Selling ANL apartments at low prices: American and English markets tell us what will happen
February 11th. It was explaining why the prices in USA remained blocked and why the ones in England started rising. Then it ended by explaining why the author considers the price rises in England “artificial and not sustainable”. To share with you shortly:
“USA: Prices blocked for another two years. Too much supply, weak demand…”
USA is a regulated market with statistics you can trust. The author explained briefly that the market will probably be blocked because:
- Between 2002 and 2006, there were 12 million new apartments delivered, while the new households were just 7 million.
- The banks will promote for sale over the next two years some 5 million repossessed homes, “foreclosures” (at “very competitive” prices).
This means that the stock will be huge and part of it will be sold at low prices. This will block the market for couple of years more (at least, I would comment), until all these units will be sold. And the market is expected to remain at these levels, lower than their post-1968 average!
“England: Less supply than demand, but still expensive!”
The situation in England is opposite.
- During the last decade, there were more households created than new apartments delivered.
- There were just 50.000 apartments repossessed during 2009, an insignificant number for such an economy.
The stock was very low and with a little help from the State the market was “less bad” than USA. But the author stated that he still finds it expensive comparing to USA and he expects the English market to fall. “The recovery on British house prices is built on sand” is the title of his article…
Romania: We add low cost supply to an “oversupplied” market…
Let us go to Romania now. We have a large stock of unsold apartments (usually many of them located on wrong areas, with mediocre quality of construction etc). We have a very anemic demand, which forced the prices to collapse during 2009. We expect the banks to start repossessing homes, because too many people do not pay their installments. In the same time we add to this stock another 20.000 units, being sold at 600 euro / sq.m, more or less. This is a price we could call “foreclosure” or even “fire sale”. So we actually add very low cost supply to an already oversupplied market.
Direct comparison to the newly developed ones (unfortunately)…
With prices of ANL apartments at these low levels, there will be a direct comparison with the new developed units. Many people will be tempted to buy one of the ANL ones, instead of the apartments available on the market. “The owners can not sell for the next five years” says the measure. But they can sign a precontract for this period, no? Haven’t we seen this tactic in the past too?
“But the newly developed apartments are much better than the ones of ANL” all the developers will say. Correct. But there are too many buyers who simply want the lowest possible price, the most affordable one. We have crisis and every euro counts for them. Also, if someone is not an expert (and he does not wish to learn more about properties) he might feel “weird” to buy an apartment with 1.200 euro / sq.m., knowing that somewhere close there are apartments for sale with 600 euro / sq.m.
The market will be blocked, at least don’t allow the sales through precontracts
Of course I am not able to see the big picture that politicians are supposed to see. And I don’t have the consultants and tools so as to reach the best conclusions. But as I see things regarding this issue, my humble opinion is that the market will be blocked for good. At least maybe there should be a measure restricting all precontracts for this kind of apartments until the 5 years will pass. Like this, the market will just “lose” 20.000 potential clients, but at least we will not see even worse things happening.
The expected result
Some developers will bankrupt. A big share of “Prima Casa” will be invested on ANL apartments, missing from the rest of the market. Many other developers will avoid starting new projects before this supply of ANL apartments will be absorbed by the market. This means that they will postpone the necessary investments that the country needs today. The owners of old apartments will have to compete with newer apartments at much lower prices.
- I also doubt that the State will really collect lots of money by taxes.
Am I wrong? Please correct me…
PS. I declare that I am not involved into Romanian politics. I don’t know any politician and I don’t have any friends or enemies between them. The text above is just the explanation of the announced measures, plus the results I predict these measures will bring. This does not mean that I am against or that I support the Government or anyone else.