- April 7, 2016
Over the last seven years, Greece has been under an austerity restructuring programme, receiving extended aid from European financial institutions and international creditors in an attempt to tackle its overly high deficits and incessant market stagnation. 2016 did not seem to get off to a flying start when it comes to financial markets and, in particular, the Greek real estate market, which following a long period of significant contraction, remains subdued and of uncertain outlook.
The question that pops up is when is the right time to invest. All investors – seasoned and novice ones – would crave to have the smarts to master the market’s intricacies and perfectly predict market swings when formulating their strategies. Sadly, however, most of the markets are governed by random walk, making it practically futile for investors to build and develop their investment projects on the basis of current market yields. Things seem to get much more complicated when investors are called to invest in times of financial meltdowns and inevitable crashes.
Let’s zoom in the case of the Greek commercial real estate market. In a nutshell, slowing economy, tight credit standards and liquidity shortages have curtailed real estate activity, leading to business bankruptcy, higher vacancies and investment reluctance. On top of that, business activities and investment interest appear to have been further severely affected by the adverse and volatile legal framework regulating real property tax. Real estate taxation has been a thorny issue among Greek government, lenders and investors, with the government insisting on higher taxes across the broad and planning to increase the rates of ENFIA, i.e. the tax annually levied on property located in Greece on the basis of specific coefficients (eg. size, location, zone price, surface, age and use).
On the good news side, the Greek real estate sector has not ceased to offer a wide range of property investment decisions, spanning over prime commercial properties, real estate development projects, vacant units and unused commercial premises, secondary retail, warehouses and non-prime office buildings, featuring most of the times investor-friendly facilities, such as soundness of location, current and future infrastructure initiatives, optimal urban planning and migration patterns. And, whereas investors would theoretically seek to get their hands on such real properties, Greece’s current overextension and inability to make good on its debts hold them back for the moment – or at least this seems to apply to the conservative investing approach.
On the other side, aggressive investors generally agree that when times are bleak, that is the time to invest. Accepting a relatively high degree of risk and always being prone to whipsaw actions, they aspire to draw trend lines allowing low entry points in hopes that they will come out on top in the mid-term. From a Greek market point of view, safety-sensitive strategies usually turn in favor of the investors when they are built as time-tested techniques, i.e. investing a set amount of money on a certain asset for a specific time frame. Thanks to the current depressed prices, the Greek real estate market appears to be open to such techniques, favoring investments that – despite the high risk involved – may easily turn out to be safe bets. International investors already testing an aggressive approach in the Greek territory, such as Fairfax Holdings and – most recently – Landis+Gyr would confirm accordingly.
An attempt at a reality check would confirm that prime real estate prices are currently relatively low bearing slight chances of minimization in the immediate future and, therefore, any ups and downs in the market will barely do any harm in overall investments. However, a potential risk that needs to be assessed prior to any investment decision lies with the real estate taxation developments. The following few months will indicate whether the government is planning to stick with the current property taxation system or will be all change again for property owners and potential investors. Until then, investors will have enough time to establish whether dire economic straits call for strong intuition or solid risk assessment strategies.
Senior Asssociate Greece