Golden Visa: The government’s move to address the housing crisis – economic article

Over Christmas, Athena Drakopoulou closed the crafts shop she had run for 13 years in Koukaki, an upscale neighborhood near the Acropolis. Landlords doubled the rent, and Dracopoulou couldn't compete with investors who were donating everything to trendy cafes and Airbnbs.

This situation was unimaginable even a decade ago. The Greek economy has made a remarkable recovery since 2010, when the Greek debt crisis began. Last year, economic growth surpassed that of Europe and the country received investment grade from rating agencies. But the recovery has been accompanied by a housing crisis in major cities and popular island destinations, where rents rose more than 40 percent between 2018 and 2022. In Athens, it jumped 23 percent last year alone, according to a Bloomberg report.

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“Golden visa”

With affordable housing becoming more difficult to find, politicians are looking for every opportunity to ease pressures on the market. One target was Greece's “golden visa” program, which since 2014 has offered residency to foreigners who invest at least €250,000 in property in the country — a relative bargain compared to countries like Spain and the Netherlands, where similar programs cost several times more. more .

However, in recent years, the Greek government has also raised the entry level. Last August, it raised the minimum investment for golden visas to 500,000 euros in popular areas such as Thessaloniki, parts of Athens, and the island destinations of Mykonos and Santorini.

And now, he does it again. Under new regulations unveiled on Thursday, investors will now have to invest at least 800,000 euros ($873,280) in the above-mentioned areas, as well as on islands with a population of more than 3,100, according to the country's Finance Ministry. The changes will come into effect on March 31, while the Golden Visa threshold will also rise from €250,000 to €400,000 for the rest of the country. In all cases, investors must purchase a property with an area of ​​more than 120 square meters (1,291.7 square feet), and it cannot be used for short-term rental.

Plan

While the government says the plan will discourage foreign investors from buying in sought-after areas, many say the changes will do little to contain housing costs.

“The Golden Visa program has absolutely nothing to do with rising prices,” Drakopoulou said, blaming the trend on short-term rentals and what she called the “Greek mentality.” “Greeks are after quick money, whatever they can get,” Drakopoulou said.

The real reason, according to many analysts, is a lack of supply. The economic crisis halted new construction for almost a decade, and although Greece's population has remained fairly stable, the number of available housing has shrunk. Meanwhile, platforms like Airbnb have turned long-term homes into short-term rentals, and landlords unhappy with tax incentives have left their homes vacant rather than putting them on the market.

Huge request

According to Piraeus Bank, approximately 200,000 housing units are needed to meet demand across the country. Stratos Paradias, president of the Hellenic Real Estate Federation, an association of private landlords, is concerned that prices will not fall unless the government incentivizes landlords to offer long-term leases.

One way to do this is to exempt owners of vacant properties from paying income tax for the next three years, provided they rent out the properties, Paradias said. This could be extended to include short-term leases, a third of which are currently unprofitable and could easily be adapted into long-term leases, he said.

Although the country's housing crisis is due to various factors, the golden visa is “a drop in the ocean compared to the growing demand,” according to Elias Leko, chief economist in the Economic Studies and Investment Strategy Department at Piraeus Bank. About 18,000 people have participated in the program since its inception and only a handful of homes have been taken off the market. “What we really need are incentives to build new homes,” he said.

Mitigation measures

In a scene of intense political confrontation, the Greek government is taking measures to mitigate the crisis. Starting this year, landlords must set up a business and pay a 13% tax rate, like hotels, if they rent out at least three short-term properties. From February, the Greek government will cover 40% of renovation costs, or up to €10,000, in apartments whose owners wish to rent long-term. But with Airbnbs asking for an average of €100 per night in a country where the minimum wage is €780 per month, this initiative could prove difficult.

Signs of fatigue

Meanwhile, some analysts believe that soaring home prices may soon peak. In a report published in January, Berrios noted that the overheated market had pushed home prices beyond what could be justified, and noted that “clear signs of fatigue” were beginning to appear. That could give way to “the next phase of the cycle, where rising prices will be accompanied by a decline in trading/marketing,” the analysts wrote.

In Athens, Kokaki experienced the entire housing life cycle in Greece. From a neighborhood that once attracted small businesses with cheap rent, it became an expensive destination for young, artistic Greeks, before becoming what it is now: a ghost neighborhood filled with short-term visitors who come and go with the seasons.

“The first person to set up shop in Koukaki basically created the neighborhood,” Drakopoulou recalls. For many years, her shop, Tintinnabulum, was a landmark and tourist attraction, sharing space with her workshop in a neoclassical building.

“It was a place full of young people who started something on their own to deal with the financial crisis,” he said. That ended when the ten-year leases started to expire and rents started to rise.

Then came the final blow: “Here comes AirBnb,” he complained, and everyone had to leave.