Crisis in Greece Pushes Property Prices into Free Fall

Greece faces a great crisis today and its real estate is about to get dirt cheap. The country is in a classic “blood in the streets” situation…one that looks so hopeless that the public believes only a fool would want to buy real estate in the shadow of Athen’s Acropolis or on one of the country’s stunning Aegean islands.

The story to this crisis goes back a few years and it’s worth recapping. Greece (with the help of wizards at Goldman Sachs) cooked their books to meet the criteria for joining the euro. Then they borrowed lots of cheap money for all sorts of boondoggles (like hosting the Olympics) and to deliver on political promises.

For example, hundreds of professions (including being a hairdresser) were listed as so dangerous or stressful that people could retire in their 50s on full benefits.

Greece is the least tax-compliant country I’ve ever come across. I worked in bars on several Greek islands as a student and saw firsthand how the shadow economy dominates. The Greeks make Argentines look compliant. Result: They couldn’t collect taxes (nor did they try very hard) as the government spent more and more.

The country depends on imports of food and pharmaceuticals. Most things, in fact. Its only strong export sector is tourism, which is now also in crisis. Europeans have tightened their pocket books. Germans are less likely to visit as tensions rise. Germany holds Europe’s purse strings and bitter memories of Nazi occupation have been reignited in Greece as the crisis has deepened.

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And that brings us to now. As I write, the Greeks have formed a government. Conservative New Democracy leader Antonis Samaras has entered a coalition with political opponents who also begrudgingly want to go along with the terms of their bailout. It was the second time in six weeks Greeks went to the polls.

But don’t think this marks an end to their crisis. Far from it. Greece’s future lies either inside or outside the euro. And I expect Greece will ultimately leave the common currency. The country has an impossible mountain to climb. Too much debt. Too much spending. Uncompetitive.

Let’s walk through how a Greek exit of the euro could play out. Banks would close, although this would likely play out over a weekend. Deposits would be converted to a new currency. When the financial system opened the doors and the currency traded, it would likely depreciate significantly right away.

Savings would be eroded…or wiped out. Greece would be frozen out of financial markets and immediately have to balance its books. Tax receipts would collapse even farther as spending was slashed. Banks would burn…literally…as the streets filled with rioters. Capital controls would fail to keep mobile assets in the country.

Power black outs…food shortages…mass unemployment…poverty…like Argentina just over a decade ago… And the buying opportunity of a decade, if not a lifetime. There’s no liquidity in the Greek real estate market. Prices are falling like a rock.

They will continue to fall as sellers become more desperate. Then, upon leaving the euro, prices will again fall in the chaos. And the new currency will devalue, making your dollars go even farther.

Prices have fallen, but it’s hard to say by how much. But let’s make up a number—say prices have fallen by 50%. In a crack-up scenario they will immediately plunge further. Say, in half again. Then values will be converted to the new currency, which will also plunge in value. So your dollars will likely go five to 10 times as far as they did six years ago.

Riots in the big cities and towns will dominate TV headlines. But on more remote islands life will go on and people will make do as best they can. Neighbors will pull together. In time, the crisis will pass and there will be a new normal. Who knows what that will look like? But I’m pretty sure that the Greek Islands will still be among the most special places on earth.

My memories of times spent on the island of Santorini are among my fondest. Gleaming white churches with domed, azure roofs, turquoise ocean, diving, fishing, yachting… Santorini’s volcanic heritage is everywhere. A short boat ride takes you to jet-black hills that steam. You can swim in hot springs…take a cable car to the crater rim…sip cocktails while lounging in infinity pools. The rich and famous visit and shop in the many galleries. Italian playboys sport pants and shoes as white as the postcard-perfect houses.

Just north is the island of Ios. Cat Stevens (or so the rumor goes) took up residence here in search of isolation. Stunning beaches and rocky hills rise from crystal-clear waters. The trendy set head for Mykonos. There’s a Greek island for anyone who yearns to leap from rocks into crystal-clear waters or relax on a sandy beach.

Whichever way you skin it, the values of cottages on these Greek islands are heading toward zero. You could pick one up by the end of the summer for less than the price of a budget family sedan. Maybe it will take a bit longer, hard to say for sure. And that’s with or without a euro exit.

Get ready. That’s what I’m doing.

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