There are many reasons for this preference: The common business practices and historic ties between Greece and Russia; the warm weather and the sea; the soundness of Greek banks that many times act as catalysts to these investments; and the fact the real estate in Greece is considered a sound investment that appreciates in value as well as a traditionally strong investment vehicle.
This may be changing. The last couple of months have claimed witness to Russian interest shifting from Greece to other Mediterranean vacation favorites, most notably Spain.
The Effects of the Economic Crisis on Greek Real Estate
The continuing economic crisis and its collateral effects to the Southern European Economies have resulted in a number of macroeconomic problems and related uncertainties which have in general impacted negatively the real estate market.
Job uncertainty coupled with public hesitation towards large scale investments such as home buying and the fact that banks will not even consider risky real estate loans have resulted in a cash crunch and tumbling of real estate prices in most markets including Spain, Portugal, Southern Italy and -up to a point- Southern France.
In all this turmoil, Greek real estate prices have remained stubbornly high, resulting in an uncompetitive market vis-à-vis markets with equivalent attributes and characteristics.
These high prices have prompted foreign investors to seek other markets for house buying and real estate investments, and have resulted in a sudden halt of construction projects and other house building activities in Greece.
Real Estate Investors Flock to Cheaper Destinations
Russian capital, for example, was the prime mover of a number of development projects in Crete- like Cyprus, a Russian vacation and investment favorite- which involved land targeting, buying, landscaping, construction, development and selling activities. This primary construction industry was supported and gave value to a number of secondary industries that had to do with preparing the sales object – the house- for sale. So industries and retail business that were involved in construction materials, interior decorating, green technologies as well as services dealing with electricity, plumbing, gardening, cleaning thrived from this unprecedented infusion of Russian Capital.
High Greek Real Estate Prices Impact Local Construction Business
The sudden shift of capital to other target real estate markets and countries has resulted in a sudden halt of this industry with a number of pending and unfinished projects as well as a strong amount of business debt.
The ensuing construction crisis has thwarted even local investors from initiating projects because of a belief that a number of construction companies have become insolvent. The major reason for this fear is the fact that some construction companies dimensioned their yearly activities with the expectation that the “Russian Expansion” would continue and the sudden cash crunch has left them out in the open, with no working capital and a large debt to equity ratio.
A Much Needed Market Correction
A market correction has been long due in the Greek real estate market. If prices continue to hold their ground then foreign investment may continue to seek cheaper options. How long prices hold out depends on how much reserve assets the related stakeholders have that is, how long they can wait. If these reserves run out then prices may drop and reach competitive levels. If not, then real estate activity will resume normal levels only after prices catch up in the rest of the continent.
Antonis Hontzeas - Antonis Hontzeas has been in the forefront of the Telecommunications industry for over twenty years. Tenures include positions ranging ...
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