Is real estate an investment opportunity or a trap?

Our report yesterday on the downward trajectory of one of the largest real estate companies in Europe, as well as the similar adventures of other companies in this sector, especially in Central Europe and Sweden, leaves no doubt about the difficult situation prevailing in this sector.

Similar problems have been reported on the other side of the Atlantic, while warnings from representatives of supervisory authorities and also many important players in the financial industry about the risks to the real estate market due to high interest rates and the high level of borrowing they undertake continue. Many companies in the industry.

If we also take into account the significant problems faced by companies involved in real estate development in China, a rather bleak picture emerges. Are things really that serious? We are facing a generalization Global real estate bubble What makes it dangerous to be involved in this sector right now? What about the situation in the Greek real estate market, is it also serious? On the other hand, does this all exaggerate and the great interest create opportunities that the investor should look for?

To avoid any misunderstanding, there is no one-size-fits-all answer to the above questions. Starting from abroad, Germany, the United States, Austria, Sweden and other countries, we must point out that the problems mainly concern companies that have opened too much to the markets, and have taken risks due to their rapid expansion and the large borrowing they have received. on me.

The strong rise in interest rates over a relatively short period of time did not leave enough time to adjust for many companies in the sector that had been accustomed to borrowing at very low interest rates for many years. Something similar happened with many large investors who continued to fund without realizing the changes brought about by the increase Borrowing costs.

Logic says that the list of victims will not stop at Cigna and we will learn about several other cases as well. But this does not mean that all investments in real estate are by definition risky at this time. It takes a lot of study and organization for anyone who wants to get involved in the industry, either to invest directly in themselves or to participate as a financier.

The range of investments available is truly huge Many types of real estate investments They are so different from each other that any comparison makes no sense, and grouping them together makes no sense. Investing in storage space has nothing to do with investing in shopping malls or building luxury homes.

Likewise, it is one thing to buy a hotel and another to build middle-class housing complexes. Of course, each geographical region has its own characteristics. Since real estate prices in most Western countries have generally risen in recent years, serious study and preparation before any real estate investment is absolutely necessary.

Aside from the general description of the situation abroad, we must say that things in our country are somewhat different. Can the Real estate prices It has risen significantly in recent years, but it is good to see the situation a little more “global”.

If we look at the tables of the Bank of Greece, we see that for several years there has been a noticeable increase in real estate price indices. Starting with residential real estate, we see that apartment prices, new and old, rose by 55% from the end of 2017 until the end of 2022 in the Athens region, by 44% in the Thessaloniki region, and by 28% in the Thessaloniki region. The rest of the major cities and 29% in the rest of the regions.

If we also take into account the increase that seems to have occurred in 2023, it is clear that prices have risen a lot. Something similar has been done, but on a smaller scale, with regard to prices for office space, except that the rise in prices seems to start from the end of 2016. For Greece as a whole, the rise as of the end of 2022 is the order of 19.5%, Athens 29%, and Thessaloniki 14%.

It goes without saying that since we are talking about general statistics, some important differences between regions are also missed. For example, the fact that price appreciation in the southern suburbs of Athens, and in some areas of the center (points with a strong presence of foreign investors) is much higher than in other areas. Or how the rise on some tourist islands is explosive in contrast to others that depend less on the influx of foreign capital.

But what we must pay attention to is that despite the significant upward changes in recent years, prices in all of these areas that we mentioned are still lower than they were in 2010 for offices and 2008 for apartments. At least according to data from the Bank of Greece. That is, even if the famous Bloomberg article published in mid-October stated that apartment prices in Athens are 12.2% higher than last year, at the end of 2023 the average price will still be lower than in 2008.

The observer can say that the gradual return to prices that were several years ago coincides with the gradual return of the Greek GDP to pre-crisis levels, and goes hand in hand with the emergence of interest on the part of foreign investors and the continuous modernization of the infrastructure.

This is probably the key for anyone who wants to deal with the Greek real estate market. If the growth of the Greek economy is estimated to continue, this also makes sense Investing in real estate in the country. Of course the opposite is also true. Knowing the forecasts of international and local analysts, as well as those issued by the country’s credit rating agencies and official bodies such as the European Commission, the European Central Bank and the Bank of Greece, it makes sense to stick to the first point of view. But be careful, because this does not mean that any real estate investment will be profitable.

Detailed analysis of the characteristics of each potential investment, i.e. location, type (houses or apartments, shops, offices, warehouses, agricultural land, tourist accommodation or hotels), and its expected performance in relation to construction and maintenance costs (or purchase cost if it is an acquisition of a ready-made property Of course, including financing costs in the comprehensive equation are initial obligations for the potential investor.

One thing that is very important is to avoid the usual trap, which is assuming that the commercial value of the property will definitely continue to rise. As we learned a few years ago, this is not a given at all. Another thing that would be useful for a potential investor to consider is whether there is significant use of borrowed capital in investments of a similar nature to the one he is considering entering into. This is of great importance because it shows, at least to some extent, whether it has value of its own investment Can be affected by other people’s problems.

As mentioned at the beginning, the subdivisions of the real estate industry are very many and have different characteristics and any general reference is by definition dangerous. However, speaking about our country and on the condition of checking the growth forecasts of the economy in the coming years, we can say that for a serious and diligent investor, dealing with real estate investments may have more opportunities than pitfalls. As long as he is really serious and hardworking.