Real estate market: supply does not meet demand – 212,000 homes are “missing” from the market

The issue of rising real estate prices in our country, which began after its emergence from the ten-year economic crisis, has become the focus of attention of both the investment plans of large groups active in the real estate sector, as well as thousands of families searching for a suitable opportunity for them to make a purchase.

According to convergent estimates that see the light, the important call for the real estate market is to achieve a balance between supply and demand, while at the same time everyone is “looking” for the point in time at which prices will stabilize and perhaps follow a decline. Minor correction.

Piraeus Bank analysis of real estate purchases

The answer to these questions is provided by the financial analysis of Piraeus Bank, which came to light last week under the title “The Greek Real Estate Market: Deep and Structural Imbalances between Supply and Demand.”

As Elias Lykos, head of financial analysis and investment strategy at Piraeus Bank, pointed out to APE/MPE, “One of the main findings of the study is that the increase in property prices has exceeded what can be justified by the government.” Economic growth rates and increased disposable income for Greek families”

However, this fact, Mr. Lykos emphasizes to APE, “should not lead us to the conclusion that the real estate market in Greece has become a hostage of a ‘bubble’, and it is only a matter of time before it bursts. The pace of real estate growth is likely to slow down in the period However, the imbalance between supply and demand documented in the study means that price levels themselves will be difficult to decline.”

According to the study data, the growth rate of residential property prices cumulatively from 2016 to 2022 increased by 14% more than the growth rate that can be justified based on the development of basic macroeconomic parameters of the Greek economy.

Researching the factors that led to this large discrepancy leads us to the conclusion that the developments witnessed by the Greek economy during the years of crisis and recession have created a major imbalance between supply and demand for residential real estate, which will unfortunately be difficult to correct. A bridge is on the horizon in the short term. Taking data from scratch, the study indicates that the sharp decline in property prices fully reflects the decline in disposable income and consumption of Greek households and the sharp and countercyclical increase in property taxes (i.e. the increase in taxes in Greece). Period of low prices and sales). The result is that the real estate sector, from being a driving force of the Greek economy, will turn into a disincentive to economic activity and then turn into complete obscurity and insignificance.

However, market forces remain at work, and the recovery in prices, coupled with improved demand conditions and the lifting of financing constraints, has led to an increase in building permits and an increase in new investments in their own right.

How is the imbalance between supply and demand measured?

According to the study's calculations, construction activity reached its peak in 2005 with the issuance of 66,000 building permits, equivalent to 195,000 homes. Since then, the decline has continued, resulting in historically low levels of construction activity in 2012 onwards, with annual permits issued equivalent to 16,000 homes per year.

Thus, between the 2001-2011 census, an increase in the number of homes was recorded by 917 thousand homes, while in the following decade 2012-2022, the study estimates that only 155 thousand were added. At the same time, on the demand side in the period 2001-2011, an increase in the number of households was recorded by 582 thousand households, while from 2012 to 2022 we estimate the creation of only 197 thousand households. In addition, a new feature that has emerged in recent years is the increased demand for housing for short-term rental.

This demand, which works in addition to the demand for housing in households, amounts to 170 thousand homes.

In conclusion, the bank's analysts estimate that the imbalance identified by the study is nothing but the product of the distance between the 155,000 new homes that we estimate were built in the last ten years from one year and the total demand for 367,000 new homes (197) thousand new families in addition to 170,000 short-term rentals. ). Therefore, it is this lack of supply versus demand of about 212 thousand homes that led to a cumulative rise in housing prices by 14% in addition to the increase justified by the level of income growth. Given the size of the gap between supply and demand, house price increases are expected to be moderate but will not reach negative territory.

The upshot of all this is that the real estate market has reached a point in the economic cycle where potential buyers are still willing to accept ever-increasing seller demands, but with clear signs of fatigue preparing us to enter the next phase of the economic cycle. A cycle where rising prices will be accompanied by a decline in transactions/sales.

Res-EMP