Risks for foreign investors in Greece

Buying property anywhere in the world represents both an opportunity and a risk. Property prices can be affected by the economic climate, political changes, or currency movements - as well as by the laws of supply and demand.

Greece certainly has proved a high risk area for investors in the past. Both property buyers and bond investors saw their investments go into a tailspin after the credit crunch, and the country is still emerging from the aftermath. But let's not look at the past - let's look instead at the risks that Greece represents right now.

Currency is often a big risk, but with Greece, you're investing in the euro, one of the world's three major currencies. While there's still, obviously, a currency risk, it's a general Eurozone risk, not specific to Greece - you're also buying into more stable economies such as France, Germany, and the Netherlands.

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Economy

Economically, Greece remains weak, but it is slowly getting up steam. The country exited the bailout programme in August 2018, and government debt has been wrestled under control.

The economy is also structurally rather weak; the two most thriving sectors are shipping and tourism, while banking and industrial sectors are rather feeble. Greece runs a balance of trade deficit and that has shown alarming signs of getting worse.

But the international capital markets are now valuing Greek bonds at yields not far off US Treasuries. That may not mean economic troubles are over; possibly it has more to do with a scramble for yield on the part of investors who can't find decent returns on investment elsewhere. But it does mean Greece is no longer exiled to the bond market doghouse. That's a sign of reasonable health.

Taxes and property market

Taxes are a big issue for property investors. Greece doesn't have the best of records here. In the aftermath of the credit crunch, the Greek government treated property taxes as a cash cow, putting them up 7 times.

However, the new government elected in mid-2019 has now started a downtrend, with the annual tax planned to fall 30% over the next three years. You can never be certain what a Greek government could do in future. But for the moment, there don't seem to be any nasty surprises in store. And it's worth noting that with annual taxes on a rather nice villa amounting to just EUR 600 a year in many cases, tax isn't going to break the bank.

As for the property market as a whole, you're buying into a market that is way off its highs. Greek real estate lost 27% of its value between 2008 and 2015, with some residential property halving in price. It's nowhere near regained its peak values.

There are a few 'hot' markets. Central Athens, for instance, has seen property fetch crazy prices from 'golden visa' investors and AirBNB landlords. That could be a worry, as there is not a domestic resale market to support those prices. If the government takes punitive action against AirBNB landlords, that could also slacken off demand. But elsewhere, the market has risen only modestly from the trough, and valuations remain low.

Greek property prices are low compared to other European countries. That partly reflects the smaller economy and lower wages in Greece. But even when that's taken into account, affordability is high compared to the affordablity of property elsewhere. For instance, in Athens, the price-to-income ratio was 10 in Q3 2019 - in Paris and London it was above 20.

Uptrends and the highest risk

Meanwhile international real estate developers and investors have already begun to get into the market. New development is slowly getting restarted and some major renovations are also coming on stream. That should add some depth to the market - there have been relatively few developments in the last ten years - and gives purchasers looking for a turnkey property a good chance of finding what they want.

Inbound tourism is also on the up - from 2015 to 2019, tourism revenues increased by a third. For purchasers on the islands or coast, increasing tourist numbers will underpin the value of their investment as well as creating a strong rental market.

We think the biggest risk to Greek residential property is actually the same risk that threatens your other investments - that of a global recession. But many other investments are now trading at all-time highs; Greece isn't. So if you pick a property investment carefully, 2020 looks like a good time to get into Greece, with relatively low risks.