The real estate industry is sensitive and follows the trend of the economy, albeit with a certain delay; it is influenced by the interest rates and the financing policy in general, Adrian Crivii says.
Even though Romania’s economic performance was positive in the first three quarters and had good prospects for next year, there is a lot of bad news now. On the one hand, there are the negative signals from the construction sector and from the infrastructire sector. In addition, lending institutions do not have any encouraging messages either and the performance of the economy is fragile, influenced by the international developments, writes BUSINESS Magazin (www.bmag.ro).
A more optimistic opinion comes from Alexandru Pricop, managing partner of Coldwell Banker Affiliates of Romania (CBAR), who believes sale prices of apartments in Bucharest will not see any significant changes in the next two months or in the first half of 2012, either. “The last six months came with a definite market stabilization trend,” Pricop says. He added that by stabilization he meant the homes whose prices are similar to those that meet the “First Home” scheme price requirements and the next few months should not come with significant changes.
“The expectations of buyers and sellers differ greatly,” says Ioana Mihai, head of the secured loans department of Banca Comerciala Romana (BCR), which has granted 17,300 loans via the “First Home” scheme, worth EUR700 million.
On the one hand, buyers are waiting for prices to go down further, while sellers believe prices are too low. As a result, “the number of transactions on the market is relatively low” except for the “First Home” scheme, BCR’s official says.
The psychological factor, too, acts as a deterrent, making buyers more reluctant to buy considering that most people see a home as the most important investment in their lives. The CBAR official believes that the market is much more mature today than it was before the economic crisis, as both buyers and sellers have a better grasp of the value, be it a piece of property or an amount of money.
Emotional factors are no longer the only ones taken into account when buying and the exuberance of 2004 – 2007 period and the general panic at the beginning of the crisis “have disappeared, leaving more room to the rational factor,” Pricop believes.
Under the circumstances, even though the boom period is not coming back, “deals can be closed, there can be new projects, there is a market, there are buyers,” Pricop adds. Only the end product needs to be right in terms of floor area, finishing, location and promotion.
Pricop believes that 2012 might come with a stabilization of the residential market if the current trends continue, and the international economy does not deliver a shock similar to the Lehman Brothers collapse.
There are also less optimistic opinions. After significant declines for almost three years, “we would have expected a positive trend of the real estate industry,” says Darian’s founder. The company he runs has had over 50,000 individual customers over the last three years, for whom appraisals of property throughout the entire country were done. He believes there will not be any price increases over the next six to twelve months “because of the next crisis wave that will definitely affect Romania.”
Actually, there is no optimism in the forecasts of the business sector, and near future scenarios are cautious at best.
CBAR sees a 5% decline in the first six months of next year, which will only occur on the segment of those homes whose prices are above the “First Home” scheme cap.
There are, however, external factors that prevent and will continue to prevent a cut in prices for the projects started during the boom days. These factors, Pricop says, include the banks that lent money to the projects, which do no agree with too steep a cut or with high investment costs (land or building) that do not allow for cuts.
“We don’t see a bright potential for the market, either,” says Lucian Cojocaru, executive vice-president in charge of retail with Volksbank Romania. Retail loans account for the bulk of Volksbank’s portfolio, but the bank did not sign up for the “First Home” scheme. It has recently launched its own loan aimed at home buying or real estate loan refinancing. The maximum amount granted is EUR250,000 or 1,000,000 lei, while the interest charged is three-month Euribor plus 5.45% for euros and six-month Robor plus 2.95% for lei. Minimum down payment required is 20% of the price/value of the piece of property and the bank official would not comment on the expectations for the performance of the new product.
The conservative policy of the National Bank of Romania – tempering lending by keeping the reference rate unchanged and introducing new lending rules, as well as the problems most European banks and especially the Greek ones are having make the “lending and implicitly the real estate market demand capping more obvious,” Grivii says. He also talks about another sign that proves the lending appetite decline: the increase in non-performing loan rate, partly caused by the instability of the exchange rate. All these factors together “will definitely cause a decline in prices, especially for land suitable for development and homes.”
(English version by Loredana Fratila-Cristescu)