Great upheaval, great situation, as Mao Zedong once said. Indeed, with borrowing costs in the 5.50% range, the ECB key rate at 3.50% and material costs growing at 11.4% year on year, the picture of today’s construction orgasm looks, to put it mildly, paradoxical. If we add to the analysis the increase in the cost of energy, wages and delivery time of materials, the decision to build new buildings seems extremely discouraging. More. According to ELSTAT, last December there was a 47.3% increase in private construction activity, while the compensation rate again exceeded 40%. Maybe Mao was a developer after all?

According to research by the appraisal company GEOAXIS, the cycle of high construction activity that began after 2018 continues unabated as the demand for undeveloped land and/or land with old housing developments for the construction of apartments is growing rapidly. The root causes fueling existing demand can be traced to:

• In the backlog of housing applications not satisfied due to the economic crisis over the past fifteen years.

• In the immediate availability of capital (high liquidity) from the middle class.

• Into a new reality for working from home.

• Qualitative and technological obsolescence of a large number of structures before 1980.

• When apartments are included in investment products.

As long as there is a feeling that demand exceeds supply, the market will show low risk.

The ability to achieve profitability through short-term rentals.

• Possibility of distribution of investment risk through the purchase of real estate.

As long as there is a sense that demand is outstripping supply, the market will be in a low-risk phase, which in turn will help drive up value and drive down returns.

But in general, real estate as an investment destination, in order to remain attractive, must offer returns that are more competitive than other products such as bonds, stocks, deposits, gold, etc. In the zero/negative interest rate regime that we experienced until recently, any investment in real estate was easy and profitable, because even with extremely low returns, investors made quick profits even in second-rate real estate. Today, with high interest rates and general economic volatility, investing in real estate comes with great challenges and can only be profitable in the long term and in prime real estate. Satisfactory performance in the long run means either higher (and guaranteed) rents over time, or lower acquisition costs. However, with rents already at historically high levels, the depreciation seems like a one-way street. Already in Western Europe, Great Britain and America, depreciation (revaluation) is a fact recorded since the 3rd quarter of 2022.

The Greek market, due to its characteristic time lag, extreme superficiality due to the lack of a quality product, the absence of large domestic players, limited interest from abroad (except hotels), multiple divisions and multiple legislation as well as a feature of local participants, seems to temporarily protected, still moving up.

If the forthcoming elections in May produce a quick result and stable management, if the recovery of investment levels occurs immediately, and if the tourist season this year proves to be successful, then, undoubtedly, domestic real estate will maintain a sense of calm in the medium term until the current cycle gradually peaks and a smooth transition into the next phase, recession phase.

Mr. Yannis Xilas is Managing Director of GEOAXIS, AUTH Surveyor Engineer – FRICS Real Estate Appraiser.