by admin The dynamics of real estate prices and rentals have been examined by Alpha Bank in its Weekly Bulletin of Economic Developments (July 2022), highlighting, among other things, the effect that of increase in telecommuting on the property market. In particular, Alpha Bank’s analysis team points out that the rise in residential property prices and rents over the last two years is a pan-European phenomenon. The average increase in house prices in the Euro-zone from the first quarter of 2020 to the first quarter of 2022 exceeded the average increase of the period between 2017-2019. The significant increase in house prices since the start of the pandemic is evident in most Euro-zone countries, with Greece recording an average house price increase of 2.7% in the period 2017-2019, while in 2020Q1-2022Q1 the average house price increase rate was 6.2%. In Greece, the residential real estate market entered a recovery phase from 2018 onwards. The alteration rate in residential property prices has remained positive since the first quarter of 2018, while accelerating during 2019. Despite the negative impact of the pandemic on domestic economic activity, the residential property market has shown resilience, with prices remaining on an upward trajectory and their annual growth rate accelerating again from the first quarter of 2021 onwards. Between 2018 and 2021, residence prices have risen cumulatively by around 20%, partially recovering losses from the prolonged 2009-2017 decline of around 40%. The rapid rise in residential property prices in the last two years (2020: 4.5%, 2021: 7.4%) has been combined with an significant increase in residential investments (2020: 14.6%, 2021: 26.5% ) and private construction activity (2020: 5.9%, 2021: 45.9%) in terms of volume (m3). The recovery of the real estate market in Greece continued during the first quarter of the current year. According to the latest available data from the Bank of Greece, the residential real estate market maintains its strong momentum, with the apartment price index suggesting a significant year-on-year increase in the first quarter by 8.6%. The positive outlook for the real estate market is also reflected in the strong rise in residential investments in the first quarter of 2022, which increased by 18.6% year-on-year, as well as the increase in the volume of private building activity by 13.8% on an annual basis. Finally, despite the downturn in economic activity during the pandemic period, prices of topnotch shops and offices continued to rise, albeit at a slower rate. In contrast, topnotch retail and office rents noted a year-on-year fall in 2020 (by -1% and -0.8%, respectively), yet recovering in 2021 (by 1.1% and 3.7%, respectively).
In the current situation of rapidly rising residential property prices it is useful to analyse the relationship between sales prices and rental prices. The price-to-rent ratio is a measure of property performance, essentially reflecting the relationship between the cost of ownership and the profit return to the owner from renting the property. In theory, an increase in the price-to-rent ratio makes renting more profitable than the sales market, reducing the demand for housing and depressing housing sales. Conversely, a decline in the price-to-rent ratio is expected to make buying-a-home more affordable than renting, increasing the demand for property purchases. The price-to-rent ratio in Greece has been in continuous rise since the second quarter of 2017, with house price growth rising faster than rent growth.
Unconventional monetary policy and real estate market
The previously established low interest rate policies (by the EU Central Bank) has largely contributed to a strong rise in house prices across Europe, a consequence of the inverse relationship that exists between property prices and interest rates (“Drivers of rising house prices and the risk of reversal”, Financial Stability Review, May 2022, European Central Bank). The current low yield levels turned investors into the real estate market, increasing their demand and pushing-up property prices. In addition, low mortgage interest rates at pan-European level contributed to this direction, facilitating the housing market, resulting to an increase of demand for properties and subsequently their prices. However, the gradual shift in European monetary policies to a contractionary strategy through interest rate-hikes is likely to slow the upward trend seen in house prices in the near future.
Is telecommuting changing the real estate market?
An additional factor estimated to be associated with increasing housing demand and the subsequent rise in residential property prices, is the increase in the proportion of workers telecommuting. Telecommuting, which was once more common to highly-skilled business executives, expanded significantly during the pandemic crisis, as more and more employees worked from home. In relation to the most recent energy crisis, telecommuting could be proven to be a valuable strategy for reducing the cost of transportation and energy consumption for both businesses and households; thereby, expanding personal leisure time for the employees. According to the latest Eurostat data, the percentage employees in Greece working from home reached 14.8% in 2021 from 10.4% in 2020 and 5.2% in 2019. The corresponding average percentage in Europe exceeds 26% in 2021 (2020: 22.4%; 2019: 15.1%). This means that Greece has consistently lower percentages than its counterparts in Europe. In particular, in Greece in 2021, out of 14.8% of employees who worked remotely, 8.2% said that they “sometimes” worked from home, while 6.6% said that they “usually” tele-worked. This time increase in the rate of telecommuting also relates to a change in housing preferences, both during and after the pandemic, possibly reflecting a desire for additional working space at home, combined with a reduced need to commute. Potential changes in household preferences towards larger homes to facilitate telecommuting are expected to increase a demand for relevant housing, pushing property prices up in the near future. There appears to be a positive correlation between the change in housing prices and the tele-work rate for 2021 within in a significant sample of Euro-zone countries. This is also the conclusion of the most recent study by Mondragon and Wieland (2022), according to which telecommuting is expected to affect the course of residential real estate prices, pushing prices up.
Source:
https://www.capital.gr/agora-akiniton/3646145/alpha-bank-allazei-i-tilergasia-tin-agora-akiniton