The real estate market in Greece has become a lucrative choice for investors, whether institutional or not, due to the collapse of the prices –more than 45% – as a result of the long lasting economic crisis. Prices have not reached pre-crisis levels, except for areas of high- interest, such as Athens, Santorini and Mykonos.
The revival of the real estate market is vastly dependent on foreign capital flow. Various types of assets are acquired: old urban residencies of significant architectural value, urban residential buildings and tourist buildings. Recently, investment companies show interest in purchasing urban buildings to renovate them in office buildings and in large plots of land to be used as business centers and logistics hubs. The latter trend is closely related to the government’ s commitment, manifested in already adopted legislative initiatives, to facilitate foreign investment that can have a positive impact on national development and is linked with the exploitation of the country’s position as a transit trade hub for the markets of the Balkans and continental Europe.
Rental agreements in general
The most common and immediate way of making use of a property is through rental agreements, either long-term or short term.
Residential rental contracts are freely negotiated between the interested parties but the, otherwise neutral, legal framework, imposes a fixed duration of three years to the landlord in case the agreed contract is for a shorter period. As to the rental price, the law does not provide for specific thresholds, but the contract must include a provision specifying the annual rental increase. At the end of the three year period or at the end of the otherwise agreed longer term, the contract automatically ends – extension is valid only if both parties agree. Right after signing the lease agreement, the landlord must have it registered with the local Tax Authority.
It is important to note that the abovementioned obligation of three years duration applies when the property serves as the main residence of the tenant. Under Greek Civil Law, the landlord has the right to rent his property through holiday leasing agreements, where the compulsory three-year term does not apply, provided that the contract clearly stipulates that the use of the property will be that of a holiday/temporary residence. In this case, the duration of the contract is subject to the mutual agreement of the parties, but landlords should specify the nature of the lease and ask for the advance payment of the rent.
Regarding commercial agreements, the law provides that a minimum duration of three years is compulsory and binding for both parties. In practice, tenants seek to introduce terms that will protect them from contractual requirements of the landlord in the event of adverse business development. Furthermore, due to the fact that the respective commercial use is accompanied by specific legal requirements (urban planning, occupation and safety), as well as the need for an agreement regarding the sharing of renovation costs, especially in commercial rental agreements the signing of a contract adapted to the respective case is preferable to standardized contracts.
In focus: Renting villas
In recent years, owners of luxurious summer homes have taken advantage of the provision of Law 4276/2014 which allows for the rental of properties with specific characteristics as self-serviced tourist accommodation, subject to the issuing of a permit. The provision imposes a mandatory rental period, with a minimum of one week and a maximum of three months annually. For villas to comply with the legal prerequisites and acquire the permit, they need to be detached homes with a surface of at least 80m2 that have private access and are autonomous as buildings.
Furthermore, individual residences or residential compound with a surface of at least 40m2 each, operational autonomy and private external access are considered self-serviced touristic furnished accommodation and are to be granted the relevant permit. In this case, each owner needs to be cautious as to the scope of his obligations towards the tax authorities.
In focus: Airbnb in Greece – Legal framework
The introduction of platforms of sharing economy such as Airbnb, except for the benefits in terms of capital flow, has created a double problem in the property market in Greece: 1) scarcity of residence homes for longer leases due to the lack of regulatory provisions through quantitative limitations as to the number and location of properties allowed for short-term leasing; and 2) limited public revenue through the taxation of the rental income, a phenomenon closely related to the inefficiency of the implementation of the already established regulatory framework for rental income from platforms of the sharing economy.
Under Law 4446/2016, the property manager must register each leased property individually in the “Registry of Short -Term Lease Properties”, kept by the Independent Authority for Public Revenue (AADE). After doing so, the manager receives a Property Registry Number (AMA). For every short-term lease agreement, the manager has an obligation to submit a statement in the online platform including the AADE registry registration number, the agreed upon rent or the total amount based on the cancellation policy, the name of each online platform used, personal details of tenants, start-end date of rental, method of payment by tenant. Failure to do so may result in a fine of €5,000. It is important to note that recent court decisions have used the building regulations as legal basis for restricting the use of residencies as Airbnb accommodation. Building regulations impose specific obligations to owners and allow for specific uses of the properties. By extent, co-owners may prove to have a substantial legal basis to deny another co-owner the use of his property within the scope of platforms of the sharing economy. This needs to be considered before acquiring property in Greece, e.g. an apartment in a residential building.
Under Greek Revenue Tax Code, rental income received in Greece is independently taxed, therefore, there will be an obligation to file appropriate tax returns to the competent authority. Property income is taxable at 15% for revenue up to €12,000, 35% between €12,000 and €35,000 and 45% for annual rental income above €35,000.
The same provision applies for income gained through the use of digital platforms of sharing economy (Airbnb, Booking, Homeaway etc.). As to the latter, it is important to note that for those offering additional services on the side (similar to those provided by hotels), the earnings are assessed as income from business activity and taxed at 22% for earnings up to €20,000, 28% for earnings between €20,001 and €30,000, 36% for earnings between €30,001 and €40,000, and 44% for profits exceeding €40,000.
Finally, it is important to note that rental income earned by companies is subject to corporate income tax as business income (currently the corporate tax is 24%). From 2021 and onwards, the corporate tax will be at 22%.
Purchasing and operating hotel units
Αn alternative but preferential option for the development of real estate in Greece is the acquisition and operation, either by the owner himself or by management companies, of hotel units. The tourism industry in Greece constitutes approximately ¼ of the GDP and investing in various forms of tourism (“silver tourism”, “eco-tourism”, “wine-tourism”, and “agro-tourism”) presents a prospective entrepreneur with an opportunity to introduce to the market diversified touristic services.
Law 4276/2014 provides an adequate regulatory framework of the requirements for the establishment and operation of hotels. It is important that the operation of hostels in buildings specially re-designed for this purpose as well as that it allows the use of buildings of special architectural value (listed buildings, according to the Ministry of Culture) as hotels is encouraged.
The successful implementation of the provisions combined with an expressed policy to upgrade the touristic product and expand the tourism season is particularly evident in the investment activity in the center of the city of Athens. In the last 5 years, various projects were undertaken that have changed the physiognomy of the city as a tourist destination. For instance, listed buildings have been renovated and now operate as boutique hotels; urban residential buildings are now reborn and operate as hostels, attracting young tourists.
An investment in the hospitality industry takes the form of either the purchase of an existing and operating unit or the purchase of land and the then construction of a new unit. In both cases, a legal due diligence is imperative so as to ensure that the targeted property complies with technical (building, safety regulations, potential breach of building laws and legalizations, earthquake stability, renovation costs) and legal (property, licenses, agreements, employee issues, litigation) requirements. A point meriting attention is the licensing procedure which is linked with the classification of the hotel according to a five star ranking system, applies to every hotel and is based on its technical and operational characteristics.
In focus: Boutique hotels
The Boutique hotel certification is an initiative launched by the Hellenic Chamber of Hotels aiming to strengthen small and medium entrepreneurship that chooses to invest in a high quality tourist product. The voluntary label is acquired through an online platform run by the Chamber to which the interested party submits a documented application and the evaluation is carried in four separated stages.
To acquire the seal, the hotel must meet certain requirements. First of all, it needs to have a capacity of up to 60 rooms and a 3-star plus Rating Certificate. Then, it needs to be small in size in order for guests to familiarize with the premises and enjoy a unique hospitality experience; it needs to have a distinctive style, evident by a unique design concept that transcends all its functions, by a special architectural design and decoration; and finally, it needs to offer high-level services to its guests. The accreditation is granted for a period of five years. After its expiration, it is renewed at the request of the accommodation for five years each time.
It is important to note that the acquisition of the certification provides additional benefits through an increasingly expanding network of associates, as well as special benefits through an integrated reciprocal program by the Hellenic Chamber of Hotels (forum, TV promotion, online promotion through special portal, online reporting tools, dedicated events, participation in expos, focused actions).
Point of attention: change of use in a building
Urban planning legislation provides for specific uses for each property, which can be modified, following certain procedures. A first point of attention is when looking to modify a commercial property for residential use: the “small-scale” permit can be acquired for changes inside the property, avoiding the costly and time-consuming issuing of a full building permit.
Another issue is the change of use for buildings that were constructed in order to serve specific objectives for spatial development and were related to the economic activity of each region/location. These buildings were abandoned and the regulatory framework did not allow for their repurposing. The issue has been resolved through recent legislation which allows for modifications to be carried out in order for older buildings to meet modern requirements and prevent the accumulation of abandoned buildings unsuitable for use.