While no one can know for certain what Greece’s fate will be, the growing consensus is that a so-called “Grexit” is on the cards — and could happen as early as next month.
Greece was forced to call a vote on June 17 after an election this month left parliament divided between parties that support and oppose austerity measures tied to a €130 billion bailout agreed with the European Union and International Monetary Fund in March. The election rerun has fuelled fears that the Radical Left coalition Syriza will win power, provoking a Greek exit from the eurozone.
The National Bank of Greece warned earlier this week that it would have dire consequences for the debt-stricken nation and would cause living standards to plummet, incomes to be slashed by more than half and inflation and unemployment to surge.
“An exit from the euro would lead to a significant decline in the living standards of Greek citizens,” the report said.
But another question is what effect it could have for the thousands of Britons who own properties in Greece.
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Chris Towner at HiFX, the foreign currency specialists, said that if Greece returns to the drachma, property prices could plummet by as much as 50 per cent.
“The risk is that if Greeks were to leave the euro and default back to the drachma the market would sell the drachma quite aggressively. Therefore if you are holding an asset in Greece that would be priced in Greek drachmas going forward it would fall significantly in value,” he said. “This is why I think at the end of the day while the Greeks don’t like the austerity measures they are going to choose to stay in the euro because if they don’t we will see an asset devaluation.”
As for mortgage costs, Mike Boles of SPF Private Clients believes that the scenario may not be anywhere near as bad as people fear, as he thinks that the authorities would be likely to force the banks to take the financial hit rather than the homeowners. “The deal would have to be done so the mortgages turn into drachmas as well. That’s going to be a hit for banks because the value of debt is going to be written down,” he says.
“But if they don’t do that people are going to be hit and almost everyone with a mortgage in Greece is going to be in negative equity.”
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The market
• The Greek property market has shrunk substantially during the financial crisis. There are no signs of recovery and medium-term expectations remain negative.
• The market has excessive supply, a large stock of unsold properties and is suffering from very low demand.
• House prices in urban areas (except Athens) fell by 6.7 per cent in 2010 and 7.5 per cent in 2011. Prices in Athens fell by 6.3 per cent last year.
• Throughout the crisis, these drops in prices have been greater for “old” apartments — those that were constructed more than five years ago. The prices of newly-built apartments have displayed relative resilience, falling by 5.1 per cent last year.
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Source: Bank of Greece Annual Report for 2011 (published April 2012)