Property Data in Greece: Contributing to House Price Inflation

The Greek real estate market is plagued by a lack of reliable and timely data which leads to market distortions and property price inflation. Indices like the Spitogatos Property Index and the Bank of Greece Real Estate Price Index, are designed to provide insights into market trends but have singificant constraints. The overreliance on these indices - which are essentially based on inflated asking prices rather than actual transaction data - has created a dangerous feedback loop, artificially driving up property values and distorting the true state of the market. In this article, we’ll critically examine how a lack of data and reliance on a few indices is failing the market and the serious consequences that arise from their limitations.

What is a Property Price Index?

A property price index is a tool that tracks the changes in the prices of residential or commercial properties over time. It helps to measure how much property values are increasing or decreasing, providing a snapshot of market trends. By comparing prices from different time periods, it allows homeowners, buyers, investors, and policymakers to understand the overall direction of the real estate market, whether prices are rising, falling, or staying stable.?

In Greece there are two main data sources that are used to track price trends in the residential market. These are the SPI - Spitogatos Property Index and the Bank of Greece Real Estate Price Index. Before we delve into them, it is important to understand the difference between asking prices and actual transaction prices.?

Asking Prices vs Transaction Prices vs Registry Prices

The asking price is the price at which a seller advertises their property. It is often aspirational and in most cases, well above the price at which the final buyer will conclude the transaction. The asking price is typically determined by the seller who may have consulted a real estate agent. In the Greek market, HOMI estimates that only 10-20% of properties that are listed online for sale will actually sell within a 12-month period. This means that the majority of properties listed online do not sell, but may still be included when calculating trends in the market. It is possible for indices based on asking prices to trend upwards, while actual transaction prices remain steady.

The transaction price is the actual value exchanged from the buyer to the seller. It is made up of the price declared on the sale contract and any undeclared cash that might change hands. It is important to note that this practice is against the law. For example, a buyer pays 120.000€ for a property. They give the seller 100.000€ via bank transfer, and 20.000€ in cash. They agree to declare just the 100.000€ on the sale contract. The transaction would be recorded in the registry at 100.000€ and would therefore be understated by 20.000€.

The registry price is the price declared on the contract. It can be observed in the Register of Real Estate Transfer Values.?

The Spitogatos Property Index

The Spitogatos Property Index is a critical tool in the Greek real estate market, offering insights into property prices based on a comprehensive analysis of listings data. It is based on asking prices of property listings on the Spitogatos platform. The platform claims recognize and exclude 95% of duplicates, ensuring that only unique listings are considered. The algorithm also filters out outliers, such as listings with prices or area sizes that deviate significantly from the norm for a given geography.?

The index covers approximately 20,000 geographies in Greece and relies on median prices which provide a more accurate representation of central market trends than average prices, especially in markets with significant price variation. Furthermore, Spitogatos filters out listings from advertisers that do not meet their quality standards.?

Limitations of the Spitogatos Property Index

Reliance on Asking Prices

The index is based on asking prices on the Spitogatos platform. These differ from transaction prices. It is possible for an index based on asking prices to show different trends to an index based on transaction prices. It only costs 2.50-4 euros to post a property on the platform. An influx of new sellers wishing to ‘test’ the market, or an increase in price expectations driven by media sources can lead to an increase in the index of asking prices. Thus the asking price index can be influenced by data points from unmotivated and unrealistic sellers listing their properties at inflated prices. This would not necessarily flow through to actual transactions.?

Mix of neighbourhoods

The index groups properties into major geographical areas without detailed stratification. For example, in Athens Centre Koukaki and Pagkrati can drive up the overall index for Athens Centre, which in turn raises asking prices in less desirable neighbourhoods such as Sepolia and Patisia. This lack of granularity can result in misleading trends, as high-demand areas skew the overall index.?

Mix of old and new properties

There is no segmentation based on the age of the property. New properties and old properties are included when determining the overall index and the change in the price/sqm.?

The Bank of Greece Index?

The Bank of Greece Real Estate Price Index (REPI) is a crucial aspect of economic analysis, particularly in tracking the evolution of real estate markets. The methodology employed in constructing these indices can significantly influence their accuracy and reliability. Due to? the low frequency of residential property resales and the difficulty in identifying these properties over time, the methodology chosen by the Bank of Greece to compile its Real Estate Price Indices hinges on the "mix adjustment" approach.

The raw data used in this methodology comes from detailed reports on the value and quality characteristics of residential properties underlying loan agreements. These reports are based on appraisals conducted by engineers employed by banks. The data collected includes crucial information on property values, location, size, and age, which are necessary for accurate index calculation.

Limitations of the Bank of Greece Index

Small sample of transactions

In 2022, total mortgage issuance was €1.2bn. If we assume the average mortgage to be €100.000, then a total of c. 12,000 mortgages were issued. Therefore the index includes data for 12,000 transactions in 2022 for the entire country. If these are evenly distributed across 4 quarters of the year, that makes 3,000 transactions per quarter upon which to construct the price index. This may be too small a sample size upon which to calculate price increases. For the last 10 years, mortgage issuance has been muted as can be seen in the graph below. If we take into account that the index is divided into 50 geographies, 2 age categories and 3 size categories, we can deduce that the sample size is far too small to be making accurate assessments on quarterly price adjustments.?

Exclusion of cash transactions

The index excludes around 90% of total transactions, as only around 10% of residential property purchases are done via a mortgage. This means that the index does not account for cash transactions, which are significant in the Greek real estate market. In 2022, the notarial survey of Greece recorded 112.283 property transactions while a total of c. 12,000 mortgages were issued. This means that just 11% of transactions were completed with a mortgage. If the index is based on appraisals from banks, then we are missing 9 out of 10 transactions in the market. This means that a huge part of the market is not being included in the index.

Oversimplification of groups?

The use of broad categories (e.g., only two age groups and three size groups) may oversimplify the diversity within each stratum, leading to less accurate representations of the market. In particular, properties are categorised into new (0-5 years) and old (over 5 years) groups. Construction of new properties in Greece has been underwhelming for the last decade, and the use of bank finance to buy these properties is also rare. The recent Spiti Mou program did not apply to newer properties, and most new properties are bought without the use of a loan. Therefore it is unclear how many data points of new properties are included in the Bank of Greece Index to be able to provide meaningful insight on properties that are categorised as new (under 5 years old).

Danger of inflated values

The bank must provide its estimate of the market value of the property to be mortgaged. This is typically done through a comparables analysis. In Greece, the most appropriate and complete data set for such an analysis are listings from online platforms such as Spitogatos. The valuer can observe the asking prices of these listings to come up with his valuation. However, this data is based on asking prices and suffers from the limitations mentioned above. Only 1 in 10 of these properties will likely sell, meaning that there is a danger that the appraiser provides an inflated value of the property subject to a mortgage application.

Must offer more to buy with a loan

A seller will prefer an all-cash offer compared to a buyer with a loan. They will receive their money quicker, and there is less bureaucracy involved. A Greek bank may take anywhere from 2-10 months to disburse the loan funds to the seller. Because of this, buyers with loans have to offer higher amounts than all-cash buyers to compensate. For example, in a recent HOMI sale the asking price was 120.000€. The highest offer from a cash buyer was 115.000€, while there were 4 offers from buyers with loans that exceeded 125.000€.?

An offer was accepted at 130.000€ and the bank sent their engineer to appraise the property. The engineer would have found comparable listed properties at say c. 160.000€ and then applied a 20% discount to justify a valuation at 136.000€. The buyer would then have their loan approved, and this amount would enter the database for the Bank of Greece Price Index. Had the property gone to a cash buyer, it would have sold at 115.000€, 12% lower than the 130.000€ paid by the buyer with the mortgage, or 15% lower than the 136.000€ appraised by the engineer.

Feedback Loop on Asking Prices - The Vicious Cycle

Bank engineers play a vital role in the valuation of properties for loan purposes. Their comparative valuations rely on asking prices of comparable properties. These asking prices are sourced from platforms like Spitogatos. At the same time, Spitogatos constructs its own index of asking prices, providing a detailed snapshot of market trends based on the listings available on its platform.

There is a real and significant danger of a feedback loop between asking prices and the Bank of Greece Price Index. The process begins with bank engineers using asking prices from listing platforms to conduct comparative valuations for properties. It would be far better to use actual transaction data, however this is not being made available, even though the public authorities may be able to produce this information through the myProperty platform.?

The bank valuations are then used in loan appraisals, contributing to the data that feeds into the Bank of Greece’s Price Index. If asking prices are increasing, there is the chance that they flow into the Bank of Greece Index, which would indicate to the wider market that property values are rising.

Market participants, including homeowners and realtors, observe the rising Bank of Greece Price Index and interpret it as a signal of increasing property values. Consequently, they adjust their asking prices upwards to align with perceived market trends. This, in turn, provides bank engineers with higher asking prices for their next round of valuations, perpetuating the cycle.

Negative Impacts on the Market

This feedback loop has several negative consequences for the real estate market:

Inflated Property Values

The reliance on asking prices, which are often aspirational rather than reflective of actual sale prices, leads to an artificial inflation of property values. As asking prices rise, the Bank of Gree Index follows suit, creating a perception of a continually booming market even if actual transaction volumes and prices do not support this. This contributes to the housing affordability crisis, which is making it increasingly more difficult for working families to buy their own home.?

Reduced Market Liquidity

Only 10-20% of properties listed for sale in a given year actually sell. This low transaction rate can be attributed to the inflated asking prices driven by the feedback loop. Potential buyers are deterred by high prices, leading to longer listing times and fewer completed sales. Reduced market liquidity harms sellers, who suffer from higher carrying costs for longer. It may reduce the amount transfer tax the state would be able to collect through reduced transaction volumes.

Systemic Financial Risk

Inflated valuations based on asking prices increase the risk for banks and borrowers. Loans issued based on these high valuations may not be fully secured if the market corrects, leading to potential losses for financial institutions and borrowers.?

Unfair Tax Assessments

The state may adjust the price zones upwards based on the increasing trends shown by the price index. This could occur even if the actual transaction prices do not reflect an increasing trend. An increase in price zones would flow through to property taxes, which would place an undue and unfair financial burden on property owners.

Conclusion

The lack of reliable and timely transaction data is a major issue in the Greek real estate market. When market participants base their assessments and decisions on indices like the Spitogatos Property Index and the Bank of Greece Real Estate Price Index they are fueling a cycle of property price inflation. This distortion not only inflates property values but also reduces market liquidity, contributes to housing unaffordability, and increases financial risks across the board. It’s time for a serious reevaluation of how we measure real estate prices in Greece before these inaccuracies lead to even more significant market instability.