BoG: Property prices are in free-fall in the 2006-2016 period

Property prices are in free-fall, with apartment prices down 41.4 pct in the 2006-2016 period, Theodoros Mitrakos, vice-governor of the Bank of Greece said on Thursday.

Addressing a real estate conference, Mitrakos said nominal prices for office space and high-standard commercial property fell by 30 pct in the period from 2010 until the end of 2015, while revenue from leasing offices stabilised in 2015 and revenue from leasing commercial property fell 6.3 pct in the country. In total, a decline in revenue from leasing offices and commercial property amounted to around 30 pct and 35 pct, respectively, since 2010.

The central banker noted that these figures were of particular importance to the banking sector as a reduction in property prices reduced the value of loan guarantees, negatively affecting the credit behavior of borrowers and possible revenue from the liquidation of guarantees. This trend was even more important since commercial and housing property accounted for 82 pct of guarantees held by banks for loans to enterprises and households, without taking into account personal and corporate guarantees.

The Bank of Greece in 2015, with the help of an independent advisor, drafted a survey to categorize non-performing loans and to evaluate the commercial banks’ tool kit for dealing with this problem. The findings of the survey were offered to credit institutions which were called to integrated them into their strategic and business plans for the management of NPLs. Mitrakos said that an obligation by banks to achieve specific operating goals on management of NPLs will have a positive contribution. These goals were agreed in June 2016 after a consultation between the Bank of Greece, with the European Central Bank and the four systemic banks. Greek banks pledged to reduce their NPLs by around 40 pct (or around 40 billion euros) by the end of 2019.