The new Real Estate problem and its consequences: Building permits and other urbanistic documents are on hold
“I entered in an office, where many people used to work. Now there is just one person and he simply refuses to sign any document at all. But this is the good scenario, as you find someone to talk to you. In other cases, the office is just locked”.
The Romanian Real Estate market reached its bottom in 2013, as we had analyzed several years ago. In the second part of that year it stopped falling. In 2014 we felt that it was consolidated, then it started growing. This year we all understand that things are different and the prices have increased in some categories of properties. The market looks healthy and the potential is here, but a serious problem has appeared and “screams” for our attention. In many municipalities around the country the persons in charge do not sign building permits anymore, nor do they approve PUZ files etc.
The biggest anti-corruption campaign in the modern world
Almost 10 years ago, the citizens of Romania experienced the beginning of an interesting “social restructuring process”. Justice was reformed and young, “untouchable” prosecutors started combating corruption and crime, presenting to Justice and the media strong proofs that justified their actions. This has become massive. Leaving aside politics*, things evolved and in the last 5 years we see hundreds of politicians, businessmen or public servants being convicted for illegal acts.
This is the biggest anti-corruption campaign in the modern world during the last decades. Even if there are people complaining about what is going on and mention “possible exaggerations”, the overall message is that Romania has entered in a new era. Its citizens started feeling that they will be punished for possible illegal acts and that no one is above the Law.
The direct effects to the “local micro world”
We cannot accuse all people working in local authorities for committing illegal acts, but media inform us that there are plenty of cases in the courts. (Still, everyone is presumed innocent, until there is a final verdict on his case). This situation has direct effects in the “micro world” existing in municipalities and local councils. From Real Estate point of view, we notice that many people occupying key functions in the local administration (or having relations there) have been arrested or accused in cases related to building permits, PUZ files etc.
What is the result of this new situation?
- Officially “all remaining public servants are performing their duties”
- In reality there are many who are afraid to sign any document at all, delaying their actions to the maximum limit of the law (or even more, as it is rumored)
- Tens of Real Estate projects do not receive building permit or do not have their PUZ file being approved, even if their owners insist that all the papers are in order
- Unofficially, in many areas it is whispered that “you will need to wait until next year’s elections. The new administration will get installed and the projects will be unblocked”
The effects in the Real Estate market are already visible…
For some people this is just one more “power game”. But for the majority this is something that changes the rules of the game.
A.First of all, local authorities lose important revenues, missing from their budgets.
B.The lands benefiting from an already issued building permit have a major advantage in the investors’ eyes, as they can be constructed immediately
C.On the other hand, the majority of land owners do not invest in their lands. If a PUZ is needed… we talk about 6 – 15 months, depending on the city and the complexity of the problem. The building permit used to be easier to obtain, but this period things are blocked. So, owners of properties without permits will see their prices stagnating, if not falling for a period. Why? Because the investors (with real money, not the broke “parrots”) cannot assume how much time they need before to start building the project.
D.This real problem is not well-known, as 95% of Real Estate agents do not want to disappoint the owners and avoid telling them the truth (this is a different issue, of mentality)
E.Many properties will remain unsold, with owners wondering “why the investors do not proceed?”, while the investors will be thinking “why should I pay a higher value and risk to wait for years?”
F.So, there is a serious possibility for the stock of new apartments in some areas to be sold at higher prices (3 – 5% at least). The demand is solid, while the supply chain is already damaged and the competition is reduced.
G.Result: In a market with increased demand, when many public officials do not sign new urbanistic papers = land value stagnates or drops (except permitted projects) and new apartment prices will increase in some areas.
“What should we do? Stop the anti-corruption campaign, so as for the market to get back to normal?”
No, definitely not. The reshape of Romania is a procedure which offers benefits to everyone in the country. It is the solid basis for its growth in the years to come. It is very important to know that we are living in a place where the laws are implemented.
Instead, the mayors can focus more on this issue, create new teams and find legal solutions so as to evaluate each project. We expect by them to reject the ones that do not respect the urbanistic norms of the area and grant building permits or other approvals to the ones who are legal. If local authorities remain in the “don’t act, don’t assume” administration practice, the results will be felt by all the citizens (through lack of revenues) and especially the ones buying new properties in their municipality (higher prices).
What is your opinion?
* I don’t belong to any political party, I am not involved in the Romanian politics and all my comments do not hide covered messages or suggestions in favor of any politician. Here we talk about business, only.