Business, Economics and Jobs

Experts warn of looming Greek real estate crisis


Greeks fear government austerity is damaging their society.


Louisa Gouliamaki

ATHENS, Greece — George Papadakis inherited his three-bedroom house and a shop in the leafy, well-heeled Agia Paraskevi suburb from his parents. Although the property means a lot to him, he’s put it up for sale.

“It was the most difficult decision I’ve ever made,” he said. “My father worked hard for more than 50 years to get it, but I just can’t afford the taxes.”

Thirty year-old Papadakis is not alone. Greek homeowners have become prime targets for a government scrambling to collect taxes from an increasingly cash-strapped population. Analysts say that has put the country on the brink of a property crisis that could push the moribund economy into deeper recession.

“We’re going to see a very sharp fall in prices over the next six months or so,” says economist Theodore Pelagidis of the University of Piraeus. “It will end a downward spiral that started with the sovereign debt and banking crises and will culminate with a huge real estate crisis.”

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Wave after wave of austerity measures over the past two years have slashed wages and welfare and pushed taxes ever higher, and there will be more to come. Greece's coalition government, led by newly elected Prime Minister Antonis Samaras, is expected to designate almost $15 billion worth of new cuts, although an initial round of talks failed on Wednesday.

“It’s not easy to tax income that doesn’t exist or is diminishing,” Pelagidis says. “But property can be taxed very easily. You can’t hide your house from the authorities.”

Property taxes were imposed only on relatively large holdings before the financial crisis. “Now everyone has to pay,” says tax attorney Anna Paraskeva, “and may even be liable for more income taxes just because they live in their own homes.”

A recent change to the income tax code enables the authorities to bill people they suspect of cheating on their income declarations. Calculations are based on their “deemed income” derived from the value of their assets and expenses. That means property owners are among those jobless who can be held liable for income tax.

Parliament approved a bill for an even more controversial new property tax last September. It would be collected by adding to electricity bills; failure to pay would result in power shut-offs. Nicknamed “haratsi” after a poll tax imposed on Greeks by the Ottoman Empire in the 16th century, the hugely unpopular measure prompted mass protests before Greece's highest administrative court ruled cutting off power for nonpayment unconstitutional.

However, Pelagidis believes the government may still push ahead with the tax. “If the crisis continues, we may see poor families with no electricity,” he says.

Other measures include fines on properties that fail to meet building or environmental regulations, part of what analysts say is the government’s attempt to raise money any way it can, including by exploiting the up to 75 percent of Greeks who own homes.

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As the cost of owning property skyrockets, people who want to sell their assets are finding it difficult.

Stratos Paradias, president of the Hellenic Property Federation, which represents the interests of private real estate owners in Greece, calls the market “almost nonexistent.”

“People want to sell their properties, but there are no buyers,” he says. “No one wants to pay huge property taxes.”

Back in the Agia Paraskevi suburb, Papadakis’s house has been on the market for almost a year. “It’s worth at least $300,000,” he says. “I don’t want to sell my home and shop for too little. It’s a sin to be taken advantage of by someone who has the money to buy my property at a half price.”

Nevertheless, Papadakis feels mounting pressure to sell. He struggles to make ends meet on the $850 a month he earns from his job in a pharmacy. “Living expenses in Athens are too high,” he says. “My wages run out before the end of month.”

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Economists warn that the rising number of Greeks who find themselves in his position is threatening to sink the value of Greek property.

Many people living in wealthy and poor pockets of Athens are already trying to sell their property, Pelagidis says. However, when the trend extends to middle-class neighborhoods, he adds, the result will be “cataclysmic.”

That may have a lasting effect on Greek society. “Our culture calls for buying houses for our children,” Paradias says. “If Greeks lose their homes, it will be very destructive to our way of life.”

Russell contributed reporting from Berlin.