The feng shui of money: Greece’s Golden Visa program

Two workers stand on the edge of the 4th floor of a building in Petralona. They nail a sign into place: the name of the construction company and the building permit’s number for the renovation.

The five-story apartment building at 122 Kalliroi St was sold a few months ago and the tenants were required to leave. The new owners, the Chinese firm Zhao’s Holdings, even covered the cost of the moving company for the tenants who were forced out. It is one of the many buildings in Athens that have been bought by foreign investment companies in recent years.

In a few months when the renovation is complete, eight apartments will be available, but not for long-term lease. Buyers looking for a home in the area, upon contacting the realtor in charge of the Kalliroi St building, were told flatly: “They are not being sold as owner-occupied units, they are not for residential use, they are investment products with a 4% return. The building is being converted to an apartment hotel.” Each apartment has a selling price of €250,000 – the exact investment amount required for the issuance of a Golden Visa. The initial sale price for the entire building, according to the previous owner, was €850,000 – which leaves a large profit margin for the Chinese company.

Overpriced properties and resale values

“A realtor normally gets 2-3% commission, but the Chinese agents get much more. In other words, a desirable property gets slated for the Golden Visa buyers, because they have a higher commission. It’s a free market, but the word free shouldn’t only be derived from the realtor’s commission, thus setting the market,” says Grigoris Stergioulis, president of Enterprise Greece (the organization established by the State to promote the Golden Visa program).

Realtors and property managers confirm the practice of foreign and Greek companies: “Four years ago, a major Chinese company bought homes without even seeing them, at a cost of €100-€200 per square meter. The same houses are now for sale online at €600-€800 per square meter. The company just held on to them for four years without doing anything with them,” says Dimitris Rizos, founder of the Homm Property Management Company.

Vangelis Kteniadis, president of V2 Development, describes how these companies operate: “The Chinese companies which simply find buyers, charged very high commissions, some up to 30%, which at €250,000 is over €75,000. These companies make it easier for their fellow citizens, the Chinese, to obtain property abroad. They came here, they realized that 90% of the real estate belonged to individuals and not to major development companies, and they found the Promised Land. They figured, Why should we have middlemen? We’re just going to take real estate directly from individuals and we’ll act both as contractors and as realtors, and we’ll double our profit. On their own, they find owners who want to sell their homes, they do the renovations themselves, etc. They open offices here, hire staff, companies such as Noble Fortune, Delsk, and many others.”

The practice of buying real estate at a low price, renovating and reselling is legal, but according to Themis Bakas, managing director of the real estate network E-Real Estates, “this is not a commercial activity. Because when you buy real estate €1 million and you resell at €2.5 million, we all realize that this €1.5 million is an unfair gain. When a property is resold three times in one year, there should at least be a capital gains tax.”

A tax law was passed in 2013 and it refers to a tax rate of 15% between the purchase price and the selling price, burdening the seller. Capital gains tax exists in most developed countries of the western world. With the amendments passed in Greek Parliament, the implementation of the tax (which is included in the country’s memorandum obligations) has continuously been postponed due to the large drop in real estate prices and reactions from landlords and realtors. The last postponement foresees that the tax will not be implemented up to Dec 31, 2019, and it is estimated that the budget cost of non-implementation of the law in 2018 amounted to €24 million.

“There is a problem with auditing and accounting. There should be a tax on money deposited into accounts. This is the right way to tax. If Destiny (the company involved in the recent scandal regarding selling real estate to Chinese investors through POS) was taxed on the money entering their accounts, they would’ve been taxed on the entire amount and none of this would’ve happened,” Vangelis Kteniadis explains.

Golden Visa in Greece

As with most of the participating countries, the Golden Visa program in Greece began in April 2013, at a time when the economy was sinking and the impact of the economic crisis was becoming even more visible.

The government instituted procedures whereby third-country nationals may acquire the right to a 5-year residence permit if they invest €250,000 in real estate, strategic investments or business activities that have a positive impact on national growth and the economy. The residence permits are automatically renewed every five years if the property remains in the possession of the buyer. The relatives of the property owner (spouse, unmarried children under the age of 21, parents & in-laws of the owner) also have the right to obtain residence permits.
Initially, the program was not well received – only 25 Golden Visas were issued in 2013. Low real estate prices combined with the development of appropriate mechanisms and channels of communication with foreign buyers boosted investment over the next years (see Table 1).

From 2013 to early March 2019, Greece granted 12,074 residence permits: 4,312 to main applicants and 7,762 to family members. By the summer of 2018, the investments are estimated at over €1.5 billion and if the second half of 2018 is included, this figure will increase significantly.

The majority of resident permit recipients are the Chinese (see Table 2). According to figures from the Chinese property investment firm Juwai, Greece’s Golden Visa program is the 7th most popular. But Chinese investors are not the only ones who want to gain access and freedom of movement within the EU by obtaining a residence permit for a fee.

Focusing mainly on property sales in the regions of Northern Greece, Halkidiki, Thessaloniki, Kavala and islands such as Corfu and Crete, Russians and Turks are in 2nd and 3rd place respectively, regarding the number of Greek Golden Visas granted since the beginning of the program (see Table 3).

Over the years, a huge network has been established in Greece: realtors, lawyers, middlemen, management companies, car and mini-van rental agencies, and “agents” or intermediaries between local real estate agencies and foreign companies, and between bank branches and construction companies.

Market psychology and short-term leases

Inflated property prices have a more general impact on the real estate market, according to Themis Bakas: “Foreign buyers have influenced selling prices in the Greek real estate market in specific areas. Bogus prices, and overpricing have also played a role. The real estate market now has more psychological growth than anything else.”

As observed in a report by the NGO Transparency International published in October 2018, “Golden Visa programs, while boosting private sector investment and generating revenue for the State, entail high fiscal and economic risks (excessive fluctuations in rates of the economy, real estate bubbles), due to the extremely fluid nature of revenue generated, which depend on external factors such as, for example, the creation of an even more attractive Golden Visa program in another country.”

Also, the utilization of the properties after purchase contributes decisively to the rise in real estate prices, in both sale prices and the rental market.

Angelos Skiadas, president of the Pan-Hellenic Association for the Protection of Tenants, notes: “Short-term leases create a problem whether in residential units bought by foreign investors or in Greek-owned properties. This way of thinking has become a new normal – that this kind of renting is very profitable. But this thing is just a bubble. This system may work in certain areas and leases will be profitable. But in some other areas, the owners will move forward in their investment (renovation, repairs) and when they finally tally everything up, they’ll be in the red.”

As long as Golden Visa programs are interconnected with short-term leases, they create growth expectations (for example, Airbnb) including local small and medium-sized owners who are, however, unable to withstand potential fluctuations. Possible State constraints on short-term leases as well as high competition could reduce the financial return for this category of owners.

Lisbon, Nicosia and possibly Athens, cities where Golden Visa programs have been successful, and which have experienced sharp increases in rents, selling prices, short-term leases – this has resulted in these cities being on the verge of facing a housing shortage as well as a crisis in the real estate market.

Checks and irregularities

Legislation around the Greek Golden Visa program does not explicitly require the submission of criminal records. Although there are provisions in the law regarding controls on the origin of money, it turns out that these checks are not taking place as they should, as stated in the report of the European Commission released on January 23, 2019. Also noted in the same document, there is no obligation to report on the checks and applications that are rejected, nor is there any parliamentary control or other kind of monitoring of the entire procedure.

Greek banks also play an important role in this control process, which often expedite the opening of bank accounts and deposits, neglecting to include necessary documents. This happens not only because they welcome the influx of foreign capital but also because Greek banks are one of the largest stakeholders in the country’s real estate market.

According to Themis Bakas, “the market will be determined from the properties that banks have already accumulated in their portfolios. Banks have acquired 70% of the properties sold at real estate auctions, and in turn banks have created investment companies. It is very easy for banks to take the next step, to sell real estate to foreign investors. And I think this will be their goal.”

Others believe that one of the reasons for setting up the Golden Visa program in 2013, as well as the continued easing of restrictions on short-term leases, could be the State’s attempt to strengthen the devastated Greek banks.

Similar fears of irregular procedures, transparency issues, corruption and money laundering via the Golden Visa program have been felt in almost all countries where such programs operate. This has led the European Commission to publish the afore-mentioned report along with an action plan which recommends the creation of a group of experts, who will thoroughly examine the programs in 2019 and will develop common controls for all member states.

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Read here the second part of the report Golden Visa programmes in Europe.