The fat of the land

The Romanian land market is now stagnating because of high prices and the financial crisis. Analysts believe that in the second part of the year the market will start to recover, but partnerships for land will take the place
of simple sell and buy transactions

Matei Roman

Since the second half of 2007, the pace of land transactions in Romania has slowed down due to the instability gripping the international financial markets, with pressure  being added by astronomical prices, forcing developers to sit back and wait for better times. According to Colliers International, the total land area sold in 2007 in Bucharest, in terms of plots of at least 5,000 sqm, was app. 1.5 mln sqm, with a total value exceeding EUR 850 mln. Adding force to the slowdown in the buying of land, more than 70 pct of the transactions were closed before the summer. After this, the negative news coming from the international markets began to affect the volumes and the will of those who were interested in acquiring land for the development of real estate projects.

That aside, large international developers continued to be the most active buyers in the land market, while demand from speculative investors decreased significantly, signalling that the market is beginning to mature. “The speculative wave had to break up. It could not go on indefinitely. I think that the market will calm down this year,” believes Calin Clinciu, development manager of real estate consultant Euroest Invest. The big developers
– such as Raiffeisen Evolution – did not stop buying and paid huge amounts in order to acquire the desired plots. The Austrian developer – the real estate arm of Raiffeisen Bank – bought 11-ha of land in the northern part of Bucharest (the most expensive area of the city) for EUR 90 mln from oil company Petrom, in the biggest land transaction last year.They now intend to develop a mixed-use project on the site. “We trust the Romanian real estate market, which is why we didn’t hesitate to pay this money for the land. Moreover, being supported by shareholders like Raiffeisen Bank, we do not have any problems in finding the money we need. Smaller players in the market could experience such difficulties,” opines Markus Neurater, managing partner of Raiffeisen Evolution.

The second largest transaction was the acquisition of the Laromet factory site by Africa Israel. The group bought the 155,000 sqm plot in Bucurestii Noi for EUR 77.5 mln. The Israeli developer will build a residential scheme with 5,000 homes, for which the company will invest EUR 500 mln. Another record transaction was the sale of the Grivita site to an Israeli investment fund that paid close to EUR 73 mln for the 6-ha plot on Expozitiei Boulevard. Almost every plot purchased last year in Bucharest is going to be the site for residential projects, with the majority looking to provide housing schemes for the middle-class, considering the very limited offer in that sector. The local land market is dominated by foreign purchasers, mainly originating from Israel, Spain, Greece, UK and Ireland. Investors are generally looking to combine small plots in order to create larger sites, especially in the northern and western areas of Bucharest, where huge residential and industrial projects are being developed. An interesting feature about the Bucharest land market is the fact that the centre of the city accounted for only 1 pct of the volume of large transactions, while 13 pct was located in the western part – and leading the way were the eastern districts, the location for 19 pct of the total area sold. The cheaper part of the city, the south, continued to be inactive, with analysts expecting the first important land transactions to take place in the area later this year.

Old factory sites to battle for

Continuing the trend started in previous years, land supply in 2007 came mainly from the well-located sites of former factories relocating their activities outside the city, as a consequence of EU regulations and market trends. The supply came from industrial districts in the north and west of Bucharest. The crisis in available land in the centre has led developers to target sites close to the city limits, with good access and public transport. The reason why such plots are interesting for developers is that the sites are located near the ring road, with access to roads leading to the city centre. “Land can still be found in the city, but it is often afflicted by legal disputes and so on. This is the reason why developers have to move their activities outside of the city or to the old industrial zones,” explains Gabriel Zamfir, president of UNIM (the federation of real estate agencies). The most sought after residential properties acquired for this purpose are located in the city centre or within its proximity (the Traian, Unirii, Cotroceni, Floreasca areas), where developers prefer to build high standard residential and office accommodation.

Also attracting interest are agricultural areas. Accordingly to Atisreal, during 2006, around 110-ha of agricultural land in Bucharest had its original use changed, while app. 490-ha became designated as suitable for construction in the Ilfov district (outside the city).

Sebastian Guţiu, managing partner of law firm Schoenherr, believes that the nature of transactions is changing: “Transactions are becoming more and more sophisticated. Land owners will employ international structures and have holdings based in countries with a favourable fiscal environment.” In fact, analysts believe that instruments from the capital markets will be introduced, and that there will be more mergers and acquisitions. “It is probable that ‘forward-purchase’ transactions will dominate the market,” claims Mr Gutiu.

Prices cooling Đ but still strong

Last year, land prices went up by 300 pct in some areas, mainly because of speculative investors, who generally come from abroad looking to make a profit in emerging countries. There is currently a rapid turnover in the ownership of land, as most people realize that it is more profitable to sell than to develop. Colliers International’s analysts think that the economic growth and the large number of transactions that occurred during 2007 have created a continuing increase in land prices in and around Bucharest. A direct effect of this increase was the appearance on the market of sites with exceedingly high total sale prices, even in the range of EUR 100 mln. The acquisition of such a plot of land requires an additional investment of about EUR 300 mln for the development of the project and, so far, this has seriously limited the number of investors interested in such large projects. Despite all this, demand for suitable land is still high and is likely to remain so in the future. And developers will have to respond to this, pushing up prices ever further. ν