Greece May Need to Break Taboo on Selling Land Outright to Slash Its Debt
Stock Chart for Dolphin Capital Investors Ltd (DCI)
Greece’s plan to raise billions of euros from state-owned land may fail if the government succumbs to pressure to keep assets in public hands, according to Miltos Kambourides, managing partner at Dolphin Capital Partners.
Finance Minister George Papaconstantinou said in an interview this month that he would prefer to offer developers long-term leases, though he’d consider selling smaller assets outright. On March 23, the government said it will give details of the fundraising plan “in the coming weeks.”
“No foreign investors will want to buy a lease and be told what they should develop on the site,” said Kambourides, 38, who helped set up his private equity firm seven years ago. Dolphin, registered in the British Virgin Islands and listed on the London Stock Exchange’s AIM, is developing seven luxury resorts in Greece with a total investment budget of 2 billion euros ($2.8 billion).
Papaconstantinou aims to generate 50 billion euros from state asset sales and property transactions by 2015 to reduce Greece’s public debt, the highest in the European Union as a percentage of gross domestic product. Until now, its governments have shied away from real-estate divestments to avoid criticism from voters.
“Asset sales are an important element in the effort to stabilize the debt level, though they’re unlikely to be a panacea,” said Silvio Peruzzo, an economist at Royal Bank of Scotland Group Plc based in London. He described the government’s target as “very ambitious.”
Greece’s economy will probably shrink for a third year under the force of cost-cutting measures that followed an EU- led, 110 billion-euro bailout last year.
Some companies may be discouraged by the country’s bureaucracy, said Kambourides, whose company had to collect 2,200 signatures from government departments and ministries to secure the luxury developments. There’s no single point of contact for the numerous permits needed, he said.
“It creates a high barrier to entry, which keeps the competition away, but it’s not good for the country,” Kambourides said.
Greece is taking steps to promote large-scale developments, such as speeding up the permit process and defining holiday homes as a tourist product so developers can build them on resorts.
“The government’s moving in the right direction in terms of introducing legislation, but it’s going slowly,” said Christopher Egleton, executive chairman of Minoan Group Plc (MIN), a London-based developer of leisure and tourist resorts in Greece.
Dolphin, which has bought 1,650 hectares (4,077 acres) of land in Greece for development since 2006, won’t purchase any land from the state unless it’s a freehold, Kambourides said.
“The government’s sending out mixed messages, though I think it will find a way to respond to the needs of investors,” said Yannis Perrotis, managing director of Athens-based CB Richard Ellis Atria. His company, an affiliate of the world’s largest commercial property brokerage, advises on transactions in Greece and Cyprus.
“Holiday homes are the most profitable part of a resort and that is what all investors are looking for,” Kambourides said. He estimates that as many as 25,000 holiday homes could be sold in a year. That would generate sales of 10 billion euros and provide a “significant” boost to gross domestic product.
A Feb. 27 poll by MRB Hellas showed that 58 percent of respondents wanted state land to be developed, not sold. Of that number, 66 percent supported laws that would stop any sale of public land. Prime Minister George Papandreou said on Feb. 15 that he would propose such a ban.
“The Greek people want to have their cake and eat it too,” Kambourides said. “They have a wrong concept of ownership, as if the land sold will be taken to another country.”
Most developers prefer to buy sites on a freehold basis because it enables them to build homes that can ultimately be sold outright, Perrotis said.
Land sold by the state would remain accessible to the public, according to Kambourides. Investment attracted by the sales will create jobs and lift the economy after Greek unemployment reached 14.2 percent in the fourth quarter, the highest since the introduction of the euro.
The Hellenic Public Real Estate Corporation, the state’s property-management arm, has already announced that 20 plots of land, including some on the Aegean island of Samos and the port of Lavrio, will be offered for development and “ownership will remain with the Greek state.”
Kambourides began his career at Goldman Sachs Group Inc. (GS) working on real estate and private equity transactions in the U.K., France and Spain. He went on to become a founding partner of Soros Real Estate Partners before setting up Dolphin.
“The value is definitely there,” Kambourides said. “It’s more a matter of the government’s ability to carry out an orderly sales process.”
The state still has some work to do: Greece is the only country in Europe without a centralized registry of deeds. About 40 percent of registered state properties are disputed and an additional 25 percent don’t have enough data on their legal status and are “questionable,” Papaconstantinou told lawmakers earlier this year.
The cumbersome approval procedures and competing claims over land resulting in lengthy court battles are both factors that have deterred foreign investment. Jones Lang LaSalle ranked Greece 29th on its Global Real Estate Transparency Index for 2010, below Spain, Italy and Portugal.
“The government still has to prove it can apply the new legislation,” Kambourides said, “‘Foreign investment will be harder to attract without a proper land-usage plan and a completed land registry.”
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