Stop playing with the investors! There is no reason for apartment prices to rise due to “Prima Casa III”
Hello and have a nice week everyone.
Last week we started listening news regarding “Prima Casa III” and the fact that its funds are running out. It was announced that the daily number of applications rose from 40 to 70 – 80 and that the available amount of 200 million Euro will finish during the following weeks.
What is interesting with this news is that it is combined with “analyses by experts” who claim that “this fact will rise the prices of apartments”. Nothing less true than this!
Some people continue trying to play with the investors!
I personally have no problem at all with the level of prices. They can go up or down, as long as this change will be the result of demand and supply. I have analyzed to you this mechanism, many times till now.
But I notice that there are lots of people who pretend to ignore this mechanism. They seem to be always ready to play with the investors. When there is no interest for properties, they try to block the evolution of prices, practically blocking themselves and freezing the market. And when the investors appear again, they immediately try to create the right environment in order for the prices to rise, for a “race” to start.
Who are the investors of “Prima Casa”? They are investors to whom we should pay special attention
We should respect all investors, this is obvious. They put their money in the economy, moving the whole system. But there is a category of investors to whom we should pay special attention. I speak about the investors of “Prima Casa”. Who are they?
- They are young,
- Usually this is their first investment,
- They are not very familiar with the “mechanisms” of Real Estate, as they usually have their own occupation,
- They are “end users”, the final users of the property. This is a huge difference comparing to an investors who buys a property for other purposes than occupying it,
- They are ready to do some compromises / sacrifices, in order to find what they are looking for or what they can afford.
Young people who want to start their life by investing in a property are big part of what I call “the healthy future of this country”. By trying to trick them, we simply break the knees of the country for the years to come.
End of “Prima Casa” doesn’t mean “the end of the world”
I see some people who try to convince the investors to be in a hurry to buy “any property”, in order for them to apply on time for “Prima Casa”. But why?
- “Prima Casa” will be again next year, if not to be extended this year as well.
- Many banks prepare similar programmes, in order to absorb the confirmed demand for housing loans.
This is not “the end of the world”. And we should never invest in properties being in a hurry.
Prices have no reason to rise due to “Prima Casa”
I have heard lots of stories and “analyses” regarding this issue lately. So let us put things in order…
- “Prices rise as thousands of people run to buy properties for “Prima Casa”. No, wrong. There are thousands of people being interested, but just a small part of them can really conclude a transaction.
- “Prices rise because “Prima Casa” will end soon and people want to benefit”. No. If this is correct, then it means that once “Prima Casa” is over, the prices will collapse. (Ah, sorry, I forgot, the mechanism of the market should work only upwards…)
“Prima Casa” shows us the opposite: That the demand is weak without help by the State
Instead of lying to each other, trying to invent arguments in order to trick potential investors (and block the market for much more), why don’t we try to realize a simple truth?
The demand in Romania is still weak. Without “Prima Casa” the prices would be around half nowadays.
So “Prima Casa” simply sustains the existence of the market and a level of prices which allows to property owners to reach a significant price, helping the buyers pay it.
This is my opinion and for the moment I have not heard any strong arguments which justify the opposite. What is your approach?
Cristi Jul 21, 2011
I think that your are the only estate agent that speaks openly the truth about the market. Congratulations for that !
Everyone else is just trying to lie, to scare your people into buying.
I want to dray your attention to an aspect that has been overlooked by almost everyone speaking about real estate: Demography.
Everybody mistakenly thinks the economic crisis is to blame for price falls.
The Peak in 2008 is based on the explosion of new borns after 1985 up to the period when abortions were allowed in 1990. These newborns lead to marriages about 20 years and create pressure on the market.
That's because for them life trully starts after high school (or after college if they continue their studies) and they come into contact with real estate by either buying or renting.
Since 1990 births dropped by about 40% and sure enough 18 years later, that's 2008(when they graduated from high school) the real estate market started declining from lack of demand.
Since most of the mortgage loan customers are made up of heigher education individuals we have to wait until 2011 for them to finish college also to see big decreases(as you may know most of the faculties have a 3 year plan).This year will be the first when the students coming to Bucharest will be less than the students graduating(and thus leaving the city).
My guess is that the first decreases will be on rents and owners will see the decreases and try to sell fast but they will not have buyers. It will be an interesting summer.
This effect (price fall because of decrease of youngsters) will be cumulative for each year and will trigger even bigger decreases yearly.