Greek financial woes could hit European property markets, especially Cyprus, experts are warning

Former International Monetary Fund chief economist Simon Johnson has warned that Greece’s problems could spread and market reaction to the Greek deal points to a worsening of the eurozone’s problems.
 
The value of government bonds issued by Portugal, Spain and Ireland have all fallen in recent days and Johnson believes that property prices across the eurozone could slump as a result of the bailout deal, raising fresh concern about the health of banks.
    
A market report from Toscafund Asset Management is warning that the Cyprus property market faces further downward price adjustments on top of those already recorded and has ignored the situation in Spain which has seen foreign buyers all but disappear from the real estate holiday home and letting markets.
 
According to Savvas Savouri, partner and chief economist at Toscafund Asset Management, Cyprus seems to be ignoring the potential threats from a poor investment outlook for vacation and retirement related real estate across all of continental Europe.
 
‘Whilst we hold concerns for vacation and retirement real estate across all of Europe, for Cyprus our alarm is heightened by the pervasive influence of Greek banks. Their arrival was of course at first favourable, bringing as they did capital that made its way into the property sector. However, their involvement when Greece itself is facing serious economic challenges risks making a bad situation worsen’ he says in the report.
 
‘As Greek banks become ever more distressed from their domestic and Balkan wide loans, Cyprus will be unable to avoid being sucked of liquidity. From already depressed levels Cyprus faces downward property price corrections,’ he continues.
 
The report points out that selling or filling tourist and retirement property in Cyprus now means competing against Spain, Croatia, Bulgaria, Turkey, Lebanon and even Dubai and Florida. Outside the eurozone there is a growing likelihood that Croatia, Turkey and Bulgaria will become ever more competitive relative to Cyprus.
 
‘Whilst we suggest the price correction may take two years or more, the process could be swifter. Our emphasis is the quantum of price correction more than its length. Those who view recent weakness in Cypriot property prices as an opportunity to pick up value will find no shortage of sellers. The market quite simply is far from having reached a bottom,’ the report says.
 
It also points out that like Spain, Cyprus recorded a considerable boom in construction as its market for holiday and retirement property grew. Indeed, even into 2009 when Cyprus appeared to shrug off the recessionary conditions taking hold elsewhere, the positive first quarter growth was largely due to speculative construction. In effect, even as demand fell, supply kept coming.