Will Foreigners Buy Greek Property Despite the Financial Crisis?

Will Foreigners Buy Greek Property Despite the Financial Crisis?

2 3248

corfu-island-greece

By now anyone who hasn’t been living under a stone for the last month has heard of the Greek financial crisis. Basically, Greek has a massive budget deficit and investors have grown concerned about the government’s ability to bring it back under control, which has subsequently weakened the EU and the euro — not least because it highlights similarly huge deficits in Spain, Portugal, Italy, Ireland and the UK.

This is all a huge worry for the Greek economy, meanwhile Greek property prices have only fallen 5%, and according to agents foreigners are still looking for property in the country. The question is: how will the recent debt explosion affect the property market, will foreigners still buy property in Greece?

The in-a-word answer to that question is NO! To elaborate, the drop in foreign demand for Greek property likely to come from the current bad publicity could lead to the crash in the Greek property market starting now, which would be a catastrophe for the market.

Most of us know that Greece is not the only country in the EU that has a massive budget deficit because of spending to stave off the financial crisis.

Greece is unique though, because Greece has been trying to get to grips with a massive deficit since long before the recession struck. Subsequently, government spending to stave off the recession — as it did in all the countries named above — pushed the Greek deficit even higher. So, investors now ask, if they couldn’t bring the deficit down from 9% of GDP, how are they going to bring it down from 12.7%? There is even talk of this crisis bringing the complete collapse of the entire Greek economy.

The latest news is that Germany is considering a “bail-out” of Greece if it makes takes what EU Monetary Affairs Commissioner Olli Rehn called “determined action” to reduce its budget deficit.

Greece wants the EU to be much more implicit in its statements that Greece will be bailed out if necessary, and to state how this would happen, which would increase investor confidence that Greece would not default on its debts, and make raising financing easier and cheaper for Greece.

At the same time there is considerable pressure on the German government to avoid such a move, and yet more uncertainty in the future of Greece. In fact the only thing that is certain, is the fact that Greece will be forced to make spectacular spending cuts in the coming months and years.

Had we been in 2007 and in the clutches of a buy-on-sight property boom, as in sight over an internet connection, then Greece would likely have been okay. But because we saw property values around the world shed millions, today’s buyer is going to great length in researching any potential purchase. One of the main things buyers are researching is the underlying stability of the economy in the country of choice.

Maybe the government will make cutbacks in the public sector only. But this would cause unemployment and ultimately stunt economic growth, which makes it unlikely. So, maybe spending on tourism advertising and infrastructure development will drop, causing a resulting drop in tourism. This would push prices downward in tourism driven areas, which tend to be the areas foreigners buy in.

In truth: no one knows what the cutbacks will be, or the effect they will have on property prices, and it is that uncertainty that will also stop foreigners from buying property in Greece.

So far, Greek property prices have only fallen 5% according to internationally respected indices. With the current situation, this could now become a negative, because Greece will also lose out on the bargain hunters that are currently brining hope to markets like Spain and Florida. If foreign demand drops off, then prices could start their crash now, which would be a complete catastrophe, not to mention public sector cuts bringing prices down in the residential markets inland. All in all there is just too much uncertainty for the current risk-averse buyer to swallow.

Photo credits: Mick via Flickr