COMMENT: Is there a 'new normal' awaiting Greece?

Following what can only be described as momentous diplomatic and democratic efforts, Greece and the eurozone have stepped back from the brink, writes David Hutchings, head of C&W's EMEA investment strategy.

However, it will take some time for normality to return and one might in fact question whether a return to 'normal' is possible or even preferable.

Where are we now?
Hurdles still exist but the risk of an imminent Greek exit from the eurozone has receded. Significantly, the agreement leading to this involves two key stands that are essential if it is to succeed: namely, that it is built on real reforms being introduced and on a reduction in the size of Greece’s crippling debt burden.

Importantly, it also introduces some serious breathing space into the process, at the very least kicking the can some way down the road, with the bailout intended to cover Greece’s borrowing needs for the next three years to allow time for confidence to be restored and reforms to start working.

This should be reflected in a bounce in sentiment internally and externally. However economic growth will be slower to respond as credit controls remain in place and extra austerity will hit demand. Indeed, there is a real risk that falling GDP could mean Greece fails the bailout conditions even if cuts are made and that fresh austerity could then be needed. At the same time, however, we should not forget that Greece’s competitive position has been enhanced by falling prices and long-term potential should be improved by the investment and reforms now planned.

The critical next step, therefore, will be to see if Greece actually delivers on reform – or whether we see a return to the ‘old normal’ whereby plans are diluted or ignored. The targets set will be hard to meet but the first review will be crucial, signalling the start of the renegotiation of the debt burden and possibly opening access to other support programmes such as quantitative easing.

What next for real estate investment?
With capital controls still in place there are of course practical barriers to investment, but recent progress should nonetheless presage some degree of improvement in interest in a market that while starved of liquidity, offers some recovery potential.

Some investors are reportedly already growing more interested, albeit early days for most and typically these are limited to the very opportunistic or high net worth individuals perhaps looking anew at buying a Greek island. Opportunity will, however, steadily develop if reforms are followed through and as infrastructure investment opens up new areas. Sunday trading will benefit core retail areas for example while multi-family property may see a boost as necessity forces more younger Greeks to look at renting rather than owning. Logistics offers potential productivity gains while Athens offices will benefit as more companies seek international representation.

There should meanwhile be a readier source of supply than in the past and also more need for foreign capital as bank finance will remain restricted and some local investors will be seeking international diversification.

Privatisation in particular could be a source of stock but also an interesting test of whether a 'new normal' can be established; the last programme being roundly considered a failure and tainted with corruption. While the pressure is on, €50 bn will take time to achieve but again, time is being granted. There will be no fire sale but an orderly process of managing the assets to maximise profits, contribute to economic reform and undertake sales over a three- to 10-year period or longer.

A flow of assets and loans from the banks may be the first opportunities to come forward once they have been recapitalised and relieved of non-performing loans. Opportunities from the sale of state-owned assets will be next in line, with companies, infrastructure, airports, hotels and sites with tourist potential all grabbing headlines. Overall, there is a very large portfolio of state-controlled properties, estimated at 70,000 by the IMF, and while many may be less than straight forward, with contested title claims common, there is considerable potential for raising revenue.

Pricing will be key to whether this represents an unmissable opportunity – with recognition needed that there are now clearer limits to sharing risk within the eurozone and hence appropriate risk premiums must be maintained on a level playing field for domestic and foreign buyers.

The best hope for Greece, and the eurozone, seems to be not a return to the ‘old normal’ but the discovery of a ‘new normal’ that sees real privatisation and reform together with greater transparency and equality – and that includes an appropriate cut in Greece’s debt burden and giving the country time to deliver. Reassuringly both are recognised in the bailout plan as it now stands.

David Hutchings, Cushman & Wakefield’s head of EMEA investment strategy