This content is from: Local Insights

Greece: open for business

Christos Christou
The sovereign debt crisis in Greece has resulted in an unprecedented plunge of the GDP by 25%, whereas prices in the local real-estate market have fallen as much as 50% since the crisis hit the country at the end of 2008. As a result, huge investment opportunities have arisen, as both the Greek state and the private sector are trying to liquidate as many assets as possible in order to repay their debts. Still, until recently, foreign investors were reluctant to enter an ill-performing economy, despite the impressive adjustment fiscal programme implemented by the Greek Government and the sweeping structural reforms adopted during the last years, which resulted in a public finance surplus for the first time since Greece joined the eurozone in 2002. One of the main reasons for this was the unfavourable taxation status for real estate investments. Two very interesting recent deals, however, show that the country is again open for business.

Canadian Fairfax Financial Holdings invested €200 million ($272 million) within the last year in EFG Eurobank Properties, raising their share from 5.7% to 42%. Prem Watsa, Fairfax's CEO, called the deal "a vote of confidence to the prospects of the Greek economy". A few weeks ago, Dutch private equity Invel Real Estate and BGS Real Estate of the Israeli diamond mogul Beny Steinmetz announced a joint purchase of 66% of Pangea real estate investment company (REIC), Ethniki Bank's real estate unit for €653 million, "betting on a recovery in the country's economy". Both deals have one thing in common: they both relate to an investment in a Greek REIC and this should be no surprise.

Although the legal framework of REICs was introduced as early as 1999, their appeal increased considerably due to their favourable taxation status in a heavily taxed jurisdiction, and following a number of reforms introduced earlier this year to meet the requirements of the market. With a minimum initial capital of €25 million, of which at least 80% must be in eligible real estate (a definition extended recently to also include real estate under construction up to 40% and residential real estate up to 25% of the entire investment portfolio), a REIC is easy to establish in the form of a Greek SA under a licence by the Hellenic Capital Markets Commission (HCMC). Recent amendments also allow for further flexibility as to the nature of the investment portfolio. The real estate can be located anywhere in the EU and the European Economic Area (EEA), and in certain situations in third countries (up to 20% of the whole investment portfolio). REICs are also ideal vehicles for the ambitious privatisation plan of the Greek Government, primarily focused on real estate, such as the former Helenikon Airport, ideally located at the Athens Riviera, the prestigious Astir Vouliagmeni Hotel, or the sale and lease back of government facilities. They are also ideal for investments in the wider southeastern Europe region, where Greek REICs already hold a substantial part of their portfolio.

The licensing and monitoring process before the HCMC has been considerably expedited and simplified to allow more investors to apply. As a result, a field dominated until recently by Greek banks (all four Greek REICs in operation are controlled by Greek banks) now attracts new schemes for real-estate owners or developers, including the National Social Security Fund (IKA), owner of a major real-estate portfolio estimated at around €1 billion at current prices.

A REIC is required to list its shares in a recognised stock exchange (not necessarily in Greece) within 24 months as of its establishment and registration with the HCMC. The deadline may be further extended by another 24 months; three out of the four Greek REICs mentioned above are listed on the Athens Exchange.

As already mentioned, the taxation status of REICs is their main attraction. Issuance of shares of a REIC and the transfer of real estate to a REIC are tax free. Real estate investment companies are not subject to Greek income tax. They only pay a tax calculated as a coefficient of 10% of the valid European Central Bank intervention rate plus one percent, on the annual average value of their real estate portfolio (valued every six months by a chartered surveyor) plus their available funds, in current prices. REICs are also exempt from several other real property taxes such as the tax on significant real estate (up to 1% of the value of the real property).

Christos Christou

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