The Athenian housing market in Q4 2023

Background

The housing market in Athens suffered a major blow from the economic crisis which hit the country in 2008. Local housing property values declined by about 40-45% up until 2018.

The market had two crashes, one in 2009-2013 and a second one in 2015-2017. The reasons behind these were a sharply reduced GDP and high unemployment. Household incomes fell by about 33% from 2009-2017 and were further curtailed by high taxes. Prices started recovering in 2017 fuelled mainly by a surge in foreign demand under the Golden Visa Programme (GVP). Housing prices have been recovering at high rates exceeding the 20+% mark by 2020. In some areas, prices for old property were artificially inflated as demand surged in anticipation of the doubling of the threshold for real estate investments under the GVP. 

As a result, these prices declined by up to 40% in some cases after August 2023 when the threshold rose to €500,000 in these areas.

Supply dynamics

Main characteristics

1. Development costs (i.e., all costs except land) rose sharply after the invasion in Ukraine. They stand now at €2,200-2,500 per saleable sqm plus VAT depending on the quality of construction and finish.
2. The supply of construction labour is low as foreign workers returned home due to the economic crisis and the pandemic. This has been fuelling building costs.
3. Land costs are on the rise as development land is scarce. Land in the areas falling under the €250,000 threshold of the GVP is cheaper. However, the supply of suitable large plots in these areas is limited since the standard plots are small (150-300 sqm). The current price of land in Athens starts at €300 per buildable square metre rising to €3,000/sqm in the sought-after suburbs.
4. There is a shortage of long-term rental housing accommodation mainly brought about by the proliferation of short-term rentals using platforms like Airbnb and Booking.com.
5. The rise in inflation brought about a substantial rise in interest rates thus making housing loans unaffordable for a large part of the local market.

Demand dynamics

Main characteristics

1. Demand is mainly fuelled by foreign demand, primarily under the GVP. Apart from this, there is substantial foreign demand for the sought-after southern suburbs which is not related to the GVP.  Both above are fuelling prices at a time when supply is limited due to the scarcity of land.
2. The northern suburbs are not attracting foreign interest as the southern ones do. As a result, values have not benefitted, and the northern suburbs are becoming relatively cheaper. This will eventually draw in new interest as the southern suburbs become saturated and overpriced, and northern housing values become competitive.
3. Local demand is weak and is directed mainly towards compact units in the €250,000-350,000 price range. VAT is not applicable on property purchases yet. Although it has been said that VAT will become applicable on the 1st of January 2024 the market consensus is that this will again be postponed.
4. A notable project is the high-end development of the former airport area at Elliniko where housing prices are in excess of the €10,000/sqm mark, with foreign demand being predominant.
5. Long-term housing rentals have been rising leading to negative reports in the press about the effects of platforms such as Airbnb. This has led to a discussion about placing constraints on the ease of renting such accommodation and enforcing the taxation of short-term rental income.
6. Inflationary pressures have been easing and this will eventually lead to reduced interest rates for housing but also business loans. This, in turn, will lead to rising disposable incomes through economic development and rising demand for housing as housing loan instalments become more affordable.
7. Employment shortages have become sharper this year, and this is expected to lead gradually to rising incomes.
8. Demand for short-term rentals is expected to remain high since Athens has become a main tourist destination. This will lead to a lower supply of housing for long-term rentals, thus fuelling rental values and driving demand towards purchases of property.

Outlook for the medium term

Main conclusions

1. One would expect that as employment shortages become more acute, and taxes imposed during the economic crisis start to diminish, disposable incomes will rise. Disposable incomes will also rise as inflationary pressure eases, and the economy continues to grow.
2. The decline in inflationary pressures is anticipated to lead to a reduction in interest rates thereby reducing the cost of finance.
3. Long-term rental values are anticipated to continue their upward trend as disposable incomes rise and the imbalance between supply and demand persists.
4. The above are anticipated to fuel demand for housing, both for rentals and purchases, in the more affordable areas i.e., the ones where the €250,000 GVP threshold applies. Rising rentals will also fuel demand in the more sought-after areas as monthly rentals and housing loan instalments tend to equalise and disposable incomes increase.