PW Investment: Fortune favours the brave

The Greek parliament’s approval of a bailout plan has alleviated fears of an economic backlash, giving investors reason to be more optimistic, albeit with caution. And even as Greece teeters on the edge of default and exit from the eurozone, some still find good investment value in it.

It’s been a tough few years for the country since the recession in 2008, saddled with an estimated debt of €320 billion (around Dh1.27 trillion) and courting a permanent rift with the European Union (EU), especially since its resolute population refused austerity measures demanded by the International Monetary Fund (IMF), European Central Bank (ECB) and the eurozone countries. Greece is contending with a gruelling 25 per cent unemployment rate, while banks are shut and bartering has come into effect in some places.

While more than 200,000 Greeks have done their own Grexit since 2008, and many citizens and investors are trying to stay away, some suggest that those with a bit of nerve and foresight might have a chance at a lucrative investment. The Romans may not have had the Greeks in mind when they coined the proverb, fortune favours the brave, but it is an economic staple that reward does not come without risk.

Take a chance

“Where risk is, so are the profits,” said George Hatzimarkos, Governor of the South Aegean region, in an interview with Global Citizen. “You will not make profits if you don’t take risk.

“If you’re prepared to earn 4 per cent a year [in interest]… the US is waiting for you, [where] you make easily 3 per cent. You want more money? You have to take a risk. In Greece there are possibilities of profits.”

The opportunities Hatzimarkos refers to are typically those offered by Greece’s resilient tourism sector. Dionisios Zois, Greek Ambassador to the UAE, has previously said that the nation’s investors, along with those from China, have been some of the most important. He said both private and government investors have been investing in Greek resorts, the food sector and tourism.

Last May, UAE Foreign Minister Shaikh Abdullah Bin Zayed Al Nahyan announced a raft of UAE investments worth almost $10 billion (Dh36.7 billion) at the second UAE-Greece Joint Ministerial Committee meeting in Athens. It included the redevelopment of a former Athens airport by Abu Dhabi-based Al Maabar International Investment.

Shaikh Abdullah also declared a bid by the Abu Dhabi Investment Council for the luxury Astir Palace Resort in Athens, and an agreement between the Abu Dhabi National Energy Company and Greece’s Terna Energy to explore potential investment opportunities.

A must-visit

The Greek Tourism Confederation’s public relations department has been in overdrive recently, reminding the world that there is good news amid the hysteria.

“Over the past few years, we’ve seen that there has been virtually no connection between Greece’s economic and political situation and visitor numbers, which reached a record 24 million in 2014,” it said in a statement. In fact, earlier this month, travel search engine Skyscanner revealed that flight bookings from the UK to Greece increased by 14 per cent in the six days since the banks closed for business on June 29. Moreover, there had been a 12 per cent year-on-year jump in the number of searches in June.

According to the statement, there were few cancellations by holidaymakers. “It goes to show that people see Greece as a safe destination to visit and there are fantastic deals to be had.” This is particularly important as the tourism sector accounts for about a fifth of Greece’s GDP and workforce.

But the rest of the economy is not in great shape — the country has lost a quarter of its economy since the recession and posted terrible negative annual growth until barely creeping into the black last year with 0.8 per cent.

Property bargains

David Norton, Head of Investment Services at financial services firm AES International, says the best investment in Greece is in the property sector and that there are opportunities to snap up bargains on its popular balmy islands. “Property prices in both major urban areas and the islands have plummeted since 2006, with the slump recently lessening [prior to 2015]. Picking up high-end property in sought-after locations on popular islands for prices more akin to those in Turkey seems a fantastic opportunity.”

The Island Review, a report by Knight Frank about the world’s top island destinations, confirms the strong demand from foreign bargain hunters for property in Greece. “As the long-term ramifications of Greece’s financial bailout play out, more fire sales of Greek islands are expected,” the report states. “In 2014, Greece introduced its first permanent property tax, which, for some owners, has made private island ownership more burdensome.”

Meanwhile, mortgage lending has been decimated from more than €15 billion in 2006 to €1.6 billion last year. Many Greek homeowners cannot repay their debts, Norton says. “This creates an opportunity for someone with available cash to buy the right property in the right location.”

UAE and Middle Eastern investors have not typically sought to invest in Greece, opting for more established European markets like the UK, says Norton. “Russia has voiced interest in providing financial aid for Greece’s recent economic troubles, but interest from the Middle East hasn’t made itself apparent yet.”

Weigh the risks

Norton cautions that any investment would not be without significant risk. “At the moment it would be highly speculative,” he says. “The government is being forced to reform and austerity is not good for growth. A liquid banking system and availability of credit are highly important factors for housing growth. While the ECB will support Greek banks if Greece remains part of the eurozone, the ability to borrow in the short to medium term remains unlikely.”

He adds that a great deal remains unclear at this stage, despite the latest agreement, making investment advice a tough proposition. “So much depends on tax/legal steps taken by the government, which, in turn, depend on whether Greece can come up with measures to suit both the nation and Europe. At the moment it’s very uncertain.”

Another fly in the investment ointment is the matter of currency. If a Grexit occurs, it’s almost certain to reintroduce the Greek drachma. “A return to the drachma will be difficult,” says Norton. “Confidence in using a different currency is often low, and even though the drachma is not new [Greece] has stated a preference for keeping the euro.”

There are huge logistical issues with the introduction of a new currency as well, and Jean-Claude Juncker, President of the European Commission, the EU’s executive branch, has even claimed humanitarian aid would likely be needed during any transition phase. However, this would be short term.

In any case, Norton says the Greek crisis will lead to a depression of the chosen currency — good news for foreign investors, though not without complications. “If Greece is to remain part of the single currency, it will be reliant on further print ing by the ECB and IMF, weakening the euro, which is good for buyers with US dollars or [British pounds],” he explains. “If this happens, European powers have a difficult job to shore up confidence in the eurozone for investors, but the short-term solution will help.

“If the drachma is reintroduced, it’s likely to weaken substantially given the government’s need to stimulate the economy. This will help foreign investors and exporters, which will help tourism and industry, but make it more difficult to service their debt.”

Sound reasoning

Anna Zilakou, Communications and PR Manager of Endeavor Greece, an NGO that seeks to bolster local entrepreneurs to transform the Greek economy, says there are many good reasons to invest in Greece, particularly in the tourism segment. “We believe that in the long run the country has significant competitive advantages in certain sectors and great human capital, which can be reasons for someone to invest in Greece,” she says.

“Specifically, the country is still an attractive tourist destination and there is space in this sector for more sophisticated, large-scale and innovative companies to provide services and improve visitors’ experience.”

Zilakou adds that the NGO is also witnessing success and growth in some companies in the agriculture and food sector. “We see [several] companies with significant revenues, more in cases of portfolios of products, but also in cases of champions at a product level or select food retail ventures.”

There’s potential for expansion and the IT sector is also promising, but Zilakou says Greece has to get its house in order for the economy to flourish. “All the above mentioned can proceed in the long run, but we first need to stabilise the financial and political environment.”

Meanwhile, Euromonitor International research analyst Daniel Solomon is more cautious about investing in Greece, particularly in the short term. “In general, for typical levels of aversion to risk, now would not be a good time to invest in Greece given the rise in uncertainty and the worsening of credit market/borrowing conditions of local businesses.”

Long-term growth forecasts are also subject to significant downward revisions due to the lower likelihood of structural reforms, he says. “So I’m not sure investing in Greece makes sense even from a Warren Buffet-hunting-for-bargains perspective. At the very least I’d wait a few months or so before starting to look.”

Ultimately, investment in Greece is not without significant risks, like most other investment vehicles. “If you’re happy to buy and hold through the turbulent period to come and deal with the potential tax and legal changes, then a holiday property in particular could prove to be a great long-term asset,” Norton says.

However, in order to profit, investors must be not only bold but also patient. “In 20 years Greece could be a thriving economy with booming tourism,” says Norton. “It has such a rich history and fantastic geography. Allowing it to fail and then addressing the issues of rebuilding the economy may work out to be the best thing in the long term. Either way, 20 years is a long enough time horizon for recovery, so the right type of asset, bought cheaply now, could be an excellent prospect.”

Source: Amanda Fisher, Special to Property Weekly


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