Romanian residential market: changes in the lower to medium price brackets

The National Bank of Romania (NBR) reintroduced limits for the maximum indebtedness levels for individuals or families seeking out consumer or mortgage loans.

These debt-service-to-income (DSTI) ratios are now at 40 percent for RON loans and 20 percent for hard currency starting 2019.

Specialists say that, for the residential market, the impact in terms of prices will be uneven, geared more towards the low and medium-low segments of the residential market.

Amid the new DSTI limitations that will likely impact demand, real estate consultants argue that residential sales were already contracting in recent months.

“Given the somewhat constrained market, this regulation will be relevant, but maybe a bit less than might seem at first sight. According to the central bank, the current average DSTI for the individual mortgage owner is about 47 percent (for a family with two children, it is close to the new limit, as per NBR data). However, the overall impact will be partly mitigated by the re-classification of disposable income”, says Mihai Patrulescu, Senior Associate Investment Services at Colliers International Romania.

Colliers estimates 2019 is likely to become a year of rebalancing of expectations from developers, banks, and potential buyers.

On the short term, the company’s representatives expect to see a resurgence in buying activity in the final part of the year, although they don’t expect this to stoke prices again.

Developers might be rather glad to cash in on their current supply given the prospect of curbed demand starting in 2019.

“On the medium-to-longer term, the impact in terms of prices will be uneven, geared more towards the low and medium-low segments of the residential market, not so much climbing up the price ranges. It will also lead to an increase in the rental market”, Patrulescu adds.

Real estate consultants estimate that the price difference between new and old apartments (not in central locations) will become much deeper than it is currently. Currently, Romania has the highest home ownership ratio in the EU, at well over 90 percent, but this will gradually decline to more ‘European’ levels over time, experts say.

Romania’s residential market still very attractive for buyers and investors

The Romanian residential market performs well despite several “bubble warnings” in recent years and some say it will continue to do so.

“It is a very attractive market for both buyers and investors, with Romania having one of the best yields in the region, over Poland, Slovenia or Hungary,” says Bogdan Oslobeanu, CEO at Impact Developer & Contractor, one of the most active real estate developers on the local market. He believes the challenge for developers is to become more competitive, more creative, and to identify those needs for their clients to get a comfortable and affordable home. Last year, around 50,000 dwellings were delivered on the local market according to official data, exceeding the average of the last ten years, about 40,000.

For that reason, Oslobeanu sees Romania as one of the most dynamic markets in the region and he estimates the trend will be continued.

“The most dynamic region remains the Capital, where significant economic growth was found in each of the real estate segments, including the residential segment,” he tells The Diplomat-Bucharest. “Around 10,000 new homes were delivered annually in Bucharest in recent years. Similarly, large cities in the country that are on an upward trend in terms of investment and growth are becoming more attractive from a developer perspective. In this category we see Timisoara, Cluj, Brasov, Constanta, and Iasi.”

In Bucharest there are about 20 medium to large residential projects in progress, with 5,000 dwellings to be delivered in 2019. More than half of the projects are in areas near office hotspots like Expozitiei, Pipera, Barbu Vacarescu, and Bucurestii Noi.

“I think that 2019 will be the year of complete residential projects, those that combine in a modern way all the elements of urban life with an emphasis on technological development and the creation of a modern and healthy lifestyle,” Oslobeanu concludes.

Israeli developer gets permits for “boutique residential project” in Bucharest

Israeli group Hagag Development Europe has received the building permit for the Victoriei 139 residential project, consisting of the consolidation and refurbishment of an old building located in the central area of Bucharest on Calea Victoriei Boulevard. The project has an estimated cost of ten million Euro and work is scheduled to start within two months, being completed in the fourth quarter of 2020.

The building has a total built area of 3,200 sqm and will include 33 apartments with two, three, and four rooms. The property also has prime high-street retail spaces.

“The renovation and consolidation of an old building often involve much more difficult work than the development of a greenfield project. However, we are talking about a building that is part of a community’s heritage, and the project is conceived and designed in a way so the edifice will preserve the original architecture, while the building will display an impressive lobby and street shopping,” says Yitzhak Hagag, chairman of the Hagag Group.

Demand for residential properties in Romania’s first-tier cities remains strong

Demand for housing in major cities such as Bucharest, Cluj-Napoca, Timisoara, Iasi, Sibiu or Constanta will remain high this year, so developers will continue to invest in new building, and prices will follow the same moderate growth trend seen in 2018, according to a report drafted by real estate consultancy firm Frames.

Developers are unlikely to reduce prices, the report shows. On the contrary, a stronger Euro, higher financial costs, rising prices for construction materials and a costlier labour force will likely increase prices “by a few percentage points,” but at a much slower pace than in recent years, the report also says.

The analysts explain: “Romania is subject to geographic polarisation more and more, from an economic point of view. Labour force migration from rural to urban areas has significantly increased the demand for housing, as authorities are delaying taking the necessary measures to alleviate regional disparities. Lack of investments in poor counties, low wages in rural areas compared to those in the urban areas and poor infrastructure will continue to cause Romanians to move to the city, particularly as the migration to Western countries is no longer as vigorous as in previous years.”

Residential property prices keep growing, but at slower rates

The average prices asked by sellers of residential properties in Romania increased by 1.6 percent in the last quarter of 2018 (Q4) compared to the previous quarter and by 5.3 percent compared to the same quarter of 2017, according to Imobiliare.ro real estate website.

The annual growth rate thus decelerated from 9.1 percent in 2017 (compared to 2016) and 12.4 percent in 2016 (compared to 2015), the analysis shows.

The price asked in Q4 of 2018 was still 27.6 percent below the average prices asked before the real estate crisis, in Q4 of 2008.

The residential rates have increased continuously since 2014 when they hit the lowest levels after the crisis. The steepest annual increase in 2018 was in the central Romania city of Brasov, where the average prices increased by 7.5 percent to 1,080 Euro per sqm. The highest rates are still in Cluj-Napoca, namely 1,530 Euro per sqm, after a 6.2 percent annual advance. In Bucharest, the average price hit 1,300 Euro per sqm after a 5.8 percent yearly increase.

Romanian residential property prices to fall by 25 per cent in two years

Real estate prices in Romania will fall by at least 25 percent over the next two years, according to projections voiced by Iancu Guda, president of the Association of Financial and Banking Analysts in Romania. Prices have increased driven by developers’ greed, he says, according to Stirileprotv.ro.

Guda says that renting an apartment “is now cheaper than buying a home” (in terms of overall, ex-post pricing, most likely) at a “much overvalued price”.

According to the official figures of the European Union, real estate prices in Romania increased by 40 percent in 2014-2018, this rate being three times higher than the EU average. Thus, Romania has the most accelerated increase in real estate over the last four years.

Guda concludes: “I think this increase is not justified by rising raw material costs and wages, the main argument that developers use when explaining why prices have risen. The reality is that prices have risen by 40 percent, twice faster than justified. Real estate had to be up to 20 percent. The 40 percent increase came in an opportunistic context, where developers took advantage of greed at a time when demand was higher than the supply. I expect that in 2019, 2020 at the latest, the price will drop by at least 25 percent to return to the right value.”

(From the print edition)