The healthiest Real Estate market that Romania experienced since 1990. Advantages and challenges ahead

2007

– “Hello, Ilia, how are you?” (a major banker on the phone)

– “I am fine, sir, how about you?”

– “I have here someone who has just transferred in our bank 2 million Euros. The money arrived yesterday, he has come today and he is leaving the day after. He wants to buy something today or tomorrow with this amount. Do you have any good opportunity?”

– “In which sector?”

– “Anything that may give him profit, this is what he says”

– “And he wants to sign today or tomorrow or to check?”

– “To sign…”

– “In front of a notary?”

– “Yes, this is the only way”

– “I am sorry, I cannot serve him”

– “At least meet him!”

(I met the gentleman, who did not understand that we don’t buy properties like that. Of course another lovely “professional” appeared, “gave him what he wanted” and absorbed his money. Nowadays he is upset with Romania, claiming that he was tricked here, while I tell him that Romania is not to blame if he trusted the first liar who served him the lie he wished to hear…)

2015

– “You know… I am expecting a bubble in the Romanian Real Estate market…”

– “On what grounds do you base this expectation?”

– “Too many projects are built…”

– “But the prices of new apartments are increasing very modestly. If there are new projects, it is more possible to have competition than the prices to explode…”

– “Too many investors are buying…”

– “Too many investors are CHECKING, the transactions are not so many”

– “The Foreign Direct Investments are up this year by 40%…”

– “Yes they do. But they are 60 – 70% lower than 2007 or 2008. Don’t forget that in the period of 2004 – 2008 Romania welcomed some 40 billion Euro Foreign Direct Investments, while in the period 2011 – 2015 Romania welcomed less than 10”

– “The banks give loans…”

– “To the eligible ones, with strict criteria imposed by BNR. Don’t forget that in the same 2004 – 2008 period tens of banks opened or expanded in the country, giving loans of another 40 billion Euros. We both know that this is not the case today”.

– “Ok, I just said my idea, I am sure that the market will explode”.

– “In the end of 2007 I was telling you that in 2008 the market will stagnate or fall and you were making fun of me. When you burn yourself with the soup, you tend to be very careful even with the yoghurt but I'm not sure you know this proverb…”

The healthiest Real Estate market Romania has ever experienced in the last 25 years!

The Romanian Real Estate market stopped falling during 2013. Since then it has consolidated and started recovering, with some sectors witnessing price increases. Still, today’s Real Estate market is most probably the healthiest market that Romania has ever experienced in the last 25 years! This happens because:

• We already experienced the bubble of the past and too many people are very cautious (especially the end-buyers)
• The National Bank of Romania carefully controls the evolution of loans (despite what many people say, I remain a strong supporter of the Governor Mugur Isarescu).
• The prices grow but not so much and not in all sectors and only based on the demand.
• 95 – 99% of people who invest in Real Estate buy for a reason: Either they want to cover a need (new home), or invest their money instead of leaving it in the bank (small investors) or invest in bigger projects with healthy criteria (project developments). You don’t see people who just “buy something, because they know that the prices will rise”.
• Banks don’t finance ANY development, but carefully selected ones
• In many cases, the serious players are rewarded with success; while (even in this market) there are developers / projects who fail… this is a healthy sign.
• The interest for properties is solid and fueled by many objective reasons.

All these are signs that the market is in its healthiest state since the fall of Communism back in December 1989!

Challenges ahead

Not everything is resolved though. Actually we are far from a “perfect” situation. We are in the best moment we have ever been, but now it is the time for Romania to enter in a new, more mature phase. There are several challenges ahead, especially as there is not any major “planning” for the market’s direction.

• The properties whose owners have papers in order are very few
• The mentality of a big part of the society is still wrong: There is no real respect for the end-buyer or the investor.
• The level of expertise by the Real Estate “experts” is the same like in 2008 (because some people were educated, while many good professionals are not consultants anymore)
• The quality of construction in some projects is at the limits (if not lower) of the law, while authorities don’t really do something about this
• The banks still have thousands of properties in their portfolios, without having cleaned them up.
• There is no legal frame that protects every participant in the market (and no will by the participants to create such a frame).

Let’s leave aside feelings and let’s talk seriously about a market full of potential!

The Romanian Real Estate market is a very promising one! But not promising like in the past, when people expected to double / triple their investment in months. Now we talk about healthy growth and a long term positive cycle. Now it is more about “decent yields” while there is also the possibility for a property to lose value. If the area of the property does not have potential or if it was bought without careful control, the risks are here. So there are several challenges ahead and many things that need to improve / change.

In case you agree, let’s leave aside the feelings (you know, in this part of the world many people love being sentimental even about money issues) and let’s talk about the market and its potential!

As of next week, we will start analyzing in short separate articles one positive element and one challenge that the Romanian market is facing. Your point of view will be more than valuable!

What is your opinion?