The latest statistical data Romania’s central bank published show the stock of home buying leu loans tripled to 10.4 billion lei (EUR2.33 billion). The loan stock rose by RON1.4 billion in December alone, triple the previous months’ average, which translates into 7,000 new loans.
“The rise in leu lending is, first of all, the result of the decline in interests and, second, the result of the lessons Romanians have learnt about foreign exchange risk,” says Gabriel Cretu, managing partner of loan broker Adwisers.
“People have started considering lei because interests are about the same as those of foreign currency loans, there are no more long-term differences for mortgage loans, which used to make foreign currency loans the product of choice, so people seek to keep the foreign exchange risk down to a minimum.”
The volume of home buying loans has risen six-fold in the last couple of years because of the interest rate decline and of the switch of the government-backed First Home scheme to leu-only loans. First Home loans now account for almost 50% of the mortgage market.
Mortgage loans are now selling at an interest rate of about 5% per annum, which means the monthly installment of a 30-year RON200,000 loan is about RON1,000.
The mortgage lending growth is driving housing development up, especially in Bucharest, where the number of homes completed in the first nine months of 2014 reached a new record high of more than 5,600 houses and apartments.
“We sold 40 of the 45 apartments in the first building in April-December last year, and 60% of the transactions involved mortgage loans, mainly leu-denominated,” says Elena Butucea, marketing manager of City Point complex developed by Israeli investors in Pipera, northern Bucharest.
“The better than expected sales made us start work on the second building, with eight floors out of nine already constructed and we will begin work on buildings three and four this month.”
The two-room apartments in the first building of City Point sold at EUR80,000 (some EUR1,400/square meter of net area) on average and prices for the second building are 5% higher, Elena Butucea said.
The number of residential construction sites is on the rise in most parts of Bucharest, while in the rest of the country the market remains flat.
Mortgage lending constantly increased throughout the crisis, driven by the First Home scheme and the growth picked up speed towards the end of last year, partly because of the rumor that the governmental guarantee cap would run out.
Adrian Jantea, head of promotion and distribution, retail customers, with the second largest bank in Romania, BRD, confirms First Home definitely contributed to the surge of leu-denominated mortgage lending.
“Mortgage leu lending will continue but the foreign currency mortgage loan is gone due to the First Home scheme. Mortgage lending will probably receive support from the governmental scheme again in 2015, as well as from the regular leu-denominated mortgage loan, which will in turn be a significant factor.”
The governmental guarantee cap approved for this year’s First Home is RON2.5 billion, RON500 million more than in 2014. This means banks will be able to grant 30,000 mortgage loans, 5,000 more than last year.
(English version by Loredana Fratila-Cristescu)