Research on residential property taxation and its impact on the real estate market in Greece

The purpose of this research is to identify the differences between the 'objective' (tax) values and the current true market values of residential real estate in Greece. For that purpose research is made on the tax values used by tax authorities and the manner of their definition. In the first part of this paper an updated review of all taxes currently levied on residential property in Greece on the transfer (as a property transfer tax) and on the possession of residential properties (as Periodic Annual Taxes) is given. Then the calculation of the 'tax values', by the objective mass valuation system of the Greek tax authorities is presented and its variations are explained. In order to investigate the true market values and compare those with the tax values a case study is carried out. The Greater Athens Municipality is chosen because of its size, market importance and diversity. A specific methodology is followed to establish solid criteria for the sample selection, and then the results are compared to the tax values taken through the State's mass valuation system. Furthermore, an overview of the Greek real estate market (2007 - to date) is made, so as to provide the context within which the current research is based. The results of this research reveal a discrepancy between the tax assessed values and the true market values in residential property in Greece, the latter ones being either equal or lower depending mainly on the age of the property. Although at the beginning of 2013 new buildings still might retain a market price slightly above the tax assessed value, older buildings followed an opposite trend, which was relative to their age. This showed a major flaw in the calculation methods of the tax assessed values (objective mass valuation system) that should be rectified at the earliest opportunity. By the end of 2013 the already critical situation of the Greek real estate market deteriorated even further. The decline in asking prices accelerated and the transaction volume decreased due to a lack of demand, liquidity and limited bank lending. The result of this is that the transaction prices of the few recorded transactions that took place in 2013 were realised at a level 15% lower compared with the 2012 transactions. Very few newly built properties were sold at a price equal or marginally higher than the taxable value though the vast majority of the properties were sold at prices as low as 50% of the taxable value. Greek government shows no intention to adjust taxable values before 2016. This policy discourages potential buyers and causes irrevocable harm to the real estate market.