

So far, Greek real estate prices have remained unchanged from the pre-coronavirus era as buyers and sellers mostly adopt a wait-and-see stance. Prices in the sector were performing strongly, adding nearly 7 percent in the first quarter of the year, when the pandemic hit.

In the second quarter of the year, an index put together by housing classifieds site Spitogatos shows that the average price for a home in Greece was 1,544 euros per square meter, unchanged from the previous three-month period. On a year-on-year basis, prices rose in the second quarter by 4.8 percent, slowing from a growth rate of 6 percent in the first three months of the year.

As some countries head into a second lockdown due to the pandemic, uncertainty is on the up again. Pundits may have written off 2020 but there is growing evidence that the highly anticipated rebound will not be as strong as first thought.

In its summer forecast, the European Commission revised lower its forecast for Greece's economic expansion next year to 6 percent, from 7.9 percent previously. In the euro area, gross domestic product is seen expanding by some 6 percent in 2021.

One of the unexpected strengths of the Greek property market has been the demand for holiday homes from abroad. Due to the country's relatively successful handling of the coronavirus, the partial reopening of the tourism industry, and low housing prices, Greece is perceived by many as being a safe haven.

High yields have helped add shine to Greek assets. Data from Algean Property shows that the average gross rental yield in Mykonos exceeds 8 percent, while in Ibiza (Spain) it comes in at 3.8 percent and between 3.2-3.8 percent in Turkey.

Stelios Bouras, founder of GreekGuru.net, a site that provides writing and media services specializing in real estate, points out that brokers are reporting stronger interest from mostly European countries and increasing communications efforts in this direction.

There was also a sharp rise in inquiries from Chinese buyers in May.

"Demand from foreign buyers is driving the market right now and will probably continue doing so for some time yet. This highlights the importance for sector participants of being well-positioned to effectively reach global audiences with their message," said Bouras.