|Posted by Institute of International Relations and Economic Cooperation on February 29, 2016 at 5:35 PM|
The Law on Giving in Payment is making murky waters on Romanian real estate market and is creating powerful pro and against camps every day more vocal, but unfortunately less and less based on economical date and more on sentimental reasons.
In order to address this fundamental issue: what will be the impact on commissioning law on real estate market? The Institute of International Relations and Economic Cooperation organized on 29 February 2016, the annual conference dedicated to the housing market in Romania.
THE ROLE OF REAL ESTATE MARKET IS TO PROVIDE HOUSING AND NOT EXUBERANT PROFITS TO SPECULATORS
In the opening remarks of the conference Prof. Dr. Anton Caragea explained the importance of real estate market:
We must comprehend the fundamental truth that : the real estate market is not dedicated to the big business sharks, to the speculators or to hit and run economic actors, but the real aim of this market must be to offer housing to those in need not profit to real estate moguls.
Or this is exactly the hitting point of the hammer of the law, the great real estate speculators, who aim at taking profit after profit, that are speculating on housing, they will be the victims, while the persons in search of house for living, for building a family, they will be in advantage.
Is normal that the prices will abruptly go down, and this is a perfect solution for the real estate market because the prices must not be dictated by speculators and riff raffs but by the real economy and this is demanding a reduction in prices by 50%.
This will exactly the outcome of the Giving in Payment Law: will bring normality on housing market.
The real image of Romanian housing market: old, shabby houses, energy deficient and costly.
On the venue of the conference where brought together: real estate agents, bankers, property experts and evaluators, brokers and real estate funds from Romania and EU and economists.
The debates started with the highlights of the latest evolution`s and drop in prices on real estate market in Romania during 2015, the most prominent bankruptcies in the real estate developers and the factor leading to a continuing devaluation of the market prices for 2016.
2015: THE REAL ESTATE PRICES TOOK A PLUNGE OF 15%
During last year, according to the figures presented on the conference, the average price reduction was around 15%, as a medium calculation, with highest mark for villas and houses going towards a 25% reductions, one of the most serious drop since the economic crisis hit Romania.
Despite this optimist signs of price reductions, all the experts underlined the fact that: prices are a long way to go before they reach the normal prices range.
2016 will mark new prices reductions until the real estate will register a 50% decrease from present day levels.
The tendencies on the market are putting the correct price around 200 Euro per square meter, the just price for Romanian market.
A highly interesting statistic proved that: who signed a contract last year to buy a propriety has already lost 20% of his investment.
New significant drops in prices (around 50% of present day marks) are just the tip of the iceberg and will have to continue in the next period, if there is to be a chance for the market to be stabilized and the investment in real estate to become one more time attractive and efficient.
From an initial value of 1.200/1.300 euro per build square meter, the prices have dropped by the year-end, towards 650-450 euro per constructed square meter, but are a long way to go until normal prices, requested by the market, will come back on Romanian real estate.
2016: THE INDEX OF PRICE IS INDICATING A 25% REDUCTION IN PRICES
The real estate market will continue the downward spiral in 2016, accelerated by the economic crisis and low-income, with the greatest devaluation registered for the rural based property and on secondary or vacation house market and provincial cities where prices will decrease by 80% while the depreciation will rich figures of around 40% to 50% on premium real estate objectives in Bucharest areas.
The prices are expected to fall below 200-250 euro per constructed/ square meter in prime areas of Bucharest real estate.
The housing market prices have one direction: Down and quickly!
The drop in prices is driven by the ongoing banking crisis, the powerful economic crisis, the reduction of incomes, the shrinking in number of banking institutions available to offer real estate loans, the spike in banking interest rates, dramatic decrees in investment, drastic reduction in real income for majority of Romanians, unfavorable economic prognosis, ongoing economic crisis and also decrees in foreign investments and in revenues from Romanian working abroad etc.
To this long list of negative trends we can add the 120.000 new flats, houses and villas that will be placed on the market by the banks in the foreclosure process.
They were expected to flood the market from 2015, but their apparition was bogged down by law complication and lawsuits but eventually they will start emerge from banks portfolios on the market bringing severe corrections to the prices.
This new properties will be presented on the market with reduction`s in prices ranging from 50% to 25% percent from the initial announced price.
The banks presented list of property with starting prices ranging from 15.000 to 20.000 euro for one room flat, to 25.000 euro per two rooms flat and around 35.000 euro for three room flats.
The mansions and villas are sold at pricing ranging from 35-40.000 euro per 200 squared meter’s villas in high luxury areas and as low as 20-30.000 euro in secondary areas.
The prices for land in Bucharest area already dropped with 50% in 2014 and will furthermore decrease with 50% this year, reaching finally the 50 euro per square meter in central areas of Bucharest, a price that will allow re-emergence of developers on the market on the next years.
On the list of economic developments, on the real estate market, that are impacting downwards the prices were highlighted: a drop in population real income by 30% in 2014/2015, this had impacted drastic the number of real estate buyers, banking system is engulfed in crisis and choked by low-commercial value properties; the average real interest for real estate credit is around 20% which is making the cost of real estate credits unsustainable.
We can safely conclude that: taking a real estate loan in this period is the path towards bankruptcy and foreclosure for 90% of the clients.
Borrowing today ! Bankrupt tomorrow! was the bitter joke of the bankers, which confessed that banking system is in a vicious circle, until the prices will reach the 200 euro per square meter mark, until this moment the loan market is blocked.
WE HAVE HOUSES! BUT WE DON’T HAVE BUYERS!
2016 is presenting a market under siege with offers and with no buyers interested.
This year will enter on the market like a flood: over 50.000 hectares of prime land and a new stock of 3.000 villas and mansions in areas as: Colentina, Bucurestii Noi, Pipera, Baneasa, Damaroaia etc.
This avalanche of real estate`s will be sold on the market at prices below 50.000 euro per property and will push toward collapse the luxury real estate market.
Another interesting factor that emerged from discussion was the fact that: this year the offers are reaching 50% from the asking prices, while the norm on the market was a difference between 10 to 15% but today the gap has go down to at 50% of the initially estimated price.
Chief Economist Mihail Raceanu underlined again and again the fundamental truth that: real estate market cannot operate outside the negative climate of Romanian and EU economy.
The real estate market is intricately connected with the decrease of average wage and real income per person and the economy status.
The price per square meter, in prime real estate areas, cannot be over medium salary value by more than two times.
As in Romania the salary is around 150 euro monthly, the price per square meter cannot exceed more than 300 euro, as a matter of economic sanity.
It a clear axiom of economic sustainability, you are breaking it; you go out of business, concluded Mihail Raceanu.
The market will restart if we will reach the financial comfort zone around 200-300 euro’s per square meter.
This is the hard to swallow truth: who is not cutting rapidly the prices remains excluded from the market.
50% to 60% REDUCTION IN HOUSING AND VILLA MARKET SECTORS.
We have entered now in the eight year of the housing crisis and we have to logically be prepared for another eight year for dropping prices as normality on the market is the United States expert’s opinion.
Crisis is today economic normality!
The developers in the areas of villas and houses concluded that this area will continued to be severely hit with drastic reduction of prices during 2016.
The main reason is the fact that: economic crisis had dramatically reduced the number of interested players for buying this type of real estate, corroborating this with decreasing rental market and drastic reduction in number of companies interested to rent such large spaces for offices and the growing expenses to maintain such a property, had gone up impressively, all is worsening the perspective for this type of properties.
The new taxes and fiscal obligations are hitting hard on the owners of luxury estates and the maintenance cost are rising rapidly on gas and heating tabs.
This type of properties is the most vulnerable for banking foreclosures and sell on the market at prices below 50.000 euro such villas can help the banks to cut their losses.
During this year areas such as: Mosilor, Pipera, Baneasa, Tunari, still offer the possibility to be sold around 50.000 euro, the rest of the areas of south and east of the capital (Damaroaia, Berceni, Timpuri Noi, Colentina), are completely unfit for marketing and selling because of the inexistence of interested buyers.
The portrait of housing buyer: bankrupt and on the street!
YOU BUY! YOU LOOSE!
During 2015 the same order is playing in the real estate market: you bought, you lost!
From the moment that you ink the deal, the real value of your house has gone down by 20% and will continue to dwindle.
Understanding the real estate market evident lessons is a major step: the internal market with a dwindling number of buyers and unpredictable income is blocking any major acquisitions and foreign investors are NOT coming to the market.
Nothing will change until the prices are reaching the 200 euro mark per square meter.
No investment in Romania is possible at current prices of 400-500 euro per square meter as long as similar opportunities are to be found in Austria, Hungary, Greece, Turkey or Bulgaria but at prices below 100 euro.
In this moment any buyer of Romanian properties will lose big and heavy, concluded the panel of experts present at the conference.
All the hopes are concentrating on the rapid implementation of the New Fiscal Code of Romania that will force by huge taxes and levies the owner to rapidly sale their property or face foreclosures.
Thus will bring the prices to the reality of 200 euro target of real estate market.
The Law of Giving in Payment in marking a step in the right direction towards bringing equilibrium of the real estate market and signaling that the time of housing speculators in rapidly nearing his end.