“It is naturally tempting to compare the current context with the 2009 financial crisis, in the absence of a closer benchmark, but a detailed analysis of the indicators of then and now reveals a very different situation. Both market maturity and purchasing power are now at an entirely different level”, added Andreea Hamza.
In the current cycle, the average price of new homes in Bucharest has reached EUR1,920 per usable sqm, 25% below the peak level of EUR2,576 per sqm reached in Q1/2008, according to the real estate index published by imobiliare.ro, while the average net salary in Bucharest currently is EUR1,085, double the 2008 level (EUR499).
At the same time, the average price of a new residential unit delivered in Bucharest was around EUR270,000 at its peak in 2008, as compared to around EUR134,000 currently. The difference results mainly from an average area per unit higher by 48% than in 2008 as compared to 2022, i.e. 104 sqm in 2008 vs 70 sqm in 2022, according to official housing statistics.
“Moreover, in 2008, more than 50% of new homes were bought off-plan for speculative purposes and re-entered the sell circuit even before they were completed and fully paid for, not to mention the price increase of up to 30% during this interval. Thus, in 2008 we are talking about an artificial increase in demand, as the same apartment could be placed back on the market even twice during the construction period alone”, Andreea Hamza also said.
Compared to 2008, at present, 75%-80% of the residential units are purchased by end-users, while the difference is represented by investors targeting a rental income and not as much for reselling.
Moreover, the residential market in 2022 is divided into well-defined autonomous segments, another clear sign of maturity. In 2008 almost all new housing units were considered to be part of the higher-end segment, while the middle and lower-end segments were covered by the old housing stock. In 2022, the new residential units are clearly split between 5 distinctive market segments, from economy to high-end. This healthy market segmentation gained shape in 2009, through the introduction of the “Prima Casa” program, which basically created the niche of affordable newly constructed units, also supported by the reduced 5% VAT rate.
On the other hand, the mortgage market has also reached a certain level of maturity, as the maximum debt to income ratio for local currency loans has decreased from 70% in 2008 to 40% since 2019, a level maintained to this day. In fact, the mortgage loan value in 2008 is comparable to the one accessible today, despite the fact that the average income has doubled since 2008. Therefore, the risk of default on mortgage loans is now also much lower.
According to JLL, the market has already started its cycle of readjustment to the new challenges, but the price evolution will not be similar to the one registered in 2009-2011 period which saw a combined decline in prices of 37%. This decline followed a steep 60% price increase in just three years (2006-2008), while the combined price hikes over the last three years (2020-2022) has been limited to 15.5%.
This correction on the residential sales market is set to boost the rental segment which continues its upward trend. Bucharest rental levels increased on average by 7% in 3Q/2022 and some specific neighborhoods saw rents increasing even by as much as 15%.