After a few years of relative calm, the word Grexit (Greece’s exit of the Eurozone) has again come to the fore.
Will it end up happening? And should it happen? Some economists do see it as the only viable way for the Greek economy to recover.
But what would Grexit mean for German property prices?
1. Heightened short-term uncertainty: many Greeks are already withdrawing cash from their bank accounts, fearing that they will, otherwise, wake up some day with their Euros having been converted into Drachmas, whose value would immediately collapse. The situation would not be dissimilar to Argentina’s, after the government lifted the dollar peg in early 2002, which led to a collapse in the peso but helped the economy get back on track. In the short-term though, Greeks will – and would – again look for safe haven investments for their Euros, and look at parking it, for instance, in property. This would clearly benefit property prices in stable Eurozone economies such as Germany, or in large, economically powerful cities such as London. But the Greeks may not be the only ones looking for safe haven investments: if Greece does exit the Eurozone, other struggling Eurozone economies – Spain, Portugal – might be targeted by speculators and consider exiting too.
2. Greece would become more attractive in the medium-term: once the dust settles, a Grexit scenario could help the country prosper again. Greece would become significantly more attractive to foreign investors, tourists, and to Greeks as well. A cheap Drachma would fuel investment and trade. A smaller Eurozone would, as a consequence, be more likely to raise interest rates as overly accommodating policies would no longer be required. This could mean the end of ultra-low rates, which would make property financing in Germany more expensive and negatively impact the consumer. The Euro would likely strengthen, which could also harm the German export industry. Consequently, the medium- to longer-term impact of Grexit on the German property market may rather be a slightly negative one.
However, speculation remains speculation. It is most likely that the Eurozone and Greece will agree on a last-minute deal. The prospect of Grexit will not fully disappear though – but whether politicians will really let it happen, considering the numerous uncertainties it brings with it, is questionable.