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The million-euros business involving main residencies

The main selection criterion will be the amount of capital that the investor will have to run the Acquisition and Rental Agency. A de facto capital limit cannot, however, be set, since, as mentioned above, it is not possible to determine in advance how much capital will be needed.

After the opening of the NPL market, where many large and specialized companies are now active, a new field of activity will open up by the end of the year, which is already attracting strong interest from domestic and foreign investors, a Finance Ministry official said yesterday.

This is a new, special category of real estate management: an investor (or a consortium of investors) will undertake the buying of main residences that will be lost by vulnerable households going bankrupt under the provisions of the new bankruptcy code that will come into effect at the beginning of next year. These houses will then be able to be leased to the previous owners for a period of 12 years, after which they will be able to buy them again from a special Acquisition and Rental Agency.

It is very difficult to make any estimates on the amount of business that this may involve, the official said, in comments to journalists. Everything will depend on the currently unknown number of financially vulnerable households that will lose their main homes through the new bankruptcy process.

However, it seems that the interested investors recognize an important opportunity, since many, from Greece and abroad, are said to have informally expressed their interest in the venture to the government. Loan and real estate management companies and international private equity funds seem to have the upper hand, although the government has not imposed any restrictions on the type of activity to be carried out by those interested in the tender set to be launched  in October.

The main selection criterion will be the amount of capital that the investor will have to run the Acquisition and Rental Agency. A de facto capital limit cannot, however, be set, since, as mentioned above, it is not possible to determine in advance how much capital will be needed.

How it will work

The mission of the investor who will undertake this project will be to undertake the management of real estate leased to financially weak tenants. In particular, based on the new bankruptcy law, which will soon be submitted to parliament and come into force from January:

A debtor who goes bankrupt and is classified as vulnerable, according to the definition provided by the law on rent subsidy, will have the opportunity, to buy it from the agency, instead of losing the asset to an auction. The purchase of the house will be based on its current commercial value, as determined by a specialist appraiser.
The government's goal is to avoid the traumatic process of eviction. The institution, whose function will be performed by the individual selected through a tender, will lease the house to its previous owner and the rent it will receive will be calculated as the installment of a mortgage, based on average interest rates published by the Bank of Greece.
The vulnerable debtor will not pay this rent in full, as much will be covered by the housing allowance he will receive from the state, which can reach 210 euros. As it became clear, however, from the ministry official, if, the debtor is unable to pay his share of the rent, there will be no other opportunity to avoid eviction.

After the expiration of 12 years, the tenant will have the opportunity to request the acquisition of the home from the agency. This can be done earlier, but only if all the rents corresponding to the twelve-year lease are paid in advance. The acquisition will be based on the commercial value of the property at the time of the transaction, which is likely to be sufficient or much higher than the purchase price of the homes by the private agency.

How this solution was reached

The plan chosen by the government as a new form of protection of the first residence was dictated by the need to comply with the main requirement of European institutions to end the previous home protection rules.

Thus, all interventions made by the state for the protection of borrowers end up being privatized: the body that will buy the houses will be private, while there is no legal issue of state aid, although a large part of the income will come from the state in the form of rent subsidy. This subsidy will end up in the private sector, but will be paid, typically, to the borrower, on exactly the same terms as all other rent assistance schemes.

Thus, nowhere in this scheme will there be any state intervention/ aid, nor will the state be involved in the acquisition of the properties that will be lost through bankruptcies, since this will be completed by private funds.

Additionally, bankrupt debtors losing their homes will be simply supported by the state, in in line with demands from European institutions. The scheme also serves the main purpose of banks of avoiding the potentially explosive process of forced home auctions, as seen in other countries, such as Spain.

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