Google and 3 reasons: Why the Romanian Residential Real Estate market has potential
Google: Romanians want to buy a house
Our world includes 196 countries and even more territories. Each year Google publishes a map with the no.1 word in the google searches in each country. In the 2014 report, while in other countries people’s first concern is the cost of a cow, a goat or a BMW, Romania is one of the only two countries in the planet where people are mainly searching for a home!
This is unusual for a country that many people consider “still in crisis” (especially the majority of its citizens, who just looooooove complaining just about everything). But I suggest you to ask someone working in the country’s leading property sites: Their unique users have doubled / tripled / quadrupled in less than 4 years’ time. If you also ask them to tell you what people are searching in terms of property value, you will find out that not only the interest is strong, but also the budget for properties has increased.
So we have the demand for properties.
If you add the fact that the VAT on apartments will be 5% for properties worth up to 101.000 Euro, the appetite and the budgets are expected to further increase furthermore.
Mr. Isarescu has done his job well
Mugur Isarescu, Romania’s Central Bank Governor, has implemented a policy that has fundamentally changed the country’s financial direction. So in 2015 Romania experiences:
- Banking stability
- Extremely low interest rates (the key interest rate stands at 1,75% and can be compared only to very advanced economies)
- A procedure that grants loans based on criteria that protect the investor as well (at least in the residential sector). So people are not allowed to borrow money and risk their existence
- The necessary banking reserves and other banking obligations are at their lowest levels since the beginning of the crisis
- Many times we notice that there are banking products with even better terms than the ones of “Prima Casa”, a sign of health for the market.
- Loans in Euro are constantly reducing, in favor of loans offered in Lei.
- In the same time the end consumers are much more careful than in the past.
So we have stability in the banking sector, clear criteria, basic protection for the consumers* and precautious clients. The Romanian market is not perfect, but it is at its healthiest state during the last 25 years!
Banks: Yes for housing loans, “skeptical” for financing of residential developments
But while the banks are willing to offer housing loans to end consumers, they remain very skeptical when it comes to financing of residential projects. For every 100 files that reach their corporate financing departments, less than 20% get approval. Another 20 – 30% remain “under discussion” for a long, undetermined period of time, while the rest of the funding requests are rejected based on various arguments. This is why there are many more discussions than real projects implemented, especially big sized ones.
In parallel there is the market of small blocks with 10 – 25 units built by a local / foreign developer. Usually he does not access bank financing. He uses his own cash and in many cases works with the advance payments of his clients too. If you check this market, you may be surprised to notice that the prices have already risen 5 – 10% in several areas, or that developers refuse to negotiate due to strong demand. (Between you and me, in this category we also find the majority of the investors who bid with higher prices for lands nowadays).
So the market grows but without the banks to boost it (= no bubble ahead).
The problem with the authorities and the permits
While the market has recovered, not all the plans will be realized according to the investors’ wishes. Even if they secured the lands they eyed for a period, even if they prepared a super project, or got pre-financing approval and interest by clients, there is a potential problem waiting for them to deal with: The majority of people in public authorities (especially municipalities) simply refuse to sign the permits of a Real Estate project, or they delay enormously. Effectively, in the last months too many new projects are on hold.
So let’s summarize:
- We have demand
- There is financing for this demand
- Meanwhile the financing of the supply is limited and the number of permits signed is restricted.
- So we will not have tens of thousands of new properties entering in the market simultaneously during the following years.
From all the above, I understand that:
- We have a healthy market, with potential for the years to come
- The prices will not skyrocket in a short period of time
On the other hand, in some areas the prices will rise due to the rules of supply and demand. But for this issue and the 2 directions of the Romanian Residential Real Estate market we will discuss next week!
What is your opinion?
* I know, there are also many problems in the banking sector, I can also complain about several issues. But here we are checking the overall picture.