The housing market is no more the growth locomotive for ... · from other sectors of the economy in order to report growth levels of 3%-4% Page 3. PwC The Greek housing market

The housing market is no more the growth locomotive for the Greek economy, unless policies to boost demand and reduce oversupply are implemented

October 2016

PwC

Contents

Section Page

1 The Greek housing market 5

2 Supply and demand in the housing market 16

3 Towards a new equilibrium 24

4 Strengthening the housing market 32

Page 2

PwC

Executive summary

• The Greek housing market, traditionally serving as the growth locomotive of the Greek economy, is unlikely to play this role to exit the crisis

• The Greek housing market has suffered a significant slowdown; between 2008 and 2015 €18bn., or 8.2% of GDP, investments in construction were lost within 2008-2015, slowing further down the economic activity

• Since 2008 the number of housing transactions fell by 72%, while house prices fell by 41%, especially in the urban centers

• Property taxes rose by 6 times comparing to 2010, representing almost 2% of the disposable income per capita

• The Greek housing market currently is an “outlier” of the European markets, displaying a 30% decline in house prices within 2010-2015. While house prices in Spain and Italy seem to have adjusted to the economic conditions, in Greece they have become slightly cheaper to the disposable income

• The major factors that shape the housing market dynamics are the economic growth, the dwelling stock, the mortgage loans and the taxes on immobile property

• According to a realistic scenario for the evolution of the Greek economy, with GDP per capita returning to pre-crisis levels in around 2030, it is estimated that:

demand and supply in the Greek housing market will converge at around 2047 due to increased house supply, high taxation and shortage in mortgage lending

average house price will increase by 0.6% annually , reaching the levels of 2002-2008 period after 2050

investments in the housing market will remain in low levels, specifically at €4.5 bn annually, with the investment gap having a long duration

• For the faster recovery of the Greek housing market, a real annual growth of at least 3.5% would be required for a long time

• In order to facilitate demand, property taxes should gradually decrease, while mortgage lending should follow the growth rate of the economy

• To accelerate the re-balancing of the market it is necessary to:

reduce the housing oversupply, through massive redevelopment of part of the dwelling stock, along with infrastructure and technology investments, and

deal with fragmented ownership, through the creation of a «Land Bank»

• The investment gap created by the downturn of the housing market, estimated at €14bn annually, should be covered from other sectors of the economy in order to report growth levels of 3%-4%

Page 3

PwC

The Greek housing market

Page 4

PwC

Investments in housing shrunk after 2008

Page 5

• The recession affected severely the construction industry

• Within 2008-2015, € 18bn (or 8.2 % of GDP) investments in

construction were lost, slowing further down the economic

activity

• The construction industry in 2015 (Gross Fixed Capital

Formation-GFCF) corresponded only to 0.8% of GDP and 7%

of the total economy’s GFCF

• The restraint of the two-digit downward fall in the construction

index in 2015, contributed to the small increase of the

construction confidence index by 1.6pp monthly and 4.1 pp

annually

• The downward course of the housing and construction markets

in general is diminishing, leaving room for hope for a gradual

recovery

-80

40%

0%

-10%Jan-14

20%

50%

10%

Jan-11Jan-10

30%

-60%

Jan-08

-50%

Jan-09 Jan-12 Jan-13

-40%

Jan-16Jan-15

-20%

-30%

-10

-60

-50

10

0

-20

-30

-40

-70

Construction Confidence Indicator Construction Index (% y-o-y)

Source: Eurostat, DG ECFIN, PwC analysis

2 008 2 009 2 01 0 2 01 1 2 01 2 2 01 3 2 01 4 2 01 5

25%

20%

15%

10%

5%

0%

12.6%

2.2%

4.6%5.0%

15.3%

6.3%

12.7%

7.3%6.5%

8.1%8.9%

11.4%

23.8%

12.0%

17.6%

20.8%

3.1%

8.1%

4.5%

0.8%

5.1%

1.0%

11.6% 11.7%

* GFCF Constructions (% GDP) GFCF Dwellings (% GDP)* GFCF Total Economy (%GDP)

Source : European Commission (AMECO)

2015

46%

7%21

45%

47%

2013

-14%

47%

2014

9%

37%

44%

19%

2012

24

24%30%

32

24%

28%

36%39%

40%

2011

30%

2010

40

48%

49

22

58

49%

19%

49%

31%

17%

34%

2008

21

2009

GFCF on Dwellings Other

Public Investments (PDE)

€ bn

Source: European Commission (AMECO), Budget Executions, 2016 Budget Report


* GFCF: Gross Fixed Capital Formation

% GDP

PwC

House prices dropped by almost 41%, especially in the urban centers, between 2008-2015

• Historically, nominal house prices in Greece rose significantly until 2007. Since 2008, the increase in house prices started to shrink, while from 2011 onwards the drop in prices was over 5% p.a.

• The house price fluctuations reflect the drop in demand, whereas supply continued to expand

Page 6

Source : European Mortgage Federation

0

20

40

60

80

100

120

10%

15%

5%

-10%

-15%

0%

-5%

-4.7%

20112007

103.7

2015

13.2%

82.6

-6.1%

5.9%

2010

1.7%63.9

2013

93.5

-5.5%

-41%

2014

-11.7%

74.1

98.9

20122009

-3.7%

68.1

-8.1%-10.3%

2008

107.7105.9

2006

100.0

2005

88.377.8

2002

73.8

2004

79.6

2003

13.9%

2.3%

5.4%

10.9%

Nomimal House Price Index (2006=100) Change in Nomimal House Price Index

Nominal House Price Index(2006=100)


0

2 0

4 0

6 0

8 0

1 00

1 2 0106

102108

99

20092007

10095

102107

100105

2008

106100

107

93 9688

100109

20102006

61

-43%

6965

76

2013

7682

2011

-37%

-44%

2015

61

2014

6871

6572

2012

85

Thessaloniki

Athens

Other urban areas excluding Athens and Thessaloniki

Source: Bank of Greece

• The house prices drop within 2008 – 2015 was deeper in the two large urban centers compared to other urban areas

House Price Index by region(2006=100)

PwC

• From 2008 to 2014, transactions dropped on average by

19% per annum

• According to BoG data, in 2014 only 17% of the

transactions was settled though bank debt (82% in 2009)

• The share of transactions in the total dwelling stock

shrunk by 80% between the top in 2005 and 2014, and

by 72% from 2008 onwards

The number of housing transactions (property deals) to the dwelling stock fell by 72% since 2008

Page 7

Transactions evolution


159 150166

215

17 3 168 158136

118

84

58 50 45

0

20

40

60

80

100

120

140

160

180

200

220

0

5

10

15

20

25

30

35

40

-72%

2006

28.328.4

2003 2004

26.0

2005

35.8

2002

27.8

Tra

nsa

ctio

ns

/ 1,

00

0 D

wel

lin

gs

Tra

nsa

ctio

ns

(€k

)

2012200920082007 2014

7.8

18.6

7.0

2011

13.2

27.1

2013

9.1

25.3

21.6

-80%

2010

Transactions / 1,000 DwellingsTransactions (€ k)


PwC

Greece has currently the lowest transactions per dwelling stock ratio among OECD countries

Page 8

13.9

18.2

8.79.0

Greece (2014)

PortugalGermany

14.214.5

13.2

Slovenia

Spain

PolandItaly

7.0

Romania

Greece(2005)

62.0

United Kingdom

Ø 29.5

68.1

43.9

Russia 73.3EstoniaIceland

51.6

U.S.A 40.335.8

Norway 34.7

France

23.5

IrelandGreece (2009)

24.7

Sweden

21.3

33.9

Hungary21.6

Netherlands

Belgium25.6

20.4Denmak

• The decline in investments caused by the financial crisis, has direct impact on housing transactions

• The lowest transactions per dwelling stock in 2014 are observed in Greece, with 7 transactions per 1.000 dwellings

• Greece, at the beginning of the crisis, was closer to OECD countries average and over the developed economies such as Germany and Denmark, whereas before the crisis, Greece exceeded the average transactions to stock ratio


Transactions to Dwelling Stock Index 2014 (or earlier*)

*The index is calculated as the ratio of transactions for 2014 (or the most recent year with available data) to the dwelling stock of that year

2 004 2 005 2 006 2 007 2 008 2 009 2 01 0 2 01 1 2 01 2 2 01 3 2 01 4

3,500

20

120

40

160

1,500

220

3,000

500

0

140

0

2,000

100

80

601,000

200

2,500

180

-61% -79%

Gross Fixed Capital Formation: ConstructionsNumber of Transactions (t-1)

Correlation Coefficient r=0.86

Evolution of transactions and investments

€ k € k

Source : European Mortgage Federation Source : European Mortgage Federation

PwC Page 9

Real estate taxes rose 6 times comparing to 2010

0

1

2

3

4

1 4 0

1 6 0

1 8 0

2 00

2 2 0

2 4 0

2 6 0

2 8 0

Urb

an

Ho

use

Pri

ce I

nd

ex (

199

7=

100

)

Pro

per

ty T

ax

(€

bn

)

€2.4bn

0.5

20

07

0.4

199

0.5

20

10

156

2.9

20

11

226

250

20

09

20

08

20

14

20

12

239

0.5

3.5

20

13

177

20

15

1.2

163

3.02.9

261

0.5

257

20

06

242

20

05

214

20

03

189

0.4

193

158

20

01

0.4

20

02

20

04

0.5

179

0.50.5

Urban House Price Index (1997=100)Property Tax (€ bn)

Source: Budget Executions 2001-2014, Bank of Greece

Property tax includes, besides the real estate taxes, also inheritance fees and taxes, as well as parental dοnations

20

0

10

5

15

30

25

66%

20

13

20

09

70%

33%

75%72%

20

10

24.1

20

14

20

12

28%

34%30%

22.8

Disposable Income

19.9

67%

21.1

20

11

72%

28%

25.1

25%

17.6

24.4

76%

29%

20

03

22.9

26%

20

06

74%

26%

25.4

20

07

24%

27%

20

05

GD

P p

er c

ap

ita

(€

k)

19.3

28%

21.3

20

04

72%

20

02

74%

20.6

20

08

73%73%

27%

-21.4%

20.0

Taxes,Transfersetc

71%


1.8% 1.9%

254

3.7%

2012

13,439

3.7%

2013

14,814

270

2011

3.2%

243

0.2%

37

2009

40

1.1%

2006

0.8%

17,444

60

0.5%

2010

86

0.5%

18,785

2007

0.5%

0.2%

18,462

0.5%

1.5%

16,282

18,718

0.2% 0.3%

46

2008

16,835

2005

0.3%0.1%

15,579

13,795

0.5%0.5%

21

14,568

32

0.2%

0.5%

2002

0.2%

2003 2004

12,815

31 33

0.2%

Taxes on immovable property (% total taxes)

Taxes on immovable property (% Disposable Income|capita)

Disposable Income|capita

Taxes on immovable property|capitaSource: OECD

• Real estate property taxes rose by €2.5 - €3 bn

during the five year period (2010-2015)

• The real estate property tax represents 4% of total

taxes and almost 2% of the disposable income per

capita

• GDP per capita fell by 21% between 2008 and

2014, but taxes on income per capita rose from

26% to 34%


PwC

The existing dwelling stock is still expanding, albeit at a very slow rate

• The oversupply lies at the center of the real estate crisis in Greece, which is the result of systematic investments in the sector• Indicatively, from 2002-2007, the housing constructions were rising at a rate of 1.5% per annum (reaching 800k new buildings), while

from 2008-2014 the increase in new builds contributed to the real estate crisis, blocking the way out of it, despite having decreased at a slow rate, by 0.1% p.a. (reaching 264k)

• The existing dwelling stock reaches 6.4 million houses while it corresponds to less than 9 mn people (population over 18 years)• In 2002, 64 house properties per 100 people, while in 2014 this rose to 71 properties per 100 people (or 1.7 per family*), reflecting the

increase of house availability during this period. The corresponding ratio in other sample countries rose from 55 houses in 2002 to 60 houses in 2014

• The oversupply of houses is difficult to be absorbed, especially in a period of decreasing disposable income and limited mortgage lending• There are no signs of scraping part of the dwelling stock due to aging stock or lack of demand

6.386.35

0.03

2006

0.13

5.84

2003

0.05 0.02

2012 2013

6.33

2005

6.01

2011

6.25

0.10

6.36

2010

6.19

2009

0.20

6.37

0.06

6.29

2008

+0.1%annually

0.08

2007

6.11

2004

0.12

5.75

0.010.130.13

2002

0.01

+1.5%annually

2014

5.71

New Builds Dwelling Stock (mn)

Source: European Mortgage Federation

0

1 0

2 0

3 0

4 0

5 0

6 0

7 0

8 0

3

7

2

1

6

0

8

5

4

10

9

2011

6.3

69.3

6.3

9.2

68.3

9.29.2

2006

9.1

2005

9.1

2004 2012 2013

6.4

71.0

9.1

6.2

67.6

6.1

67.169.9

6.0

66.3

6.4

9.0

5.8

9.2

2014

6.46.3

20092008

Po

pu

lati

on

ov

er 1

8 y

ears

old

(m

n)

6.3

9.2

68.0

2007

68.8

2010

69.4

9.2

64.8

5.7

64.2

9.0

5.7

9.0

2003

8.9

64.1

2002

Dwelling Stock per 100 capita

Population > 18 years (in mn)

Total Dwelling Stock (in mn)

Source: European Mortgage Federation, Eurostat

Page 10


*According to OECD data, the average family in Greece consists of 2.4 persons

Dw

elli

ng

sto

ck /

10

0 c

ap

ita

PwC

Old residences account for a significant part of the housing oversupply

Page 11

Source: EL.STAT., Inventory of buildings and construction (2011)

Age of housing stock by Urban Area*

* As urban areas were classified: the regional unit of central, northern, western and southern Athens and the regional unit of Piraeus as “Athens and Piraeus”, the regional unit of Thessaloniki, and the municipalities of Patras, Heraklion and Larisa

4 3 %

3 5 % 3 3 % 4 1 %4 0%

1 8 %

1 9 % 2 2 %2 3 % 1 9 %

1 2 %

1 6 % 1 7 % 1 4 % 1 4 %

1 0%1 6 % 1 2 % 1 2 % 1 4 %

1 %

13% 9%

1%1%

Heraklion

14%

7.137

Patras

49.882

2%

Thessaloniki

206.975

Athens and Piraeus

1%30.006

12%

Larisa

437.729

17%

1,2%

11,8%

18,6%

39,9%

15,1%

13,4%

Age of housing stock Urban Areas*

Under Construction1991-20001981- 19901961 - 1980 2001 and postPre 1960

• The dwelling stock, according to the 2011 census, reached 6.4mn houses

• Approximately 55% of the urban buildings in Greece were built before 1980 and 13% post 2001

• The stock in urban centers is younger except from the one in Athens and Piraeus


PwC

The Greek housing market is an “outlier” of the European markets

Page 12


0%

-40

-10

20

50

60

-30

-20

10

30

40

Irel

an

d

Fin

lan

d

Den

ma

rkS

wit

zerl

an

d

Lit

hu

an

iaU

nit

ed K

ind

om

-10.9

Po

lan

d

Ger

ma

ny

Icel

an

d

U.S

.A

La

tvia

Lu

xem

bo

urg

Au

stri

a

Fra

nce

Hu

ng

ary

No

rwa

y

Sw

eden

Cze

ch R

epu

bli

cS

lov

ak

ia

Bel

giu

m

Est

on

ia

-35.1

-13.9

18.8

avg10.7%

30.9

-25.9%

Sp

ain

30.2

37.5

Gr

ee

ce

-6.9

2.8

9.7

-5.3

2.6

24.4

Slo

ven

ia

22.3 24.6

30.740.1

17.1

7.9

56.5

4.9

-0.5

18.3

-3.6

33.1

-14.7

Ita

lyN

eth

erla

nd

sP

ort

ug

al

Isra

el

4.2

Nominal House Price Index 2015(seasonally adjusted, % change 2010-2015)

0%

20%

10%

-10%

30%

40%

-40

-20

-30

Fin

lan

d

Un

ited

Kin

gd

om

Lu

xem

bo

urg

Den

ma

rk

Cze

ch R

epu

bli

c

Au

stri

a

Slo

ven

ia

Po

lan

d

Slo

va

kia

Fra

nce

Lit

hu

an

ia

Net

her

lan

ds

Gr

ee

ce

Hu

ng

ary

Ita

ly

Po

rtu

ga

l

Irel

an

d

Bel

giu

m

-19.8

U.S

.A

La

tvia

Icel

an

d

-1.2

Est

on

ia

11.917.2

-9.2

-17.0

-5.3-5.4

9.9

Sw

itze

rla

nd

Sw

eden

-9.9

-4.3

-11.9

10.4 11.2

-17.1

No

rwa

y

Ger

ma

ny

Isra

el

-32.8

-11.9

0.52.5

17.0

17.6 20.1

avg3.0%

Sp

ain

27.2

31.8

37.8

20.6

-29.8%

23.0

Real House Price Index 2015(seasonally adjusted, % change 2010-2015)

• In contrast to the significant increase in nominal house prices (+10.7%), average real house prices in Europe rose by 3% during the same period

• Both real and nominal house prices in Greece marked a 30% drop followed by Spain

Source: OECD Source: OECD

PwC

During the crisis differences in house prices between countries widened, while houses became slightly cheaper relative to disposable income

Page 13

• During the period 2010-2015, houses in OECD countries were cheaper by 3% on average in relation to the disposable income

• While house prices in Spain and Italy seem to have adjusted to the economic conditions, in Greece they have become slightly cheaper to the disposable income

• In Greece, the decline of the housing market coincided with the decline in disposable income, whereas during 2010-2015 the fall in house prices was greater than the decrease in disposable income

• Greece, Portugal, Ireland and France show signs of oversupply

• Slovakia, Hungary, Finland and Lithuania might be ahead of a house prices correction

Source: OECD

20

10

-10

-30

0%

-20

avg-3.3%

Ger

ma

ny

19.2

Au

stri

a

14.9

Cze

ch R

epu

bli

c

Un

ited

Kin

gd

om

No

rwa

y

3.9

-3.8

Est

on

ia

Fin

lan

d

-1.9

Irel

an

d

10.6

Sw

eden

La

tvia

Gr

ee

ce

Sw

itze

rla

nd

6.6

18.6

Den

ma

rk

Po

rtu

ga

l

U.S

.A

14.4

-0.5

11.2

Bel

giu

m

15.3

3.0

Lu

xem

bo

urg

-2.4-3.8-3.8

Fra

nce

-4.1

Net

her

lan

ds

Sp

ain

-13.0

-19.7

Slo

va

kia

-17.2

Slo

ven

ia

-7.1-9.6

Po

lan

d

Lit

hu

an

ia

Hu

ng

ary

-4.3

Ita

ly

-12.8

-18.8

-26.5

House Price to Disposable Income IndexNominal House Prices to Disposable Income (change 2010-2015)


-3 0

-2 5

-2 0

-1 5

-1 0

-5

0

5

1 0

1 5

2 0

-4 0 -3 0 -2 0 -1 0 0 1 0 2 0 3 0 4 0 5 0 6 0

Luxembourg

Switzerland

Latvia

Δ[Nominal House Price Index] 2010-2015

Lithouania

U.S.A

Sweden

Slovenia

Poland

Norway

Belgium

France

Austria

Denmark

FinlandGreece

Germany

Estonia

Czech Republic

Spain

Netherlands

Italy

Portugal

Ireland

Hungary

United Kingdom

Slovakia

Δ [

Ho

use

Pri

ces

to D

isp

osa

ble

In

com

e In

dex

]20

10-2

015

Source: OECD, PwC analysis

Market Correction

Oversupplied Expensive

RebalancingOpportunities

PwC

House prices are driven by GDP per capita, but there are structural differences between countries

Page 14

Group Α

House Price Index = α + β (GDP/capita)

Coefficient t Stat Adjusted R2

Constant -19,88 -0,45

0,41GDP / capita 1,26 3,26

Source: OECD, PwC analysis

5 0

5 5

6 0

6 5

7 0

7 5

8 0

8 5

9 0

9 5

1 00

1 05

1 1 0

1 1 5

1 2 0

1 2 5

1 3 0

1 3 5

1 4 0

1 4 5

1 5 0

1 5 5

1 6 0

8 0 8 5 9 0 9 5 1 00 1 05 1 1 0 1 1 5 1 2 0 1 2 5 1 3 0 1 3 5 1 4 0

DEU

AUT

DNK

ISR

NLD

ISL

FIN

GRC

LTU

HUN

NOR

FRA

EST

IRL

LUX

ITA

BEL

CZE

AUS

GDP/per capita 2015 (2010=100)

No

mim

al

Ho

use

Pri

ce I

nd

ex 2

015

(2

010

=10

0)

CHE

SWE

ESP

SVN

SVK

POLPRT

USAGBR

LVA

• The price elasticity in respect to the rise of disposable income is not the same for all countries

• Greece as well as a number of other European countries, lie in systematically lower house price levels than another group of countries

• The house price differences between the two groups seem to be permanent and widening

Group Β

House Price Index = α + β (GDP/capita)

Coefficient t Stat Adjusted R2

Constant -21,50 -0,97

0,70GDP / capita 1,01 5,42


Expensive

InexpensivePremium

PwC

Summary – the housing market, suffered an intense decline in the course of the economic crisis, driving down prices and investments

• Investments in real estate shrunk dramatically. Indicatively, between 2008-2015, €18bn., or 8.2% of GDP, investments in construction were lost within 2008-2015, slowing further down the economic activity

• House prices dropped more than 5% p.a. from 2011 onwards, while the total house prices contraction accounted for 41%, especially in the urban centers, during the period 2008 - 2015

• Transactions volume (property deals) to dwelling stock dropped about 19% p.a. from 2008 to 2014, while shrunk by approximately 72% in total

• Greece has the lowest transactions per dwelling stock among OECD countries, while before crisis she was above average

• The taxation of real estate property rose by 6 times comparing to 2010 to almost € 2.5 - € 3bn

• House supply is dominated by the existing dwelling stock, 55% of which has been built before 1980. The existing dwelling stock continues to expand at a slower pace

• In 2002, there were 64 house properties per 100 people, while in 2014 this rose to 71 properties per 100 people (or 1.7 per family*), reflecting the increase in available houses during this period

• The Greek housing market is currently an “outlier” of the European markets. During the period 2010-2015, the Greek house prices displayed the greater decline among OECD countries

• During the crisis distances in house prices between countries widened, while houses became slightly cheaper to the disposable income of each OECD country

• House prices are driven by the increase in a country’s wealth, but there are structural differences between countries, with some of them being systematically more expensive that others

Page 15


*According to OECD data, the average family in Greece consists of 2.4 persons

PwC

Supply and demand in the housing market

Page 16

PwC

Market equilibrium determines house prices

Page 17

House Market

Prices

Existing Dwelling

Stock

New Builds

Financial Growth

Mortgage lendingSupply

Taxes

Demand

From the supply side, the main drivers are the dwelling stock and the new builds, while demand is a function of economic growth, mortgage lending and real estate taxes

PwC

60%

20%

80%

40%

-60

0.40

-20

-40

0.600.55

0%

0.750.700.45 0.65

-80

0.50

Δ (

Tra

nsa

ctio

ns

per

1,0

00

sto

ck)

Dwelling Stock per capita

Supply of houses is driven by new builds, while restrained by the existing dwelling stock

Page 18

Source: European Mortgage Federation, PwC analysis

Greece

80%

40%

60%

20%

0%

-20%

-60% 60%

-40%

-20% 0%-80%-100% 100%

-80%

-40%

-60%

20% 80%40%

Δ (

Tra

nsa

ctio

ns

per

1,0

00

sto

ck)

Δ (New builds per 1,000 stock)

Greece

Supply

0% 45%

40%

30%

-20%

0%

60%

-40%

-80%

-60%

80%

15%-15%

20%

-30%

Δ (

Tra

nsa

ctio

ns

per

1,0

00

sto

ck)

Δ (House Price Index) %

Greece

Other Countries

Other Countries

Δ (Transactions per 1,000 stock) = β1 Dwelling Stock (per capita) + b2 Δ (New builds per 1,000 stock) + β3 Δ (House Price Index)

All Countries Greece

Adj. R²:0.38 Adj. R²:0.74

Coefficients t Stat Coefficients t Stat

Dwelling Stock (per capita) -0.03 -1.36 -0.02 -0.61

Δ (New builds per 1,000 stock)

0.34 6.56 0.50 5.04

Δ (House Price Index) 0.16 0.95 0.29 0.89

Other Countries

PwC

Demand is strongly driven by GDP per capita and mortgage lending, while the increase in property taxes is having a significant negative effect

Page 19


20%

-40%

80%

40%

-20%

-60%

60%

30%20%

0%

-80

10%0%-10%-20%-40% -30%

Δ (

Tra

nsa

ctio

ns

per

1,0

00

sto

ck)

Δ (GDP / capita)

Greece

Demand

-20%

0%

20%

120%

-80%

200%-40% 40%

60%

0%

40%

-60%

-80%

80%

-40%

80% 160%

Δ (

Tra

nsa

ctio

ns

per

1,0

00

sto

ck)

Δ (Mortgage Loans|capita)

0%

-40%

80%

60%

40%

20%

-20%

-60%

-80%

30% 50%20% 40%10%-20% 0%-10%-40% -30%

Δ (

Tra

nsa

ctio

ns

per

1,0

00

sto

ck)

Δ (House Price Index [t-1])

Greece

Greece

Other Countries

Other Countries

Other Countries

80%

60%

40%

20%

-40% 40%

-60%

200%160%

-40%

0%

-20%

0% 120%

-80%

80%

Δ (

Tra

nsa

ctio

ns

per

1,0

00

sto

ck)

Δ(Tax on Immovable Property|capita)

Other Countries

Greece

Δ (Transactions per 1,000 stock ) = α + β1 Δ (GDP|capita)+ β2 Δ (Mortgage Lending|capita) + β3 Δ (Tax on Immovable Property|capita) +β4 Δ (House Price Index [t-1])


Adj. R²:0.27 Adj. R²:0.53


Δ (GDP|capita) 1.04 6.26 1.62 1.70

Δ (Mortgage Lending|capita) 0.23 4.72 0.87 3.49

Δ(Tax on Immovable Property|Capita)

-0.11 -3.24 -0.29 -2.33

Δ (House Price Index [t-1]) 0.00 -4.60 -0.23 -0.22

PwC

House prices are affected by GDP per capita, mortgage lending and new builds, while in Greece the excessive dwellings stock and property taxes are affecting them negatively

Page 20


-20% 60%20%

-20%

0%

0%

80%-40% 40%

-10%

40%

30%

20%

10%

Δ (Mortgage Loans|capita [t-1]) %

Δ (

Ho

use

Pri

ce I

nd

ex)

%Greece

House price formation

4 00 4 5 0 5 00 5 5 0 6 00 6 5 0 7 00 7 5 0

20%

10%

-10%

-20%

40%

30%

0%

Δ (

Ho

use

Pri

ce I

nd

ex)

%

Dwelling Stock (per 1,000 capita)

10%

-10%

80%

40%

-40%-60%

30%

0%

20%

-20%

60%40%20%0%-20%-80%

Δ (New Builds per 1,000 stock) %

Δ (

Ho

use

Pri

ce I

nd

ex)

%Greece

Greece

40%

10%

-20%

30%

20%

0%

-10%

40% 100%20% 60%0%-40% 80%-20%

Δ (Tax on Immovable Propery|capita [t-1]) %

Δ (

Ho

use

Pri

ce I

nd

ex)

%

Other Countries

Greece

Other Countries

Other Countries

Other Countries

Δ (House Price Index) = α + β1 Δ(GDP|capita) +β2 Δ (Mortgage Loans|capita) + β3 Δ( Tax on Immovable Property|capita) + β4 Dwelling Stock (per 1,000 capita) + β4 Δ (New Builds per 1,000 stock)

All Countries GreeceAdj. R²:0.40 Adj. R²:0.69Coeffici

entst Stat

Coefficients

t Stat

Δ (GDP|capita [t-1]) 0.21 2.32 0.54 0.89

Δ (Mortgage Loans|capita [t-1]) 0.16 3.81 0.15 0.81Δ (Tax on Immovable Propery|capita [t-1]) -0.01 -0.28 -0.06 -1.22

Dwelling Stock per 1,000 ψαπιτα 0.00 1.30 -0.01 -3.58

Δ (New Builds per 1,000 stock) 0.17 7.50 0.02 4.65

20%

25%

0%

10%

15%

40%

30%

-10%

-20%

20%10%5%0%-20 -15% -10% -5%

Δ (GDP / capita [t-1]) %

Δ (

Ho

use

Pri

ce I

nd

ex)

%

Other Countries

Greece

PwC

The number of new builds is primarily driven by GDP per capita and mortgage lending, while it is constrained by the dwelling stock

Page 21

Πηγή : European Mortgage Federation, Ανάλυση PwC

60%

80%

-60%

-80%

40%

20%

0%

-20%

-40%

-100%

6% 12% 18%-18% 24%0% 30-6%-12%

Δ (

New

Bu

ild

s p

er 1

,00

0 s

tock

) %

Δ (GDP|capita) %

Greece

20%

-40%

60%

80%

40%

0%

-20%

-60%

-100%

-80%

60%-40% 20% 40%0%-20% 10080%

Δ (Mortgage Loans|capita) %

Δ (

New

Bu

ild

s p

er 1

,00

0 s

tock

) %

Greece

New housing builds

-40%

-100%

60%

40%

80%

-60%

0%

-80%

0.700.40

20%

0.800.60

-20%

0.50

Dwelling Stock / capita

Δ (

New

Bu

ild

s p

er 1

,00

0 s

tock

) % Greece

Other Countries

Other Countries

Other Countries

Δ (New Builds per 1,000 stock) = α + β1 Δ (GDP|capita) + β2 Δ(Mortgage Loans|capita) + β3 Dwellings stock / capita


Adj. R²:0.26 Adj. R²:0.64


Δ (GDP|capita) 1.33 4.54 1.12 0.69

Δ (Mortgage Loans|capita)0.28 2.37 2.39 3.37

Dwelling Stock per capita -0.67 -2.47 -6.66 -2.17


PwC

0

2

4

6

8

10

12

14

16

18

20

0 20 40 60 80 100

In Greece, mortgage lending is not strongly correlated to economic growth

Page 22

ln(Mortgage loans /capita) = α + β1 ln(GDP/capita)

All countries GreeceAdj. R²:0.76 Adj. R²:0.15


Constant 3.07 161.43 3.1 116.77

GDP/capita 0.42 30.15 0.14 1.67

GDP/ capita (€ k)

Greece

Other Countries

Mo

rtg

ag

eL

oa

ns

/ ca

pit

a (

€k)

Mortgage lending

Luxembourg

• The elasticity of mortgage credit to GDP changes is three times higher in European countries than in Greece


PwC

Summary – GDP per capita, mortgage lending, taxes and the excessive dwelling stock drive the Greek housing market

Page 23

Supply and demand in the housing market

• From the supply side, the transactions’ volume is driven by the number of new builds, while it is retained

with the existing stock

• Demand is strongly driven by GDP per capita and mortgage lending, while the increase in property taxes has

a negative effect

• House prices are positively driven by changes in GDP per capita, mortgage loans and new builds, while the

excessive dwelling stock and property taxes have a negative impact on final prices

• The construction of new houses is driven primarily by mortgage lending and secondarily, but strongly, by

the per capita income and dwelling stock

• The mortgage lending expansion in Greece is not strongly related to the economic growth

PwC

Towards a new equilibrium

Page 24

PwC

Available Funding

Improving funding conditions from the banking system by lifting capital control restrictions

Property Taxes

Reductions in property taxes

2

Increase in disposable income as the country gradually returns to growth

Disposable Income Dwelling Stock

The absorption of the existing dwellings stock will contribute to the revival of the housing market

Very Strong Factor Moderate Factor Moderate FactorStrong Factor

543

The main drivers that shape dynamics of the housing market

Page 25


1 Economic prospects

• GDP growth

• Investments

• Positive inflation

Housing transactions New constructionsPrices

PwC

4 Alternative Scenarios for the Greek Economy

Page 26


Drop in property tax by 2.1% annually up to 2026 and stable afterwards

Scenario 3: Low Growth

Scenario 2: Moderate Growth

Scenario 1: High Growth

Drop in property tax by 5.3% annually up to 2021, 3% up to 2026 and stable afterwards

Stable property taxation at 2015 levels

Scenario 4: Realistic

• Scenario 3 for the first 5 years

• Scenario 1 for the next 5 years

• Scenario 2 afterwards

2000 2010 2020

60

50

30

0

10

0

70

40

20

250

150

300

2030 2040 2050

100

50

200

Mortgage Loans / capita Property Tax / capitaReal GDP|capita

20

10

40

0

60

0

70

50

30

2020 20502030 2040

50

300

150

100

250

200

2000 2010 2010

50

250

20502020

100

200

2000 2030 2040

150

30070

50

40

30

0

10

20

0

60 250

300

20402030 2050

50

200

100

150

2020

0

10

30

20

70

0

60

50

40

20102000

*According to ΙΜF estimations for Greek economy, GDP growth will rise to 2.7% in 2017 (World Economic Outlook). The projections for the following years are based on the historical average of the years reporting high growth (3.5%) for scenario 1 and on the historical average of the years reporting low economic growth (0.5%) for scenario 2 (European Commission data)

€k.

€k. €k.

€k.€ € € €

Economic Growth

Mortgage Lending

Property Taxes

2.7% in 2017* and 3.5% onwards

2.7% in 2017* and 2% onwards

2.7% in 2017* and 0.5%onwards

Mortgage lending will increase at a higher rate than GDP growth



PwC

0

30 40

60

50

50

45

70

40

20

30

10

35

20

15

25

10

5

2010

0

20402030 20452025201520052000 2020 2035 2050

Nu

mb

er o

f T

ran

sact

ion

s (€

k)

Transactions (Demand) Real GDP|capitaTransactions (Supply)Transactions

25

15

45

30

30

0

10

2045

60

40

40

2035

0

20

70

35 50

10

20

5

205020402030202520102000 2005 20202015

Nu

mb

er o

f T

ran

sact

ion

s (€

k)

10

45

25

20302020 2040

70

20

60

50

10

0

40

30

40

35

30

20

15

0

5

20502045203520252015201020052000

Nu

mb

er o

f T

ran

sact

ion

s (€

k).

30

70

10

60

20

40

10

2035

30

20302025 2045

45

20202010

50

2005

5

0

2015

0

35

40

25

20

15

2040 20502000

Nu

mb

er o

f T

ran

sact

ion

s (€

k)

The market will reach a new equilibrium between 2036, if there is systematic and significant growth and 2050 should there be low growth

Page 27


Source: European Mortgage Federation, PwC calculations


Scenario 2: Moderate GrowthScenario 1: High Growth


Moderate Growth/ More Loans/ Reduction of Taxes at a Lower Rate

Low Growth/ More Loans/ Stable Taxation Initially Low, High and Moderate Growth / More Loans / Reduced Taxation

• Real GDP/capita will exceed 2008 levels in 2030

• Transactions will grow at a pace related to GDP

• The supply and demand balance is expected in 2046

• Real GDP/capita is not expected to return to pre-crisis levels earlier than 2050

• Supply will grow at a pace slightly greater than GDP but demand will grow at a much slower pace

• At the low growth scenario, the supply and demand balance is not expected within the forecasted horizon

• Real GDP/capita is expected to return to pre-crisis levels in 2030

• Transactions will rise at the same pace to GDP

• The supply and demand equilibrium is placed in 2047

€ k

High Growth/ More Loans/ Gradual Reduction of taxes

€ k

€ k

€ k

• GDP is expected to reach 2008 levels in 2025

• Mortgage loans will follow the economic growth at a slower pace

• Transactions will increase at a rate slightly greater than GDP

• The supply and demand balance is expected in 2036

PwC

Forecasts

Forecasts

3.5

3.0

5.5

5.0

4.5

4.0

0.0

1.0

110

100

90

2.5

1.5

2.0

0.5

80

50

70

60

40

20

47

20

50

20

49

20

46

20

44

20

43

0.60%

20

24

20

22

20

21

20

20

20

192

018

20

25

20

23

Tra

nsa

ctio

ns

/ D

wel

lin

g S

tock

20

26

20

31

20

30

20

29

20

33

20

35

20

38

Ho

use

Pri

ce I

nd

ex (

20

06

=10

0)

(20

06

=10

0)

20

37

20

36

20

34

20

32

20

28

20

27

20

17

20

41

20

42

20

40

20

39

20

48

20

45

20

162

015

20

13

20

04

20

102

011

20

12

20

08

20

09

20

05

20

07

20

06

20

14

20

03

20

02

Forecasts

0.5

70

60

100

110

90

0.0

50

80

3.5

40

2.0

1.0

5.5

5.0

4.5

4.0

3.0

2.5

1.5

20

49

20

42

20

48

20

50

20

45

20

47

20

46

20

44

20

43

Tra

nsa

ctio

ns

/ D

wel

lin

g S

tock

20

38

20

32

20

34

20

39

20

37

20

29

20

40

20

27

20

28

20

41

20

36

20

35

20

33

20

31

20

30

20

05

20

25

20

17

20

142

013

20

09

20

07

20

04

20

12

20

23

20

22

20

20

20

24

20

16

20

21

20

15

20

26

20

11

20

08

20

192

018

20

10

20

06

20

03

20

02

Ho

use

Pri

ce I

nd

ex (

20

06

=10

0)

(20

06

=10

0)

+0.14%

1.0

4.5

4.0

5.0

3.5

5.5

2.5

3.0

2.0

1.5

110

0.5

50

0.0

100

90

40

80

70

60

20

38

0.60%

20

37

20

44

20

49

20

32

20

27

20

26

20

25

20

24

20

23

20

03

20

06

20

11

20

31

20

05

20

12

20

09

20

142

013

20

08

20

07

20

10

20

02

20

19

20

04

20

18

20

15

20

20

20

17

20

40

20

29

20

30

20

41

Tra

nsa

ctio

ns

/ D

wel

lin

g S

tock

20

46

20

39

20

22

20

21

20

43

20

42

20

45

20

16

20

50

Ho

use

Pri

ce I

nd

ex (

20

06

=10

0)

(20

06

=10

0)

20

28

20

48

20

34

20

33

20

36

20

35

20

47

Forecasts

4.5

3.5

2.5

3.0

2.0

1.5

4.0

1.0

70

0.5

5.0

5.5

0.0

60

90

50

100

80

110

40

Tra

nsa

ctio

ns

/ D

wel

lin

g S

tock

Ho

use

Pri

ce I

nd

ex (

20

06

=10

0)

(20

06

=10

0)

20

49

20

36

20

33

20

30

20

47

20

35

1.05%

20

31

20

38

20

28

20

26

20

41

20

27

20

46

20

24

20

39

20

50

20

42

20

40

20

45

20

37

20

48

20

44

20

43

20

34

20

32

20

29

20

25

20

15

20

10

20

172

016

20

14

20

11

20

13

20

22

20

04

20

18

20

09

20

05

20

23

20

20

20

12

20

21

20

06

20

08

20

07

20

02

20

19

20

03

Due to the oversupply, House prices are expected to return to the average level of the period 2002-2008 by 2042 the earliest, if the economy recovers at a fast pace

Transactions/Dwelling StockHouse Price Index (2006=100)


Source : European Mortgage Federation, PwC calculations

avg. prices 2002-2008

Page 28


Scenario 2: Moderate GrowthScenario 1: High Growth


avg. prices 2002-2008

avg. prices 2002-2008 avg. prices 2002-2008

PwC

The average growth rate of new builds is placed, depending on the GDP growth rate, between 3.2% and 9.3% p.a., while the average annual investment in new build construction is estimated between € 2bn and €10bn

Page 29

2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

140

40

180

200

120

20

100

160

80

220

60

0

New

Bu

ild

s (k

)


* Average annual investments are derived from the construction of new builds. According to Eurostat (2012 data) the average house size in Greece is 94 sq. m. and according to market estimates, the construction of a 94 sq. m. house costs on average € 100k.

The average

number of new

builds per annum

is estimated

between 100.000

(high growth)

and 20.000

houses (low

growth)

Evolution of new builds

Average annual investments*

€10 bn p.a.

€5 bn p.a.

€4.5 bn p.a.

€2 bn p.a.

PwC

Should the Greek economy grow according to the realistic scenario, the housing market is expected to balance after 2047, but house prices will reach 2002-2008 levels long after


Page 30

Scenario 3:Low Growth

Scenario 2: Moderate Growth

Scenario 1: High Growth


GDP/capita at 2008 levels

Market equilibrium

House prices at avg 2002-2008

2036

After 2050

2046

2047

2025

2030

After 2050

2030

2042

After 2050

After 2050

After 2050

Estimated average annual house investments

€ 2 bn

€ 4.5 bn

€ 5 bn

€ 10 bn

PwC

Summary – The housing market will return to pre-crisis levels after 35 years

Page 31


• According to the realistic scenario of the Greek economy, GDP per capita will return to pre-crisis levels around 2030

• The supply and demand in the housing market will balance at about 2047, due to oversupply, high taxation and limited mortgage lending

• House prices will grow slowly, with an average growth rate of 0.6% p.a., reaching 2002-2008 levels after 2050

• Real estate investments are not expected to play significant role in the short-term growth of the economy, as they will remain at lower than historical levels, around € 4.5bn p.a. on average


• Mortgage lending should follow the growth rate of the economy in order to reactivate demand

• Property taxes should gradually decrease in order to boost investment interests

Strengthening the housing market

Page 32

PwC

Is there space for a new housing market policy?

Page 33


• Greece is close to the end of a long recession, but the political and economic pressures will remain strict for several years

• House prices have severely dropped

• The oversupply is difficult to be absorbed, especially in a period of income decrease and limited mortgage lending rendering difficult for the market to recover

• Greece is not a target-country for investors

• Apart from this environment, the Greek housing market suffers from two additional structural problems

Non-scraping of aged stock

Fragmented property

• Without addressing those failures, the demand in the market will develop slowly but steadily, under certain macroeconomic and financial conditions

Occ

up

an

cy*

Time

Phase 1 - Recovery

Phase 2 -Expansion

Phase 3 – Over-supply

Phase 4 - Recession

Long term average occupancy

Supply/DemandBalance

Increasing occupancy/Decreasing vacancyNo new builds

Increasing occupancy/Decreasing vacancyNew builds

Decreasing occupancy/Increasing vacancyNew buildings

Source: Mueller, Real Estate Finance (1995)

Decreasing occupancy/Increasing vacancyMore completed builds

* *The difference between supply (including new builds) and demand in terms of absorption

Greece is in recession while suffering from house oversupply

PwC

Fast rebalancing of the housing market

Page 34


Strengthening the real estate

market

Removal of excessive dwelling stock from the real estate market and integrated area redevelopment

Redevelopment/redesign of selected or underdeveloped areas

Targeted buildings’ dismantling (demolition)

Establish mechanism for the collection of property rights(«Land Bank»)

Transfer property rights/ building coefficients

Transfer long-term lease rights (leasehold) from properties in underdeveloped areas in need for redevelopment

PwC

Upgrading underdeveloped urban areas through zone regeneration programs or through the creation of urban business clusters while simultaneously providing relocation incentives, remuneration or participation (for property owners) to the regeneration program, creating investment opportunities and positive externalities for the economy

Revitalising/rebuilding brownfield sites and removal of abandoned and unsafe buildings

Moving ministries and other public services buildings out of the city center in order to release and renovate existing premises, while also to upgrade suburban zones

Improve the external demand through theconstruction of organised accommodation units as well as vacation houses for tourists

Investments in infrastructure and technologyprojects for the interconnection and access to the new areas, as well as the upgrade of the existing ones, boosting construction interest and increasing house value

Reduce oversupply through massive reconstruction and redevelopment of part of the dwelling stock

Page 35


Areasredevelopment

ConsumersOwners

Public infrastructure

programs

Business system

Ben

efit

s

Developers/Constructors

PwC

Concentration of fragmented real estate ownership through the creation of a “Land Bank”

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• Consolidation of building coefficients into urban zones (building coefficient reception zones)• Concentration of fragmented property for massive reconstruction of part of the dwelling stock and redevelopment of the reception zones• Reinforce real estate yields through the transfer of building coefficient• Attract investors for long-term lease (eg. 100 years)

Through Real Estate Bank:

Leasehold payments

Land Bank

• Securitisation of intangible rights

• Offering ofLeasehold rights

• Land depositor

• Land integrator

• Market maker in warrants, property rights, and building coefficients

Concentrated property for reconstruction/redevelopment (building coefficient reception zones)

Fragmented properties/properties that building rights have been removed

• Transporting of building coefficient

• Financial compensation

Additional Building Coefficient

WarrantsTransfer Exploitation rights of buildings in underdeveloped areas for long-term lease (Leasehold) Long-term lease

(Leasehold)

Transfer of Building Coefficientproperties that building rights have been removed

• Transfer building coefficient rights

• Financial compensation

Dividends from real estate development

Developers

• Construction/redevelopment of the infrastructure and properties in the reception areas

• Long-term Leasehold (eg. 100 years)

• Payments

PwC

The Land Bank will facilitate growth

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Management and transfer of building coefficients, from properties that building rights have been removed, into building coefficient reception zones (according to social, environmental and financial criteria)

Creation of a more flexible mechanism for matching building coefficients, through financial compensation

Securitisation and disposal of long-term lease rights (leasehold) from properties in underdeveloped areas, for long term exploitation and development (leasehold)

Transfer of property rights for a long-term period (e.g. 100 years) over a leasing scheme, part of which will return to the initial property owner as dividends. By the end of the leasehold, the property will return back to the owner

PwC

Summary – for the fast recovery of the housing market, to reduce oversupply and facilitate transactions policies are needed

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Reduction of excess dwelling stock

• The Greek housing market show signs of oversupply, due to systematic investments in the sector. Alongside it suffers from 2 additional structural failures:

Non-scraping of aged stock

Fragmented property

• To reduce the oversupply in housing market through massive redevelopment of part of the dwelling stock, along with infrastructure and technology investments:

Upgrading non-operating buildings and scrapping of old stock

Moving ministries and other public services buildings out of the city center

Upgrading underdeveloped urban areas

Improve the external demand

Facilitate transactions

• Main tool to deal with fragmented property and reconstruction of underdeveloped areas is the establishment of a management and collection mechanism of building coefficients and development rights (“Land Bank”). The Land Bank will be able to

transfer building coefficients to appropriate reception construction areas (building coefficient reception zones), targeting at the concentration of the fragmented ownership and the massive reconstruction of part of the dwelling stock

convert property rights into long-term lease rights (leasehold) from properties in underdeveloped areas, which will be available to private individuals, investors or developers for large scale developments

Conclusions

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PwC

Conclusions

• The Greek housing market has shown significant drop in investments and transaction activity the last years

• Investments in real estate shrunk dramatically. Indicatively, within 2008-2015, €18bn., or 8.2% of GDP, investments in construction were lost within 2008-2015, slowing further down the economic activity

• Since 2008 the number of housing transactions fell by 72%, while house prices fell by 41%, especially in the urban centers

• According to a realistic scenario, where GDP per capita returns to pre-crisis levels in 2030, it is estimated that:

the supply and demand in the housing market will balance at about 2047, due to oversupply, high taxation and limited mortgage lending

house prices will grow slowly, with an average growth rate of 0.6% p.a., reaching 2002-2008 levels after 2050

real estate investments are not expected to play significant role in the short-term growth of the economy, as they will remain at lower than historical levels, around € 4.5bn p.a. on average


• In order to facilitate demand, property taxes should gradually decrease, while mortgage lending should follow the growth rate of the economy

• To accelerate the re-balancing of the market it is necessary to:

reduce the housing oversupply, through massive redevelopment of part of the dwelling stock, along with infrastructure and technology investments, and

deal with fragmented ownership, through the creation of a «Land Bank»

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Conclusions

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