Looking back with envy

The Romanian residential market has been trying to catch up with its neighbours, but the financial crisis has hit developers hard. Analysts expect a lower rate of activity because of the lack of liquidity on the market. The most affected are new residential schemes, which are hard to finance and hard to sell

 

Matei Roman

 

The most significant trend recorded on the local residential market is the increasing number of offers of large residential projects that include hundreds or thousands of housing units, to keep costs at a tolerable level. The strategy might very well continue in the future, allowing developers to sell units at affordable prices targeted at middle-income customers. New schemes announced or launched at the end of last year, such as Cosmopolis, with 4,700 units and Bonaire (12,000 units), and both developed near Bucharest, are at the forefront of this trend. They are being developed over long periods – 5 to 7 years – and the value of the investments are close to EUR 1 bln each. “We have sold already close to 1,000 units of Cosmopolis, 25 pct to investors and the rest to end-users,” says Ahmet Buyukhanli, president of Buyukhanli Group – the company that owns the developer of Cosmopolis. As far as financing the project goes, Buyukhanli says that Opus Land Development has an agreement with Turkish bank Garanti for EUR 30 mln in order to start the scheme. After this the company will provide a part of the total investment, usually no more than 25 pct, with the rest being secured through more bank loans. A considerable sum of money has been obtained from a bank by British developer Copper Beech, which is planning to develop residential projects costing EUR 2.5 bln in Romania. They have secured a loan from Romanian bank BCR of more than EUR 500 mln payable over 12 years. Naturally, the company will provide a portion of the cost of the investment and along the way they will take more money from the banks. Another big developer, the Israeli-based European Future Group, intends to build a huge residential project in Buftea, close to Bucharest.“The value of the project upon completion will be above EUR 1.5 bln,” says Stelian Mitu, acquisitions director for European Future Group.

Some sell, some wait for better times

Even if there are successful projects, such as Rose Garden from Israeli company GTC or by Cosmopolis, the market is nothing to write home about. Old apartments are still selling the most, especially, because of the location and the fact that they are at the immediate disposal of the new owners. Furthermore, earnings in Romania are not helping the market. The purchasing power of the population and the sale price per sqm directly influence the required unit size and type of finishing. Most customers prefer to purchase one or two-bedroom apartments, while three bedroom apartments and semi-detached houses are currently less popular among buyers as demand is highly price sensitive. In fact, those that are selling homes in Romania are now forced to set the prices and the quality with great care. Romanian buyers have become more choosy, combined with the fact that the market is experiencing something of a wobble. Last year, reports showed that only 65 pct of the new apartments on the market had been sold, and less than 5 pct had been delivered. “There are problems on the residential market, but I think that they are going to be overcome by those who deserve to do so. The residential sector in Romania will continue to grow, even if that growth will be slightly hampered by the international crisis,” believes Alexandru Petrescu, partner and manager of real estate consultancy firm Esop Consulting.

After the crisis took hold on the Bucharest stock exchange at the beginning of the year, the Central Bank was forced to increase interest rates to 9 pct from the level of 8 pct a month earlier. The amount of equity required for a loan has also been increased to a minimum of 25 pct. “The rise in interest rates may very well mean that the customers who could get, let’s say, a EUR 100,000 loan from a bank, may now be forced to take less money and buy an old apartment which is cheaper. That’s why the market for new apartments could stagnate for a while,” believes real estate analyst Radu Zilisteanu. A similar opinion is offered by Greek businessman Ilias Papageorgiadis, managing director of real estate company More International Invest: “Today the residential market in Bucharest is considered a little frozen. Owners are asking for very high prices, which buyers do not want to pay. The news from the US and some other European real estate markets is bad, and this is why many investors have become more careful with their investments.” Besides, the increasing competition on the market is to the advantage of customers, who are likely to be offered a variety of financial inducements such as buy-back solutions, favourable terms for mortgage lending or other facilities (furnished rooms, several finishing options etc).

Different ways to pay

The standard purchasing method involves making an advance payment of 20 pct–30 pct upon signing the contract, 50 pct–70 pct in instalments during construction, with the balance paid at the delivery. However, one positive thing is that more have started to prefer alternative payment plans such as 20 pct–30 pct on signature of the pre-purchase agreement, followed by the balance on delivery. This is becoming more popular even though asking prices are approximately 5 pct–6 pct higher.

Something considered to be normal practice in a mature market is the assurance that any up-front payments will be refunded if the developer does not fulfil its legal obligations. In Romania, the buyer must pay for a written guarantee at a rate of 0.3 pct of the amount, payable every 3 months during the period of validity.

Projects to be delivered or close to completion include: Central Park, Quadra Place and City Center, as well as the first phases of Residenz, Baneasa Residential, Planorama, Terra and Confort Park. All 1,985 units within these projects have already been sold. “Approximately 30 pct of this new stock is owned by investors and sooner or later will be resold to end-users. Through buying in this manner, end-users have the advantage of being able to inspect the apartment, move in quickly, and of having the possibility to obtain a mortgage loan, using the new apartment as collateral,” considers Sorin Lacusta, residential manager for real estate consultants Regatta. Prices for the middle income level range between EUR 900 to 1,500 per sqm, whilst luxury schemes are sold at EUR 3,500 per sqm.

According to Colliers International in the second half of 2007, 11 new large schemes were launched on to the market, totalling 3,721 units in the first phases of development. Six of them are located in the northern part of Bucharest. With the increases in supply and personal incomes, as well as the greater variety of financing options being available, the number of units sold in new projects will probably rise, reaching approximately 10,000 units annually by 2010, while the total number of units delivered during the period will reach only 15,000, due to delays caused by labour shortages. Many Romanian construction workers have left the country in order to find well paid jobs in western countries. n