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Covid's impact on the real estate market – Predictions for Crete

18 Jul 2020

Market, by Broosco Team

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July 2020: The effects of the pandemic on Crete real estate market. How prices are expected to move in the coming months. Estimations about supply and demand for properties in Chania. How each real estate category will be affected (urban real estate, holiday homes, villas, commercial properties, etc.).

Estimations on the recession of Greek Economy for 2020 – Factors that affect Crete

 The European Commission's estimations for the economic recession in Greece for 2020 are now stabilizing at a rate of -9%, slightly lower than its initial forecast (-9.75%) about three months ago. However, the recovery for 2021 is also lower, as a 6% growth is discussed instead of the 7.9% forecast in its spring estimates. A recent study published by Grant Thornton Greece speaks of a 8.5% recession.

Here I should point out that these rates derive cumulatively from the business activity of all sectors in Greece. However, this impression is not entirely representative of local economies as not all sectors have been affected to the same extent by Covid-19. For example, the energy sector has been hit by 37%, while food &beverage and accommodation services by 100%. In fact, in regions like Crete, where

  • there is a high concentration of businesses in f&b and accommodation services and
  • the tourist income has a larger share in the local economy than the national average (4.5%)

it is expected that higher recession rates will be recorded, compared to the Greek economy as a whole. On the other hand we need to underline the fact that Cretan economy had a steady growth over the past 5 years and hopefully the financial reserves of these years will help the local economy to face the current situation with more stability.

The influence of the pandemic on the real estate market of Crete until today

From mid-2018 until last February, the real estate market had recovered significantly and for 2020 there were high expectations for further growth. However, the impact of the pandemic on Real Estate was direct and determinant. The market froze for the first two months, many contracts were not completed and there was a general uncertainty. The lockdown and the temporary suspension of the operation of public services, cadastral offices, etc. has aggravated the situation. Since the beginning of May, the market has reopened and iseems to be gradually overcoming the initial shock. In addition, Crete is cashing out the successful treatment of the health crisis and remains an attractive market in the category of vacation houses. The gradual lifting of restrictions on flights from abroad is expected to give a boost to the sales from foreign buyers, who have traditionally been significantly involved in the development of the real estate market in recent years.

How will the year progress - Critical Factors

The successful treatment of the health crisis so far is undoubtedly the most decisive factor for this recovery. However, with the ongoing health crisis, the forecasts for the future are extremely risky and with many "ifs". The most important factor that will determine the conditions in the local real estate market is the so-called "second wave", ie whether there is a new outbreak of the pandemic and whether it is dealt with as effectively as the first. Another important factor is whether the Greek Government, the European support mechanism and the Greek banking system will be able to support businesses and households and reduce the negative effects of the emerging economic recession.

Last but not least, the most important factor that will change the overall balance in the market is the highly anticipated vaccine against the virus. On the announcement of a vaccine discovery, even if mass production is delayed for 6 months or more, the market’s psychology will improve immediately.

How will prices move

There is a feeling in the market, mainly from a portion of buyers, that prices are going to fall after the summer. They tend to, erroneously in my opinion, anticipate that a lack of cash flow in the market will lead to an oversupply of properties and consequently to a price fall. It’s a fact that the pandemic caused by COVID-19 has a massive impact on financial markets and the economy worldwide and has put a stop to the steady growth noted on the market over the last two years. But this doesn’t necessarily mean that it will lead property prices to fall. We should bear in mind that, after 10 consecutive years of recession, the property market has made the necessary corrections and today the price levels (on average) follow a regularity.

Effects on the individual categories of real estate

The real estate market in Crete is a mixture of properties with a variety of characteristics. It is therefore safer to review each category separately. Always based on current data, here are our estimations for the next six months:

Urban Properties – Apartments in Chania

This category is likely to suffer the less losses. The demand for housing in Chania is consistently higher than the supply and this won't change easily. Temporarily some buyers may postpone or stop their searching as a result of the uncertainty. Even if many new houses enter the property market in the coming months, they will simply meet the long-standing demand. If there is a pressure on prices, it will mainly concern expensive properties, i.e. either large houses or those that are priced above the average € / sqm.

Vacation Houses – Villas

This category has a major difference from the previous one. The demand comes mostly from foreign buyers and particularly from countries that have been strongly affected by the pandemic (United Kingdom, France, Germany, the Nordic countries, the United States, etc.). Therefore, this category of real estate in Chania is expected to suffer a big pressure in the short term. Especially the properties with investment character (luxury villas with a license for tourist exploitation) may have a reduced demand this year, due to the decrease in their turnovers. However, if the health success of Greece, and obviously of Crete, is maintained at high levels, the holiday homes or retirement houses in Crete, especially in popular areas (Plaka, Kokkino Chorio, Almyrida, Vamos, Akrotiri, West Crete etc.) will gain significant ground in relation to other affected areas of southern Europe.

Commercial Stores - Commercial Real Estate

Here the forecasts are extremely risky. The trade sector in Chania is also one of the most affected and most of the commercial enterprises and small businesses are currently fighting to survive. According to the Bank of Greece, commercial real estate is the category that will suffer the largest losses nationwide. At this point, we should to clarify that the effect of a rental is a very decisive factor, meaning that a drop in rental income has a direct effect on the value of real estate in this category.

Plots

A significant pressure  is also expected in this category. The basic rule is that each time property market bounces,  land development and construction – statistically - decreases. Furthermore, the interest of individuals instinctively diminishes,  as the construction of a house by itself is a stressful decision for many people. If we take into account all the delays caused by the posting of forest maps and the uncertainty due to the forthcoming implementation of new restrictions regarding the off-plan construction, our estimation is that we will face a massive reduction of the demand for plots and consequently a market pressure for lower prices.

In conclusion

Corona virus is attacking the core of our society and unfortunately we are facing up to a situation which is much more than a health crisis. Unfortunately, this health crisis has put  a brake on a year that we expected to be a very active one in Real Estate. Nevertheless, if we consider the losses suffered by other sectors of the world economy, the losses recorded by the international stock exchanges and the law deposit bank rates, we conclude that property market is still one of the safest investments. For historical reasons we should also point out that this situation did not start from the Real Estate sector this time (as in 2008). Therefore, it's our beleif that the dynamic trend of the real estate market will be only temporarily stopped. Once our lives return to normal, the real estate market will continue to grow. Until then let's take care of our health, let's remain calm and optimistic and the rest will follow.


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