The Residential market at a crossroads: 8 positive signs – 8 negative signs

While the Romanian Real Estate market experiences one more difficult year, some careful analysts notice that we also have a significant positive change. While so many people speak about unsold residential projects, insolvencies and low prices, there are some others who speak about a different atmosphere, more sales, more interest! Is it a coincidence? Let us find out today…

A market full of problems…
If you ask Real Estate brokers or consultants, most of them will make it clear for you from the very beginning: The Romanian market is still very difficult, especially the residential segment. I can easily name for you 8 stressful situations, torturing lots of market players:

• Too many projects simply don’t sell. Is it wrong promotion? Wrong pricing? An inflexible bank? Bad location? Make your choice, or add them all in the basket. But they don’t sell and this is too difficult to handle from all points of view;
• Too many developers are out of cash. Their projects have been blocked, despite the interest of potential buyers. Now, after 1 – 2 years of trying other alternatives, some of them finally reach the moment when they will have to think about their project’s (and sometimes company’s) future;
• Some projects entered into insolvency and their clients are in trouble. This was something which I analysed to you about two years ago. Many projects stalled, with developers not being able to deliver the promised apartments. “And what about the clients who paid advance?” Difficult situation, most of these clients are in trouble…
• The banks cannot protect all the blocked developments anymore. They do this for the last 2,5 years, but the market rumours speak about “surprising moves for the ones who don’t come up with a sustainable plan”. (What happens then? “Don’t ask, in order not to know…”)
• Foreclosures have started. Peacefully and silently. Every single week I hear about cases where a bank proceeds in liquidating a project / property, searching for lower amounts than the mortgage. This procedure was expected since the end of last year, but this one will bring us many more.
• The developments that sell, don’t sell as fast as they would want (or need) to. Buildings with hundreds of apartments are occupied at 20 – 50%, with the brokers stating to the media that “we need 2 – 3 more years until the sales to finish”. But their developers can not really wait so much…
• Many construction companies hold their breath. Some of them bankrupted, while plenty of others try their best to survive during this crisis. Projects are insufficient for all to take their stake, prices are down, things are difficult. In the same time hundreds of small Romanian construction firms, with 5 – 20 employees each in the past, have been transformed to “family business, searching for anything to do, in order to remain alive”;
• Many, many more problems. From the lower prices that did not work, to less Real Estate Fairs this year, the high price of oil and so many other problems… it is clear that 2011 is another difficult year for the majority of market players.

• The interest for properties has risen. Even if they have not been transformed to transactions yet, the difference comparing to the past is visible. More people ask around, visit properties, check their financial resources. Their psychology is better than the past.
• Some good (not fantastic, but interesting) projects are out for sale for reasonable prices, triggering investors’ interest again. It is not one or two, I know at least six of them. While many developers are in trouble, some others have lowered their expectations, preferring to exit from a problem and start something new in the near future. This brought the interest of investors, who are back in negotiation tables.
• Many institutional investors ask for bulk of apartments again. Last time I really dealt with strong interest about bulk of apartments was in 2008. In 2009 and 2010 we had random questions, but just few transactions (any exception simply confirmed the rule). Nowadays there are many investors who ask for 50 – 200 (or more) apartments to buy, targeting opportunities, but also willing to really conclude the transaction, not just to talk.
• There are too many clients complaining that they can not find good properties at decent price. This is a problem, but it can also become an opportunity. When there is real demand in an area, someone will come to offer solutions. It is inevitable. But for the moment let us keep in mind that there is demand indeed, which did not exist in the previous two years.
• The banks are more “flexible” than the near past. While in the past you kept on listening that “this is our price, if you can not pay it, we are sorry but the bank will not lose money”, now we hear also some bankers who quietly say “give me 60 – 70% of the mortgage and we will deal with the issue”. The age of insolvencies hides opportunities as well…
• The minority of developers with strong financial status expects a better 2012. This is why they don’t decrease their prices anymore, considering that the demand for properties will increase in the following months / years. Last one who stated something similar was Mr Tiriac himself.
• Some expensive properties have been sold, or maintained their prices. I know a very expensive residential development, where almost all the apartments are sold for 3.500 – 7.000 Euro / sq.m. This happened during 2009 – 2010. Many other High End properties managed to maintain their level of prices, some even found buyers.
• Some (brave?) banks discuss again about financing residential developments. I have friends who insist that this is true. Some of the top Romanian banks discuss about financing new residential developments. Just the news makes you feel better…