Why Are House Prices Still Going Up In Crete?

With The World’s Financial Crisis Hitting Property Markets Internationally – Why Are House Prices Still Going Up In Crete?

With so many negative factors affecting the property market in Crete such as escalating fuel prices resulting in the increase in the cost of getting to the island, interest rate increases and even the strength of the Euro against other currencies, especially the British pound – it seems incredible that house prices in Crete continue to rise, but rise they do!
Despite local and overseas estate agents all recording a significant decline in the number of people actively enquiring about properties on Crete, which is the largest of the Greek islands, there has been no reaction to this from the Cretan house market itself. With many potential property buyers biding their time in the hope that interest rates and prices will fall it seems strange that there is no sign that at least the latter should happen in the near future.
There are many reasons for this. Crete is still very much an undiscovered property market. Greece’s building laws are very strict and, perhaps in the light of such problems as the “land grab” situation in Spain, they are generally strictly enforced. Developers in some areas of Crete such as Rethymnon even claim that the strict building laws are stifling reasonable growth of the local economy. What this does mean however, is that even in today’s deflated property market there isn’t such a surplus of new build homes and villas in Crete as there is in other markets such as Bulgaria - building surpluses which have inevitably forced house prices down. Legally buildable land on Crete is a precious commodity sold at high prices - as Mark Twain once said “Buy land, they’re not making it anymore”. Another factor helping to sustain the gradual capital growth of Cretan property is the fact that house prices in Crete are a closer reflection of actual building costs. Whereas in many countries the selling price of a house has been dictated by how much someone was willing to pay for it, or more specifically, how much someone was able to borrow to pay for it, Crete’s house market has not seen such a credit fuelled bubble. Consequently more realistic factors such as the rise in fuel prices leading to the increase in the cost of construction are what have inevitably boosted house prices on Crete.
To understand how house prices in Crete can continue to increase even in today’s market it is necessary to understand some of the changes that have taken place in Greece in recent years. Yes, of course the Olympics in 2004 gave Greece and consequently its house market a boost, but that has had much less of an effect than the introduction of 19% VAT on new buildings as of the 1st of January 2006 and the government’s increases in the “Objective Value” of property in Greece. The “Objective Value” is a deemed value determined according to a formula prescribed by the tax authorities and is regularly revised. These values do not coincide with book or market value, and vary between different areas. Generally speaking they are significantly lower than the actual market value of the property. The "objective" value of the property is the value used when calculating the amount of tax payable with regard to the property so any hike in objective value increases the taxes payable. The increases brought on by the rise in objective values have more often than not been absorbed by the construction companies in Crete, but the 19% VAT shock waves that were felt by construction companies all over Greece as of the 1st of January 2006 have been transferred to their clients as a subsequent rise in the cost of homes in Crete and Greece as a whole. The full impact of this change has only been felt relatively recently for many construction companies.
Although the financial sector is not such a large segment of Greece’s economy, which is why it is not so heavily impacted by the world economic crisis, many people in the real estate industry believe that the current rising cost of property in Crete cannot be maintained. Indeed most estate agents, (not to mention buyers) would welcome a reduction in house prices as a way of attracting cautious property purchasers back. However, construction companies in Crete seem very reluctant to make such a move. With the world economic clouds gathering overhead it is believed that Crete will be able to weather the storm!