Buying old apartments with “Prima Casa”:Too risky for a new “bubble” to burst…

As we wait the announcements for the new status of “Prima Casa”, there are many potential clients who are interested in buying their new home, taking advantage of the State’s guarantee. In the same time, every seller awaits the news too, usually in order to raise his demands, as the guaranteed sum is expected to increase as well. But how many buyers really understand that they are very close to make a mistake, which may cost to them a lot in future?

 What are the expected changes?

            This week we have entered in the final countdown before the announcement of the new standards for “Prima Casa” project. In the same time many people expect changes also in the overall taxation about the properties. What are the changes that we hear every day?  In short:

• The State’s guarantee on loans to exceed today’s 60.000 euro value and reach 80.000 euro. (Many developers predict even more, 100.000 euro…)
• Some try to lobby so as to remove the old apartments from the properties which will be guaranteed and the new version of “Prima Casa” to refer only to newly built homes.
• Another interesting discussion is the one regarding the price on which VAT is reduced from 19% to 5%. A serious number of people wants this figure to rise, reaching also the levels of 100.000 euro (its equivalent in Ron).
• Between the endless proposals we hear, I also kept in mind the most… generous one, to reduce the VAT from 19% to 5% for all Real Estate transactions, or just for apartments.  (I doubt that European Union will allow Romania to lower the VAT on something so vital, but you never know…)

 Rising the guarantee = rising the prices

            If the State will rise the value of guarantee it will provide to buyers, the majority of owners will automatically rise their prices accordingly. Do you remember what happened last year? The apartments of 35.000 euro automatically boosted up to 60.000 euro, exactly as the State guarantee was. Some asked even more, but more or less the market used this figure as benchmark.

 What was the REAL price last year?

            So, one day before “Prima Casa” programme, the market had evaluated an old apartment for 30.000 – 40.000 euro. One day after, several owners almost doubled this price. And as many buyers simply find it difficult to search for long, they finally accepted to pay this higher cost. The banks financed the apartment, only because the State guaranteed its value. Eitherwise, they would have paid half, as they did until one day before the programme. They did not focus at the real price of the asset. As the State guarantees, they are 100% covered. But what about the buyers? Especially the ones of old apartments.

 Too risky to buy old apartments with “Prima Casa”

            Ok, today the State allows you to be granted a loan and buy the apartment that you like. You choose to buy an old apartment, usually 30 – 50 years old, because “this is what suits you TODAY”. But don’t you realize that you buy it with double price comparing to its real value? If “Prima Casa” will stop, these apartments will return immediately back to their real standards, about half of their prices respectively. Also, you take a loan for 20 – 30 years, so as to own a property which is already 30 – 50 years old and passed through an earthquake. The rest of the building is usually not renovated and it is sure that in the future things can only deteriorate.

            Are you interested to buy an old home, using “Prima Casa” programme?

• If tomorrow you will be interested to resell your property, if you will urgently need cash, what will you do with an old apartment, in an old building of a (usually without added value) simple area of your city?
• What future appreciations do you expect to receive by investing in this apartment? 
• Does this old apartment really cover your today’s and future needs?
• Does this worth this price to pay?
• Are you sure that you have to be in a hurry to buy something “just because all the owners want a high price and I don’t find anything cheaper”? Doesn’t this remind to you something of the Real Estate bubble during 2007 – 2008? Don’t you remember what happened in the end?

 Search for opportunities, don’t risk for nothing…

            If I would be in the shoes of a buyer who wants to use “Prima Casa” so as to buy a property nowadays, I would search for opportunities. I would try to identify how the investment in an old apartment would create a benefit also for me, not only for the seller.

            In life a normal person buys 1 – 3 homes to live in. A mistake of today will be carried out throughout the years to come. Isn’t it a pity to risk for nothing?