about us | newsletter | contact | archive | members area
Hans Klemm, US Ambassador to Romania
"The Romanian economic environment has tremendous potential,"»
  Features:      COUNTRY FOCUS   |   SECTOR ANALYSIS   |

Sub-prime waves not yet crashing on Romania

James Stewart, vice-president, Treasury and Capital Markets Division,Raiffeisen Bank Romania, analyses the impact of the US sub-prime crisis on international investments in Romanian real estate

May 2008 - From the Print Edition

The US sub-prime crisis that began last summer resulted in important disruptions in the international credit and capital markets. This did not have a direct impact on the Romanian economy as there are no important linkages with the US economy in the commercial or financial sectors.
However the US sub-prime crisis saw an increase in risk aversion on the international markets and this was reflected in a reduction in the appetite of international investors for Romanian assets.
The large domestic macroeconomic disequilibria - especially Romania’s large current account deficit which reached 14 per cent of GDP in 2007 - received more importance in foreign investors’ decisions regarding investments in the Romanian economy.
This was reflected primarily in the financial markets, where the leu depreciated rapidly in the last half of 2007 and stock exchange indices plunged. Up to date, the real estate sector has not been affected too greatly by turbulence from the international markets. I don’t exclude some negative impact in the next quarters as the Euro Area economy, the main trading partner of Romania, is expected to slow down by the end of the year. But I think that the impact will only be marginal.
In the last few years, Romanian real estate has received much attention from foreign investors. High yields and rapid increases in housing prices offered huge profit opportunities. Demand for houses and flats remained strong, especially in economically active cities like Bucharest, Cluj-Napoca and Timisoara. Many people wanted to improve their living standards, as dwelling stock per capita is low in Romania and their revenues have increased. The rise in housing prices was largely a facet of the real convergence of the economy and the readily available mortgage money from banks. High demand in the market also triggered an increase in the supply, resulting in a booming construction sector.
During this period, the financing of the activities in Romanian real estate was dependent on funds from abroad. This is because funds that invest in the real estate market usually have their money in Euros or USD, developers obtain part of their funding from foreign banks and banks which support the retail mortgage lending received a lot of their financial resources from abroad.
The US sub prime crisis had a strong impact on international credit markets and this was reflected not only in an increase in interest rates and borrowing costs, but also in an increasing difficulty in obtaining funds. This also happened to Romania. For instance, this time last year the credit default spreads of Romania, which reflect the country risk premium of lending to a nation, were below 20 basis points. Currently this spread is approximately 65 basis points, roughly a three-fold increase. The banks that rely on the funding that they receive from abroad had to pay more for funds they received from their mother banks and other financial institutions. This resulted in many banks increasing their lending rates.
There was also an increase in borrowing costs in domestic currency after Romania’s central bank started to increase the monetary policy rate to fight against inflation and encourage savings by the population. This increase in the borrowing costs and the leu depreciation decreased the ability of households to borrow and will most likely result in the slowdown in housing loans - although this has not happened up to date.
Also there were some international investors that reportedly scaled down their expectations regarding the revenues from the real estate projects and postponed some projects.
Unfortunately there is no official information about the prices of transactions on the Romanian real estate market and this reduces the transparency of the market.
But different sources suggest that the growth of prices has slowed down in the first quarter of this year. Although these developments may not be directly related to the crisis on the international market, they might suggest that the rapid growth in prices seen in the last several years will slow in the interim.



COMMENTS
There are 0 comments:

 
ADD A COMMENT
 
Name
Email
Comment
Validation Code
   
 
 

0 Comments  |  5013 Views
Daily Info
Poland, Bulgaria and Romania have the lowest prices for meat in EU

Denmark had the highest prices for meat among the European Union (EU) members states in 2016, by almost 40 per cent higher than the EU average, while the lowest prices were fo...

Fondul Proprietatea accuses corporate governance weakening in Nuclearelectrica

Fondul Proprietatea warns of weakening of corporate governance in Nuclearelectrica, regarding the two new points proposed by the Ministry of Energy in the convening notice of ...

evoMAG estimates 20 per cent sales growth at new school year start

Online retailer evoMAG announced the launch of the campaign 'Back to School' between August 22- September 3, and estimates a 20 per cent sales growth compared to the previous ...

Vienna Insurance Group posts 221 million Euro profit in the first half of 2017

Vienna Insurance Group reached a profit before taxes of around 221 million Euro (9.6 percent increase) in the first half of 2017, with all figures showing improvement, a press...

Commercial property investments in Romania reached 530 million Euro in the first six months

In H1 2017, the total volume invested in commercial property in Romania reached 530 million Euro, compared to 370 million Euro during H1 2016, a 43 per cent increase, accordin...

 
 
   
advertising

advertising

advertising

advertising

advertising

More on Features
French investments in Romania: Building on solid foundation

France and Romania became business partners in the early '90s and since then the bonds have been built on trust and mutual commitment. Currently, French investors have gain...

US investments in Romania: Tremendous potential

One of the fastest growing economies in Europe, Romania is an attractive market for foreign investors in several industries, with potential yet to be developed. The Diploma...

Future challenges for Romania's energy industry

With a National Strategy draft still to be approved, Romania faces many challenges regarding the energy market to find a way for major investments that are critically neede...

Transport and Logistics: Plenty more to come

The vacancy rate for logistics and industrial spaces in Bucharest is close to zero, with low deliveries of new projects and high demand in the first quarter. According to d...

Liceul Teoretic International de Informatica Bucuresti - An authentic model of education

In every family, the problem of choosing the best school is essential and argued about for a long time because school years are defining for the development of the early ad...

Coaching - a journey one must never underestimate

If you are passionate about your work and you welcome challenges, but your company does not offer you any opportunities to grow, then you know it's time for a change The y...

Orange Romania: Two decades of growing innovation and leading the digital transformation

Interview with Liudmila Climoc, CEO, Orange Romania