New law for PUZ approvals: A huge change for Romanian Real Estate market. Positive and Negative points

Part 1

(to read part 2, click here)

Last week we had some news that were not really analyzed as much as they should be. Minister Elena Udrea decided to change the status of PUZ approvals in Romania, making it very difficult for a small plot to change its urbanistic parameters. From now on the chief architects will be the ones to decide, using criteria which allow plenty of interpretations. You can read more about this major change here.

Do you know what was the reaction of the majority of media? A simple article and then "back to the scandals of customs" etc. Do you know what was the reaction of the majority of Real Estate people? You don't? Neither do I, as I have not noticed any major declarations. This law, passedthrough an emergency ordinance, changes our life and profession and we don't even seem to discuss it…

A decision with tremendous impact
Before we analyze the pros and cons from this new law, let us explain what does this mean for the majority of land owners in Bucharest and around the country, from economic point of view:

• Their property most probably remains with the urbanistic parameters it has nowadays.
• This means that their ability to increase these parameters and sell it more expensive is practically eliminated.
• Exceptions are the lands with surface over 10.000 sq.m. (for residential purposes) and 5.000 (for commercial activities), plus the rare cases when the chief architect will approve a modification by a private owner.
• Let me give you an example of the impact for all these: Let us assume that in 2007 we had transactions of lands worth 5 billion Euro (yes, there were years like this too…).
• Let us estimate the lands sold inside urban areas at the volume of 3 billion (with another 2 billion being invested around the cities).
• Almost 80 – 90% of these lands were sold, either after their PUZ was approved, or before this, once an expert estimated that the PUZ of the property could be modified (= increased).
• So, in the vast majority of transactions, people bought properties knowing that they could change their PUZ, increasing the sq.m. they could build on the land they were about to buy.
• What would be the price of selling all those lands, if the buyers did not expect to increase the coefficient through a PUZ? Probably less than half. So we would have 1,5 billion Euro less in transactions, back then.
• 1,5 billion Euro less means that some thousands (if not tens of thousands) of people would have received lower amounts of money.
• Why is this? Because in Romania people used the PUZ as the main "tool" to increase the value of their property. Ofcourse this caused many major problems as well, allowing in some cases "monsters" to appear and destroy the specific of an area.

The advantages of this new law:

• The minister's intentions sound good. If the law will really be followed and will not be "transformed" to what is convenient for some people, then there will be an order in developing this country and its cities.
• In theory the cities will be better protected. The authorities will have a serious "tool" to fight wrong / weird decisions that spoil the city's characteristics.
• She talks about the existence of buildings with ground floor plus 10 floors next to villas with ground floor plus 1 floor, a view which is far away from being described as "beautiful". She is right and this is a solution to fight this weird approach of "urban development" .
• Real example: In 2006 a mayor changed the coefficient of an area from 0.9 to 7. So if you had 1.000 sq.m., before the change you could build 900 sq.m and after you could build 7.000 sq.m. This is why there started to appear huge blocks next to villas there. But the area was supposed to be developed only with villas. Now it looks like "not normal". At least…
• It is always good to know that there are rules, which impose some specific norms.
• There is (even more) power transferred to the chief architect of each city and the mayor himself. If these people are open minded and respect themselves and their city, then the results will be only positive (and I know several persons like this, with self respect and love to improve their city).
• With the same law, the illegal constructions will be forced to be demolished. There is no law obedient citizen who may disagree on this. We are happy to know that there laws should be implemented for everyone.
• Also, it is good for new investors to know the real limits and potential of every property, in order to avoid big promises, time invested etc. "This is the situation today, full stop".

Tomorrow:

How the prices will decrease
The negative effects of this law
"In the authorities' hands"