Greece looks for money in its islands

The purchase proved a royal headache.

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Although the ownership deeds were clear and the government had waived its right to reclaim the pine-covered atolls, Sheik Hamad bin Khalifa al Thani was put at the maddening mercy of Greek bureaucracy. He had to first secure 32 permits from five ministries and local bureaus. Then he had to convince officials that his $11-million investment warranted allowing him to build a home larger than their limit of about 2,700 square feet.

Discussions with one of Europe's most bankrupt nations dragged on for 18 months. Twice the exasperated emir considered killing the deal. Then in stepped Prime MinisterAntonis Samaras, who since taking office nearly a year ago has struggled to boost investment by reducing bureaucratic paralysis and corruption.

Within five days, all restrictions were cleared. The sheik got his permits and with them his private paradise under the Greek sun, with the sale made public in March. The government raked in 11% in capital gains tax, scoring its single biggest private investment since Greece went off the fiscal cliff in 2010.

"It was a watershed moment," said Mike Vassiliou, president of the Greek branch of the International Real Estate Federation. Not only did the prime minister's personal involvement show his willingness to do what was necessary to bring in cash, Vassiliou explained, but "the successful sale stoked fresh interest and potential for Greece's crown jewels."

Since the emir's purchase, several rich Russians and Arabs have expressed interest in a grab bag of about 300 private islands on sale at rock-bottom prices as their owners face rising property taxes and a deepening recession.

With each private island valued between $1.3 million and $150 million, experts say that transfer fees alone for those sales could bring in desperately needed revenue for the government. But they say the real gains would come from the sale of about 6,000 islands that the state owns and so far has refused to relinquish.

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Since the start of the financial crisis, successive governments here have rejected calls by international lenders, mainly Germany, to auction some of them to pay down Greece's toxic debt. Now, the business-minded Samaras is open to leasing them — a prospect that has angered many Greeks.

This month, municipal officials on Evia, the second-largest Greek island, plan to launch an international tender to lease Dream Island just offshore in the coming weeks. They hope to turn the 600-acre outcrop of hibiscus and harvest land, along with its run-down hotel complex, into a paradigm of development.

"It's somewhat of a litmus test," said Vasileios Velentzas, mayor of Eretria, the municipality controlling Dream Island. "How well — or badly — this project proceeds will either buoy or block other even more ambitious island and land development projects."

Previous attempts to rent out Dream Island stumbled on anemic political support. "Now," Velentzas said in an interview, "it is as if the state is almost cheering us on, facilitating procedures and permits to make this happen."

Authorities hope the plan will bring in about $130,000 annually for the 35 years that Dream Island would be rented and restyled as a resort. The government also stands to profit through added tax revenue, increased tourism and employment.

Flush with cash, foreign investors are said to be lining up, hoping to get a foothold in the project. But scaring them, Velentzas said, is a bureaucracy that could keep their investments from turning quick profits.

Recently, as federal authorities jump-started an ambitious $65.5-billion bid to sell off state assets — an exercise creditors insist on in exchange for multibillion-dollar bailouts keeping the country afloat — the government in Athens also introduced legislation easing investment regulations.

"We're calling it the red tape-to-red carpet approach," Development Minister Costis Hatzidakis said in an interview. "Procedures are being simplified into a one-stop-shop mechanism to accelerate the pace of privatizations."

But problems persist.

Although the bulk of Greece's bargain-basement sales focus on real estate — this month authorities said they were including an additional 300 pieces of property in the auctions listing — the government has yet to set up a legal framework allowing islands to be leased. And the country still lacks an official land registry, creating a nightmare for potential investors.

The biggest obstacle yet: the lingering taboo among Greeks on divesting real estate to foreigners.

"People are still mad at having to lose so much in this crisis," Christos Konstas, a leading columnist, said of Greece's years-long financial troubles. "Rather than come to grips with a new reality of business opportunity, many Greeks prefer to cultivate conspiracy theories and myths of greedy foreign interests trying to swoop in and snag the country's last prized possessions."

Bessy Fanouraki, a 45-year-old civil servant, echoed such concerns as she watched her daughter play in a derelict amusement park on the south shores of Dream Island.

"It just doesn't make sense," she said in an angry tone. "How can there be talk of a Greek revival when islands like this may end up in the hands of foreigners? Who's to say that a 35-year lease will not lead to another 35 years and then a permanent takeover?"

"Could the Turks be behind this?" she asked, referring to the age-old foe Greece nearly came to war with in 1996 because of rival claims to a barren outcrop in the Aegean.

Greece's creditors and international investors insist Athens should be bold in unloading its islands. Some market experts, though, seem wary.

"Even if it throws a couple of hundreds of islands in today's saturated market, it won't get the money it needs to pare down its debt," said Farhad Vladi, an island broker. "The smartest thing it can do is preserve them, putting instead some solar cells or wind turbines on them to generate profit."

Perhaps. But Greece is pressed for time and quick cash.

Under the tough terms of a revised bailout agreement in December, failure to raise $3.5 billion in the sale of state assets by the end of the year could lead to fresh austerity measures for Greeks — and to fire sales at even bigger discounts. That prospect could leave island shoppers and developers holding out for better bargains to come.

Carassava is a special correspondent.