1

Bank of Greece2nd

Conference on Real Estate Market

Theodosios SampaniotisSenior Economic Analyst

Eurobank EFG Economic Research

December 2,

2011

The Greek Economy and its Real Estate  Market as the Crisis Unfolds

2

I.

The Real Estate markets in the unfolding  crisis

II.

The Greek Real Estate market

III.

What does the future hold?

Outline of the presentation

3

Ι. 

Different Euroarea

countries confronted with  different challenges

USA

Housing market

Financial system weaknessesLeverageRiskGovernance

IRELAND

Housing market

Banks rise of public debt

High private debt

SPAIN

Low competitiveness

Housing market

GREECELow competitivenessHigh fiscal deficits & debt

ITALYCompetitivenessHigh public debt

PORTUGAL

Low competitiveness

Large fiscal deficits, but not debt

High private debt

4

100

150

200

250

300

350

1997

Q1

1997

Q4

1998

Q3

1999

Q2

2000

Q1

2000

Q4

2001

Q3

2002

Q2

2003

Q1

2003

Q4

2004

Q3

2005

Q2

2006

Q1

2006

Q4

2007

Q3

2008

Q2

2009

Q1

2009

Q4

2010

Q3

2011

Q2

Greece Italy Spain Portugal UK USA EA Ireland

(1997

Q1=100)

Note:

Quarterly data.

I.

Evolution

of dwellings

prices

Sources: Bank of Greece, ECB, OFHEO, HBOS

5

I.

Construction Investment more sensitive in the  recession

Source: EU Commission

y = 2,9409x - 17,832R2 = 0,6601-80

-60

-40

-20

0

20

40

-15 -10 -5 0 5 10 15 20Real GDP

% change 2011 - 2007

Con

stru

ctio

n In

vest

men

tR

eal P

rices

, % c

hang

e 20

11 -

2007

%

%

IEIS

GR

EE

TRSK

SILT

US

CY

CH

ITEU EA

DELU

FI

ES

UK

SW

NL

PT

HUDK

BENO

ATCZRO FR

PL

6

Gross Fixed Capital FormationConstruction, % GDP

Source: EU Commission

I.  

Construction Investment in Greece

4.04.85.77.510.4

11.89.49.710.39.99.09.110.09.99.39.19.5

4.34.7

4.94.3

3.13.5

3.64.44.94.45.65.24.84.64.44.34.2

0

2

4

6

8

10

12

14

16

18

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Dwellings Non residential

%

7

Gross Fixed Capital Formation, DwellingsConstant prices, % Change 2011 –

2007

Source: EU Commission

I.  

Construction Investment 

-80

-70

-60

-50

-40

-30

-20

-10

0

10

20

30

40

Slov

akia

Lu

x/bo

urC

zech

Switz

/lan

Finl

and

Ger

man

y A

ustri

a R

oman

ia

Pola

nd

Bel

gium

Fr

ance

Sw

eden

Ita

ly

EA-1

2EU

-15

Net

h/la

ndJa

pan UK

Lith

uani

a D

enm

ark

Cyp

rus

Spai

n Sl

oven

ia

Portu

gal

USA

Esto

nia

Hun

gary

G

reec

e Ic

elan

d Ire

land

%

8

I.  

Employment & investment in the  construction sector

Source: EU Commission, EUROSTAT, OECD

-80

-60

-40

-20

0

20

40

60

-80 -60 -40 -20 0 20 40

Empl

oym

ent i

n C

onst

ruct

ion

% c

hang

e 20

11 -

2007

Construction Investment Real Prices, % change 2011 - 2007

%

%

IE

ISGREE

TR

SK

SI

LT

US

CY

CHIT

EA

DE

LU

FI

ES

UK

SW

NLPT HUDK

BE

NO

AT

CZRO

FR PL

9

I.   Employment

in the construction

sector

is

rapidly decreasing

Greece employment in construction,% yoy, 1999 Q1 –2011 Q2

-25

-20

-15

-10

-5

0

5

10

15

1999

Q1

1999

Q2

1999

Q3

1999

Q4

2000

Q1

2000

Q2

2000

Q3

2000

Q4

2001

Q1

2001

Q2

2001

Q3

2001

Q4

2002

Q1

2002

Q2

2002

Q3

2002

Q4

2003

Q1

2003

Q2

2003

Q3

2003

Q4

2004

Q1

2004

Q2

2004

Q3

2004

Q4

2005

Q1

2005

Q2

2005

Q3

2005

Q4

2006

Q1

2006

Q2

2006

Q3

2006

Q4

2007

Q1

2007

Q2

2007

Q3

2007

Q4

2008

Q1

2008

Q2

2008

Q3

2008

Q4

2009

Q1

2009

Q2

2009

Q3

2009

Q4

2010

Q1

2010

Q2

2010

Q3

2010

Q4

2011

Q1

2011

Q2

%

Source: Eurostat

Note: Not including persons employed in real estate agencies, bank departments dealing with mortgages, lawyers, businesses related to housing (furniture) and of course undeclared employment.

10

II

I.

The role of Real Estate markets in the  unfolding crisis

II.

The Greek Real Estate market

III.

What does the future hold?

11

II. Factors affecting prices

Factors affecting prices, according to empirical studies:

i.

households disposable income, ii.

real interest rates,

iii.

demographic factors,iv.

supply side, 

v.

credit availability,vi.

tax and regulatory environment 

12

II. Rapid economic growth – Living standards convergence

Source: EU Commission

60

65

70

75

80

85

90

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

-8

-6

-4

-2

0

2

4

6

8

GDP per head in PPS (EU-15=100)- left axisReal GDP growth rate - right axis

%

13

0123456789

101112

Jan-

99M

ay-9

9Se

p-99

Jan-

00M

ay-0

0Se

p-00

Jan-

01M

ay-0

1Se

p-01

Jan-

02M

ay-0

2Se

p-02

Jan-

03M

ay-0

3Se

p-03

Jan-

04M

ay-0

4Se

p-04

Jan-

05M

ay-0

5Se

p-05

Jan-

06M

ay-0

6Se

p-06

Jan-

07M

ay-0

7Se

p-07

Jan-

08M

ay-0

8Se

p-08

Jan-

09M

ay-0

9Se

p-09

Jan-

10M

ay-1

0Se

p-10

Jan-

11M

ay-1

1Se

p-11

%

Note:

Bank interest rates on new Housing loans from domestic credit institutions vis-à-vis

individuals

and individual

non-

profit

institutions, euro

area

residents.

Floating rate or up to 1 year rate fixation.

Source:

BoG

II.  Interest rates on new Housing Loans in Greece 

14

36.235.334.633.231.027.2

23.418.3

15.413.410.68.2

40.440.539.838.138.337.936.233.331.630.228.928.5

0

5

10

15

20

25

30

35

40

45

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

9/201

1

Greece Euro area

%

Note:

Credit to domestic non-MFI residents by domestic MFIs

excluding the Bank of Greece, outstanding amounts at end of period, individuals

and private

non-profit

institutions, including securitised

loans and corporate bonds that have been derecognised

from the balance sheet. For Greece: 2000 €

11.2 bn. September 2011 €

78.8 bn. For the Euro area:

2000 €

1,875.8 bn. September

2011 €

3,809.9 bn.

II.  Credit expansion catching up with the Euroarea

Source: BoG, ECB, EU Commission

Housing Loans(% of GDP)

15

Notes: Quarterly data.

90100110120130140150160170180190200210220230240

1997

Q1

1997

Q3

1998

Q1

1998

Q3

1999

Q1

1999

Q3

2000

Q1

2000

Q3

2001

Q1

2001

Q3

2002

Q1

2002

Q3

2003

Q1

2003

Q3

2004

Q1

2004

Q3

2005

Q1

2005

Q3

2006

Q1

2006

Q3

2007

Q1

2007

Q3

2008

Q1

2008

Q3

2009

Q1

2009

Q3

2010

Q1

2010

Q3

2011

Q1

2011

Q3

UKIrelandSpainEAGreeceItalyPortugalUSA

1995 Q1=100

II. Nominal house prices to rents ratio (P/E)

Source: Eurostat, OECD, ECB, Bureau of Labor Statistics, BoG, ECB, FHFA, HBOS, National Statistical Offices

16

43,247

5456,257,257,4

5963,8

67,2686868,269,5

74,57575757676,778

8080

8282,5

858788

9295,79696,597

66,3

40 50 60 70 80 90 100

DECZDKATNLFRFI

RUSWUSCYTREUUKIE

LUMTPLPTNOBEGR

ITSIIC

ESLVSKHUROEEBGLT

Source: European Mortgage Federation

Owner Occupation Rate(% housing units)

II.  High ownership rate

17

2,43,43,53,73,94

4,44,4

5,15,5

6,37,27,5

8,28,58,68,78,98,9

9,49,6

10,910,9

11,812,1

12,613,1

15,516,3

22,123,4

24,4

0 5 10 15 20 25

CYFRMTLUSIIE

EEFI

ATLTPTBG

ITPLIC

LVBECZHUSKSWESNOEAEUSWNLROUKGRDEDK

Source: Eurostat SILC

% of the population living in ahousehold that spent 40% ormore of their equivaliseddisposable income on housing

II. Housing

cost

overburden

rate

2009 data

18

II. Transaction

costs

of purchasing

property

OECD countries, 2009 data

Note:Transaction

costs

refer

to average

costs. The

estimates

do

not take into account

the various

tax

breaks

that exist

in countries

for certain

dwellings

implying

that the estimated

cost

may

overestimate

the actual

cost

in some

countries

(for example

in Italy) where

such

tax

breaks

are

frequent. In

addition, VAT when

applied

to certain

costs

is

not included

due

to data

limitations.

Source: Johansson,A. (2011), “Housing

Policies

in OECD Countries: Survey-based Data

and Implications”, OECD

Economics

Department

Working

Papers

19

II. Low competitiveness scores

Dealing

with

Construction

PermitsGreece Germany Ireland Portugal USA

DB 2012

Rank

out of 183 economies 41 15 27 97 17Procedures

(number) 14 9 10 14 15Time (days) 169 97 141 255 26Cost (% of income per capita) 3.4 49.7 33.1 47.2 12.8

Getting ElectricityGreece Germany Ireland Portugal USA

DB 2012

Rank

out of 183 economies 77 2 90 34 17Procedures

(number) 6 3 5 5 4Time (days) 77 17 205 64 68Cost (% of income per capita) 59.2 49.9 91.1 54.6 16.8

Registering PropertyGreece Germany Ireland Portugal USA

DB 2012

Rank

out of 183 economies 150 77 81 31 16Procedures

(number) 11 5 5 1 4Time (days) 18 40 38 1 12Cost (% of income per capita) 12.0 5.2 6.5 7.3 0.8

Source: World Bank

Doing Business 2012

20

III

I.

The role of Real Estate markets in the  unfolding crisis

II.

The Greek Real Estate market

III.

What does the future hold?

21

-80

-60

-40

-20

0

20

40

Dec

-00

May

-01

Oct

-01

Mar

-02

Aug

-02

Jan-

03Ju

n-03

Nov

-03

Apr

-04

Sep-

04Fe

b-05

Jul-0

5D

ec-0

5M

ay-0

6O

ct-0

6M

ar-0

7A

ug-0

7Ja

n-08

Jun-

08N

ov-0

8A

pr-0

9Se

p-09

Feb-

10Ju

l-10

Dec

-10

May

-11

Oct

-11

Construction of buildings

ΙII.  Confidence is very low in the construction sector

Note: The

arithmetic

average

of the balances

(in percentage

points) of the answers

to the questions:(1) Evolution of your current overall order books (sufficient or

not)(2) Employment expectations over the next 3 months (increase or decrease)

Source: European Commission

3 month moving average

22

Source: IMF Working

Paper, Research Department, “

How

Long

Do

Housing

Cycles

Last? A Duration

Analysis

for 19 OECD Countries”. Prepared

by

Philippe

Bracke. Authorized

for distribution

by

Prakash

Loungani, October

2011

40 years of housing

cycles

in 19 OECD countries1970 Q1 –

2010 Q1

III. How

long

do housing

cycles

last?

Duration (quarters) Amplitude (%)Sample Mean StDev Mean StDev

Complete upturns 49 24.1 14.8 61.3 56.3Complete + ongoing upturns

55 28.0 20.6 66.7 60.1

Complete Downturns 49 18.2 8.7 30.7 28.4Complete + ongoing downturns

62 18.4 12.5 28.8 27.5

23

500

700

900

1.100

1.300

1.500

1.700

1.900

2.100

2.300

2.500

2.700

1959

1961

1963

1965

1967

1969

1972

1974

1976

1978

1980

1982

1985

1987

1989

1991

1993

1995

1998

2000

2002

2004

2006

2008

2011

thous.

Source: U.S. Department of Commerce, NBER

ΙII.

Housing Investment leads the economic  cycle in the USA

Note: Housing Starts, thousands of New Privately Owned Housing Units Started,

monthly data, shaded areas denote recessions

Housing Starts

24

III. Real Estate Market ↔ Real Economy

Residential InvestmentUSA Euro Area

Cyclicality procycl procyclLead/Lag relation with real GDP +2 +2

Real House PricesUSA Euro Area

Cyclicality procycl procyclLead/Lag relation with real GDP -5 +1Lead/Lag relation with real res. inv. 0 0

Real Mortgage DebtUSA Euro Area

Cyclicality procycl procyclLead/Lag relation with real GDP +3 +3

Source: “Housing, consumption

and monetary

policy

how

different

are

the us

and the euro

area?”

by

Alberto

Musso

, Stefano

Neri

and Livio

Stracca

ECB Working Paper Series No 1161, February 2010

1986 –

2008Lead/Lag in quarters

25

Simulation Assumptions: Real disposable income -11.7% in 2011, -7.6% in 2012, Δ(consumption) =

80% Δ(disposable income) due to intertemporal

consumption smoothing, Exports

a function of ULCs

& unitary elasticity w.r.t. trading partners’

growth rates, unitary elasticity of imports w.r.t. net disposable income.

III.

Short-term Greek economic outlook

2011 2012

%GDP %change %change

Private

final

consumption 76.1 -9.4 -6.1

Gen

Gov

consumption 17.2 -8.5 -9.0

Total

consumption 83.3 -9.2 -6.7

Gross

fixed

capital

formation 14.8 -15.0 -5.0

Domestic

demand 107.3 -10.0 -6.5

Imports

g&s 27.7 -11.7 -7.6

Exports

g&s 20.3 8.7 6.2

Real

GDP Growth -5.8 -3.2

GDP Deflator 1.7 0.7

Source: Eurobank EFG Research

26

Future prospects

Positive factors:TourismLegal framework is gradually being clarified – e.g. National Cadastral (Ktimatologio S.A.), unlicensed dwellingsReestablishment of macroeconomic stability (e.g. 26th October decisions, new Eurozone framework)

Negative factorsDemographicsLower incomesEver‐changing tax environmentCredit constraints

27

Concluding remarks

The Real Estate market was not a problem in GreeceNevertheless, as expected it suffers from the historically severe economic downturnThe characteristics of the Greek housing cycle

Large credit expansionA market led by fundamentalsHigh occupancy ratesGreek households viewed dwellings as safe long term investments 

Empirical research suggests that the duration and amplitude of the downturn will be smaller than the upturnInvestment in housing is a leading indicator for economic growthAs expected, the future of the Real Estate market depends mostly on the Greek macroeconomic environment

28

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