The New Equation of the Real Estate Market: Interest Rates, High Construction Costs, and Political Uncertainty Ahead of Elections
The Greek real estate market is entering a new phase of maturity, but also one of heightened challenges. After a decade of crisis and a period of strong recovery following the pandemic, the sector now faces a new and more complex environment.
Today, the course of the market is no longer determined by a single factor. Instead, three powerful forces are simultaneously influencing investment decisions, demand, and property valuations: interest rate increases by the European Central Bank (ECB), high construction costs, and the political uncertainty associated with a prolonged pre-election period.
The interaction of these factors is shaping a new architecture for the Greek property market, which no longer functions as a single, unified market, but rather as a collection of submarkets moving at different speeds and demonstrating varying levels of resilience.
Expensive Money Changes the Rules
A few days ago, the ECB raised its key interest rates by 25 basis points (0.25%), confirming that the fight against inflation remains ongoing. At the same time, markets anticipate that further increases may follow if inflationary pressures persist.
These decisions have a direct impact on the real estate market. Mortgage loans become more expensive, monthly payments increase, and household access to financing becomes more limited. For first-time homebuyers, higher borrowing costs translate into reduced purchasing power and more difficult access to homeownership.
At the same time, financing costs for real estate development projects are also rising. Builders and developers are now operating in an environment of more expensive capital, affecting investment returns and limiting the launch of new projects.
Under normal circumstances, rising interest rates would lead to a significant decline in property prices. However, in the Greek market, the picture is more complex.
High Construction Costs Create a “Floor” Under Prices
In recent years, the Greek construction sector has faced an unprecedented increase in building costs. Prices of construction materials, energy, and labor have risen substantially, while stricter energy-efficiency requirements further increase the cost of developing new projects.
As a result, building new homes now requires significantly more capital than in the past.
This increase effectively creates an informal “floor” under property prices. Even in a high-interest-rate environment, developers find it difficult to significantly reduce selling prices, as doing so would threaten the viability of their investments.
In other words, the market may experience fewer transactions without a corresponding decline in property values.
This explains why, despite rising interest rates—and even when the ECB’s benchmark rate reached 4%—many areas of Athens, the southern suburbs, and major tourist destinations continued to demonstrate price resilience.
The Real Estate Market Does Not Move Uniformly
One of the most important characteristics of the current environment is that its effects are not distributed evenly across the market.
High-value properties targeting foreign investors and high-net-worth individuals (HNWIs) show much greater resilience to interest-rate changes.
The reason is simple: these investors finance a large portion of their acquisitions with equity rather than bank loans. Consequently, higher borrowing costs have only a limited impact on their decisions.
At the same time, Greece continues to be viewed as an attractive investment destination due to its climate, tourism growth, real estate yields, and relatively low valuations compared to other European markets.
By contrast, older properties and those aimed at middle- and lower-income buyers are affected much more significantly. Purchasers in these segments depend heavily on mortgage financing and are therefore more vulnerable to rising interest rates.
Moreover, older properties often require extensive renovations and energy-efficiency upgrades, the costs of which have increased substantially. As a result, the market is gradually evolving into a two-speed model: on one side, premium properties that continue to attract international capital; on the other, the primary residential market, which faces increasing affordability challenges.
Political Uncertainty and the Extended Pre-Election Period
Beyond economic factors, the real estate market is also influenced by the political environment. Although the government states that the next national elections will take place in 2027, the country appears to have already entered a prolonged pre-election period.
History shows that extended pre-election periods increase uncertainty and encourage investors to adopt a wait-and-see approach. Real estate investments are long-term by nature and require a stable institutional and tax framework.
This uncertainty is becoming even more pronounced as the market anticipates significant changes to legislation affecting real estate and construction. Issues such as building regulations, out-of-plan development, land-use policies, urban planning rules, building energy requirements, and property taxation are at the center of current discussions.
In such an environment, many investors choose to postpone investment decisions until they gain a clearer understanding of the future regulatory framework.
This uncertainty primarily affects large development projects, land acquisitions, and investments with high capital costs. International institutional investors, on the other hand, often possess greater risk-management capabilities and longer investment horizons.
Market Outlook
The future of the Greek real estate market will depend on the balance among four key factors:
- The trajectory of ECB interest rates.
- The evolution of construction costs.
- The stability of the regulatory framework.
- The overall performance of the economy.
If the ECB proceeds with further rate increases, the market may experience slower transaction activity, particularly in segments serving the middle class. However, limited supply and high construction costs make a significant correction in property prices less likely.
Instead, the most probable scenario is a market characterized by differentiation according to property type, location, and investor profile.
Conclusion
The Greek real estate market is entering a new era in which returns will no longer be determined solely by a property’s location, but also by the ability of investors and businesses to manage three simultaneous risks: expensive financing, high development costs, and political uncertainty.
In this new environment, the real estate market will not move as a single entity. Rather, it will function as a collection of distinct submarkets with different speeds, varying levels of resilience, and diverse prospects.
And perhaps this will be the most significant transformation of the Greek property market over the coming decade.
Article for skai.gr by Kosta Kioleoglou, REV, Civil Engineer (NTUA), MEng in Structural Engineering (NTUA), MSc in Real Estate Investment and Finance (Heriot-Watt University), Recognised Expert Property Valuer and European Valuer (TEGoVA).
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