The crisis-ridden Greece is now for many years a constant theme in the international media. The often negative reports have quenched – often unjustified – many investors and, accordingly, prevented from becoming active in Greece, although right now would be the right time to invest in Greece. Ιn the past few months already considerable interest from abroad is shown, and many investors are just waiting for the “right time” to push the button.
In the following we list a few key locational factors to provide the basic information for prospective investments in Greece. For an extensive picture of the location Greece we describe in the introduction briefly the development of recent years, go over to the current state and then go on to some special topics in detail.
Greece in crisis
The location of Greece has always had great incentive for international investments. In the past, many international companies have settled in Greece, and in addition to the internal market partly also served other surrounding markets from here. For them, among other things, the range of wholesale chains and infrastructure projects was very interesting (Athens International Airport, parts of the motorway network , etc.). The following factors contributed to this:
• The geographical, geopolitical and geostrategic position – ” Southeast gateway” to Europe
• Optimal conditions for various industrial sectors, such as tourism
• Good conditions for agricultural production
• Sun for energy
• Safe and politically stable location
A number of mainly structural factors has though pushed then step by step – especially compared to the competing countries – the location into the background .
Then, however, the fiscal policies of the last decades and developments at national and international level in recent years led also to the conclusion that on 23rd April 2010 the Greek government had to apply for financial support from the EU in order to meet his obligations. As a prerequisite for the EU promised financial support, packages of measures were agreed, which provided structural reforms in addition to financial savings. This has almost changed everything in the country. Today, this program is nearing its completion.
Invest in Greece _ today and tomorrow
Due to the implementation of the stark austerity, which the Greek parliament adopted gradually in recent years, the Greek government has already for 2013 – and thus prematurely – achieved a surplus in the primary balance. This can now start the debate on the final solution of the problem of high public debt of Greece at the level of European finance ministers. This was decided in the Euro-Group of November 2012.
On the one hand the enormous saving measures have improved the competitiveness of the country, but on the other hand they led to a huge recession and a long-lasting depression. Greece is currently in the 6th year of the economic downturn, and the country’s GDP has shrunk by about 25%. Unemployment is officially at 27.8 % (as of October 2013) while youth unemployment is at nearly 60%.
Now let’ s see what the future brings. The forecasts for the current year in relation to the already lively interest for foreign investment slowly emerge hope. In addition, some economic indices point in the positive direction. According to recent calculations by the Greek Ministry of Finance for 2014 an increase of 0.6 % of gross domestic product is remained. Now, if the above-mentioned debate of solving the debt problem leads to a good result (minimum target: debt 2022 at 110 % of GDP), then we can assume that the Greek investment market will quickly achieve a general turnaround in the trend because of the primary surplus, that will be even bigger than planned, and due to the new circumstances. In addition to that, the Greek government is planning to issue new Greek government bonds in the coming months. The significant variations in the increases in ratings by the international rating agencies, the falling yields on Greek bonds and the increase of deposits in Greek banks are additional factors that indicate the recovery of trust and that forms the basis for a successful issuance of new government bonds. For the Greek banks there already exists great interest by international investors.
With all this, one can say that the country is well on the way out of the crisis.
Banks and liquidity
The Greek banks had remained once spared by the crisis. Here there is no comparison to other European banking systems. The problems only appeared as “the exit from the euro” debate began and after there was carried out a haircut on the bonds the banks held. A result was that the banking system has been weakened immensely, and this meant that it had to be recapitalized by the state. That happened last summer and since then the Greek banks are again stable. All this led to liquidity problems that at last came to the real economy and affected also very good, once healthy companies.
The problem of liquidity holds on unfortunately still today. This results partly to problems in everyday’s business. Therefore, many companies are looking for international capital partners (J/V and M&A). Many of these generally very promising companies are best suited for investments. Interestingly seem investments in the tourism sector, the food industry and in the construction industry, but also the fields of metal industry, chemical industry, natural stone production and service areas have truly showpiece companies. When you also look at the list of planned privatizations, the possible choice of investments is very interesting even for larger investors. The problem of liquidity is likely to continue to exist even after the turnaround in the economy for some time.
Properties in Greece
The crisis has greatly affected the real estate and the construction industry. The construction sector has shrunk in the last 6 years cumulatively by over 75 %. Virtually all property, regardless of type, had an average fall in prices of about 40%. In the large and expensive real estate in special locations the decline is even greater. But currently a stabilization of prices can be determined and real estate is now sold only under these “pain threshold” when acute liquidity problems do exist. On the other hand, there is currently a large amount of real estate from all sorts of types that are for sale. However, a large part of the existing properties is not interesting for investments. The real estate market is now in terms of price at the level of 1999. Yields are currently 7-11 %. In addition, due to the crisis many Greek companies had to cease operations, which has led to a number of vacant commercial properties. This results in lucrative investment opportunities also in commercial properties, especially in shops and offices, but also in factory buildings and industrial plants. Please note in this context that the property transfer tax was reduced at the beginning of the current year to 3%. Also a new property tax was decided (read more here). Finally it should be mentioned with regard to the available plots, that in relation to competing countries in Greece there are large plots to be bought at relatively favorable terms.
Sales in the construction sector (construction , building permits, etc. ) have declined in the last six years cumulatively by almost 80 %. Many construction companies had to cease operations. In a revitalization of the economy and an increase in demand to the normal level of construction market it could be interesting for medium-sized international construction companies to work in Greece (current interesting projects: hotel projects, vacation properties, restoration of existing buildings of any kind, PPP projects (real estate and infrastructure projects in cooperation with the state), etc.).
In summary it can be stated that in the fields of real estate and construction the prices are currently – because of the crisis – at a low point.Construction prices have never been lower in Greece. This truly is a perfect opportunity that will soon no longer be available to that extent.
Legal and Taxes
For projects and investments abroad, the factor of legal security for investors has always been a very high priority. In the case of Greece, false impressions have been developed possibly due to the media reports, which is why I would like to emphasize at this point, that concerns about legal certainty in Greece, an EU member state, probably should not exist. The ownership is constitutionally protected in Greece.
The existing company forms are similar to those existing on international level. The sake of completeness it should be mentioned, that in the last two years the process for the formation of a company was simplified and thus accelerated. So, it is now possible to set up companies within 3 to 4 days.
With regard to the taxation of the profit of the company, the Greek government has revised completely a few months ago the relevant legislation. Accordingly, the profits of a partnership (EE , OE, etc. ) are to be taxed up to the amount of 50,000 Euro with 26%, while proftis beyond that are to be taxed at a rate of 33%. The profits of the corporations (AE, EPE and IKE) will be taxed at 26% at the source and in the distribution of profits to shareholders are taxed with another 10%. The transaction tax on the transfer of shares is – calculated on the basis of the added value – at 20%.
For the taxation of the profits the Greek government has already initiated the debate to reduce it again when circumstances will allow it. A flat tax rate of 15% for the profits of the companies stands as a target for next years already clear. Because of the current situation we do not count with further increase in taxation, especially since the state has achieved a surplus in the budget.
Labor market Greece
One of the rules that were laid down in the Memorandum of Understanding between the State and the Troika, called for the reform of the labor market. The workers wages were significantly revised downwards and also severance pay for laid-off workers is lowered immensely. Thus, the cost of labor was reduced extensively. Also, the pension age has been increased from 65 to 67 and the protection against dismissal was loosened up.
With regard to the quality of the workforce it can be said that in Greece the workers are generally well trained and qualified. Certainly, potential employees would have to be retrained in terms of internal company standards and procedures, but the existing base is very good in any case. It should also be mentioned, that the percentage of university graduates in the Greek population is high.
Tourism in Greece
Greece is ideally suited as a location for the tourism sector. Investments in this economical sector are therefore very promising. In addition to the geographically or topologically related very good conditions, like sun, beaches, mountains, etc., the location offers a well-developed infrastructure and an optimal accessibility by different ways. Competing countries have compared with Greece no tangible benefits, rather the opposite is the case. But all this had always been like now. The reason why the competing countries were able to overtake Greece lies in the fact, that it was for years omitted to carry out a proper marketing strategy for Greece and to enhance the local tourist service package .
Beyond a classic holiday location Greece is also optimally suited as a permanent holiday residence or even as a secondary residence situated in the south. Here, the country has the favorable property prices as an advantage in relation to competitors sites.
One part of the portfolio of existing hotel properties is technically and aesthetically of an older status. Herein lies for project developers and operators who are active in this sector great potential (read also our article for tourism properties).
Tourism is Greece’s “heavy industry”. After some difficult years (2010 to 2012) an immense recovery was observed last year. The country has achieved a number of visitors from over 18 million in 2013. This is in relation to the previous year, an increase of about 15.3%. For the current year, the government and the touristic federations assume a further increase in those figures as new markets have been added, which grow very quickly, such as Russia (growth 2012 to 2013: over 50%). Please note that Greece is politically absolutely secure. This is a criterion that increasingly comes to the front in the choice of holiday locations and therefore it is mentioned here. Now if it succeeds to keep the “new” tourists on longterm then this may be the emergence of such a long-lasting and sustainable trend.
Measures for the recovery and state funding
Parallel to the austerity measures the Greek government has turned also to the measures that are essential for an economic upswing. Therefore the government is at highest level working on the definition of the a “new national economic model” and the adequate master plan. Corresponding studies of international consulting firms that will support this work are already existing.
The upcoming privatization of state property will give in addition to the recovery of the Greek economy enormous impetus due to often critical size of the assets. For example the completing of the privatization of the ports, will among others contribute significantly to the further development of the surrounding regions. The experience with the first already completed privatization projects is very positive for all involved.
Fundings are also known to be useful for boosting the economy. In that context the law 4146/2013 (Act for funding) should be mentioned as an example. It offers the posibilty to be subsidized for various investments by the Greek state. Depending on the size, the geographical location, the use and a number of other factors the state can fund up to 50 % of the investment. Be informed that the government voted recently for the 5th subsidy period (2014-2020) for further 20.8 billion Euros that are to be given as support for investments.
In addition, there are other funding laws where smaller investments and other business activities can be supported by European funds. As a well-known example of that way of support the ESPA programm is to be mentioned.
Simplification of administrative procedures
In recent months, the Greek legislature has simplified almost all official proceedings – and when I say “almost all” I really mean it. This means that the required regulatory application and approval process now goes quickly across the stage, and thus the realization of projects can take place very fast.
In general, much of the bureaucracy was completely abolished due to the modification / simplification of the regulations and this eliminates a long-standing issue in the function of the Greek state apparatus.
The Greek domestic market – trade, production and service
The Greek domestic market is truly virgin and underserved in some areas. Beyond that, in many sectors the competition is manageable. Prospectives would have to examine individually what opportunities their products or services could have in the Greek market. For “niche products” is in the Greek market usually sufficient space. This is particularly true for the real estate market .
A significant deficiency is recorded in the secondary sector of economy. Here are missing plants in many sub-sectors of industrial production. The crisis-related closures have increased this condition even further.
In the service sector there are many companies that meet the international standards. The knowledge and the experience level is generally very good; this permits or even suggests the provision of detachable pre- or partial services in Greece in order to benefit from the lower staff wages on site with absolutely the same quality.
Greece, with its slightly less than 11 million inhabitants, is a relatively small market; but over Greece you can very well expand into third markets. Here you can tap into a market of about 160 million inhabitants, when you count in addition to the Greek market the Turkey, the Balkans and Romania. Very important is also the situation in Greece on three continents. There is existing an optimal connection via transport routes by sea, road and air in all directions.
Interesting areas of investment
In the following are mentioned some of those investment areas, in which we see enormous potential. This list is – depending on the current developments – to be continued in future.
• Industrial production in Greece
• Logistics building
• Property generally
• Construction of high-quality real estate on islands and the Peloponnese
• Tourism enterprises
• Energy (solar energy, waste recycling, etc.)
• Agricultural production (special Products / innovative products)
• Senior residences
• Solar energy
• M&A and J/V with medium-sized companies
• Special services and special vacation packages
After extensive consideration of the listed conditions it can be stated that the Greek State has made in recent years in many areas significant progress. Many of the new regulations create now a very good business environment. The state, which still called for help recently, has now – more or less – set all necessary points to ensure that henceforth the location is for international investment interesting again. Since the site offers for many sectors of the economy more than optimal conditions and now the framework is good, the time is at least now there to consider an investment in Greece in detail. Entrepreneurs who hold the pioneering spirit or have a good nose can now fully benefit from the given opportunity. The others, as always, just will follow …
The above mentioned information is to be used only for the first general information, does not claim to be exhaustive, should at best serve as guideline and does not replace individual professional advice . If you have any question do not hesitate to contact Mavvidis + Partners.