When speaking about Romania until mid-2008, the most popular topics included new real estate projects and spectacular transactions, but the promising market situation has changed significantly. Now, the same developers are scared that they will not be able to sell anything and that their cash and plans are blocked in previously promising investments. What really happened?
Most of the financial institutions, including the banking system, seem to be completely blocked, when it comes to construction loans and private individual mortgages. It is a direct reaction to the worldwide financial crisis, which tightened the banking crediting policy. The outflow of speculative capital and investors, whose impact on the price level development was extremely high, additionally boosted the pace of market changes. Many developers were dependent on the banking system and the current market conditions forced them to withdraw, to slow down some construction works or to postpone the delivery of their projects. Some of them decided to wait for better times to launch sales and construction. Days of prosperity for developers and investors are gone by now.
During the past month, developers started to increase their marketing and promotional activities, offering small price discounts, free bonuses or new payment facilities in order to attract buyers. Even though, the offer seems to be too expensive for the local demand. Combined with the more restrictive mortgage policy, it is difficult for an average citizen of Romania to get a credit.
On the other hand, buyers are expecting larger discounts in the residential market and therefore they are postponing their purchase decision for the moment of the largest price fall. Many articles in newspapers give a strong belief among buyers that the large price correction scenario is likely to happen soon. Still, the main problem comes from the mortgage affordability and, in fact, the financial system for both sides – demand and supply – seems to be the most problematic. Financing issues become currently the weakest point of the real estate industry.
Now we can finally see how the market and price growth expectations among buyers and developers were wrong. Many of those who announced never-ending price increases and incredibly high profit margins now are using grim phrases to describe the nearest future of this market. The flats sold off-plan are now re-entering the market with lower price levels than the developer’s offer. Many of the people and institutions which invested in new flats hoping for a price value appreciation, now desperately try to find a buyer offering the same price which they paid at the pre-contract. Again, this speculative activity has passed away and probably quite a few of them will lose some of the invested funds.
The ending of 2008 brings fresh but alarming news for the Romanian market. We hear about developers which are close to bankruptcy, stopped projects, and exemption in real estate related posts. Unfortunately, it may be not the end. Probably the same scenario will continue in 2009, which can be the most dramatic year for the entire Romanian economy, seriously affected by the international financial environment.
Being a little sarcastic regarding restructuring this market, at least some changes will be positive. Some market players will loose their self-esteem. Some of the developers, constructors and real estate agents will disappear from the market or reorganize, but the most professional developers and brokers will survive this storm and will keep providing good quality services and products for their clients.
It seems that times for making easy money have gone away and this will definitely not meet many people’s expectations and additionally uncertainty is the worst advisor., when it comes to make any decisions. This year’s prices, in face of new economic conditions, seem to be exceeding the market equilibrium. Finally, the Romanian residential market becomes more local-buyer oriented. As forecasted for the nearest future – everything will depend on the banking system. The financial issue will be the main problem to be solved by banks, government and market players. If there will be no buyers, even significant price drops during the next couple of months will not change the situation for the better. What remains promising in the longer term are good prospects for market recovery based on a low housing saturation rate, a vast backlog demand for housing and strong demographic fundamentals.
