Property prices, forced to come with both feet on ground?

On 07.07.2010, Adriana Dragusin, a well known Real Estate journalist of www.imobiliare.ro, asked my opinion about the market. Here you have it, together with the other experts who stated theirs.

"In terms of drastic decrease of the purchasing power, it remains to see the market responses to the new needs of Romanians.
The austerity measures taken by the Government in the last weeks have gathered themselves in a snowball which is visible increasing. The taxation of interest on bank deposits, increase of the VAT to 24%, tax increase if one owns more than one property and, not least the wage cuts. All these throw a dark light upon the real estate market. Even if the effects are sometimes indirect, one thing is certain: the purchasing power of Romanians is seriously affected. This happens in a  time when it was already difficult to access financing sources and the confidence in market was barely hobbling. A question laying on everyone's lips is: what will happen from now on?

Ilias Papageorgiadis, CEO of More Real Estate Services, says that, at the time being, on the Romanian real estate scene coexist two totally different worlds: a real price world where the properties are being sold and a world of prices not connected to reality, which offers remain suspended somewhere in the air. In the last category we see most of the currently available properties for sale, whose owners are still waiting for a return to the effervescence of the boom period. "As the crisis continues, more and more owners will be forced to enter in the world of the real prices. It is clear; the new taxes will only accelerate this process, "anticipates Papageorgiadis.

Acquisitions with cash are the survival niche
Andrei Sandu, general manager of Media City Agency acknowledges that the segments enjoying the 5% VAT reduction are apparently not affected by this tax increase. An non-measurable  effect will be the lower confidence and  lower purchasing power of population, which will result in a further decrease of appetite for investments. Papageorgiadis also recognizes that the end users will be strongly affected, since all these costs will significantly reduce their available revenue in and make them worry even more for the future.

Ion Cătuţoiu, general manager of Real Time, estimated that the austerity measures adopted by the Government will cause two short-term effects. The first effect will be a drastic reduction of the number of buyers through a bank loan, even through the first home project, due to the lower purchasing power, and because the scoring obtained from the bank will be much lower. The second effect will be an increase on the market of the buyers with cash. According to Cătuţoiu, Romanians who have been able to sell their properties when the market was at its peak will choose safe property investments, as a solution against the taxation of interest on deposits and exchange rate fluctuation.

First decreases visible at old flats
Clearly, an average Romanian dreaming of a home will feel the full impact of the measures taken by the Government. The response of the market to this reduction of purchasing power is a controversial one. Papageorgiadis is among the few who really believe in the connection of the prices to reality. Cătuţoiu and Sandu are reluctant about this scenario, at least on the short term.
"Logically, the first tone for reduction should be given by the second – hand market," acknowledges the general manager of Real Time. However he is suspicious in the event of reduction higher than 10-15% for this type of housing. The offer on the market is quite small and you cannot really feel the urgency of owners to sell.

Regarding the new housing segment Cătuţoiu believes that the only reductions higher than 10-15% will be granted by those who are selling the apartments uninhabitable (too large surfaces, located in difficult areas etc.).. According to Andrei Sandu, also developers who need capital or owners who are under pressure of banks or credits will grant these reductions.

Cheap housing, with small surface
Clearly, the developers' reluctance to reduce prices persists even in the new economic conditions. Last week the residential project Obor Towers was completed out of which 55 apartments have been contracted and another 70 are waiting for their buyers. According to Hai Solomon, the developer of the project, from the start of the crisis until so far, prices declined by 20%. From now on, however reductions will not be applied anymore. The representatives of the assembly believe that an average of 1.050 euro per sq.m. is a fair price considering the quality of materials, building structure and the area it is located.

Currently, according to the purchasing power of Romanians, the housing offer on the market is very low as Cătuţoiu noticed. In this context, the only way housing prices would sharply fall from now will happen only if construction of buildings will be adapted to the current market conditions. That means lower construction costs, lower surface, but finishes adjusted to the purchasing power of Romanians".

Source: www.imobiliare.ro
By Adriana Drăguşin