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New Bucharest housing clashes with customer needs

Few new developments in Bucharest manage to follow the client demand from middle and low income families. Analysis by Corina Ilie

September 2010 - From the Print Edition

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Thirty-five year old marketing teacher Cristina Tanislav is married with a three-year old son and finding it tough to find a place to live in Bucharest.
She has been attracted to the duplexes valued at between 50,000 Euro and 80,000 Euro in areas such as Tunari and Domnesti, both in the suburbs of Bucharest in Ilfov county.
Although the prices are tempting, the access road to the city is in a dire state and the garden behind the house is small. More worryingly, the developer does not offer access to gas or central heating.
“The houses look nice, the area is quiet and my husband and I are both working and have enough money to buy a three bedroom house,” says Tanislav. “But the access road is terrible and it take us 45 minutes to get here from Bucharest at the weekends. Plus the fittings they use do not seem very solid and we have to invest a further 7,000 Euro in gas installation and central heating.”
Meanwhile Ioana Stoica, a 28 year-old nurse, married mother of a 18 month-old son, is having difficulties in the search for a new home. The only option she and her husband have is to purchase through the Government-backed First Home (Prima Casa) programme, where the state guarantees to a private bank to lend to first time buyers at attractive interest rates on a price of up to 70,000 Euro.
“Our parents helped us with some more money and we managed to get access, through loans and cash, to 90,000 Euro, but this is still not enough to buy a house outside Bucharest, not to mention in the city,” she says. “All we need is a two bedroom house, with a bathroom and a piece of garden behind, which should not exceed 90,000 Euro, but it is impossible to find.”
Despite a collapse in the residential market in Romania and prices falling at record rates, young low and middle-income families still find it impossible to move out of their Communist-era flats or away from their parents.
High rise buildings, sophisticated architecture, luxury finishes and prices that few Romanians can afford is what most new residential projects in Bucharest offer. The exterior design and the living conditions are tempting, but the prices are too high for the average Romanian, especially as their wages have declined significantly during the last two years.
Bigger than pre-1989 apartments, most new units are located on the outskirts of Bucharest, where the infrastructure is poor and the maintenance costs are higher, due to supplementary security and management costs.
At the opposite end there are developers who offer cheap dwellings, but they are either too small or the quality of the construction materials is poor and these may not offer a young family a suitable investment for the future.
In both cases the dwellings remain unsold for a long time and many apartment blocks are lying empty – at night passing by these buildings, they often look as though the electricity has blacked-out, while at weekends they are almost deserted.
Meanwhile developers keep wondering what they did wrong – when what is clear is that the supply of properties was always out of sync with the demand. “Most of the apartments developed before the crisis look very good from the outside, but inside they are completely useless and too expensive,” says Valentin Ilie, CEO of real estate consultants Coldwell Banker Romania.
Housing in Romania was created at a mass level in blocks between the 1960s and 1980s. In the 1990s the only developments completed were those that had begun in the Communist era. Some exceptions included top-of-the-range luxury villas and flats and state social housing.
But since 2000 developers flooded into Romania with a view to construct small houses in the suburbs for the emerging middle classes. A real estate boom between 2005 and 2008 forced up the price of land for these plots and many developers, hungry for high profits, decided to switch their plans and build high rise blocks. However these blocks tended to follow an ‘aspirational’ design suitable for a family on incomes that few Romanians could afford and using a cultural template which was not familiar to - or requested by - Romanians.
“We try to explain to the developers who ask for our advice that they need to take into account more the income and the needs of their target customers than their own architectural and design ambitions,” says Ilie. “They do not understand that Romanians do not want and cannot afford the same things as the Americans or the French. All they want is open, well partitioned dwellings, with simple design and simple but solid construction materials.”
This has left many of the new high-rise developments in Romania empty, while the most fertile area of transactions is between the Communist-era flats, because they offer what Romanians want at a price they can afford. The downside is that these have very few parking spaces and the resistance of the constructions to earthquakes is questionable, but they are located in good areas, usually closer to the workplace – and they are cheap. “Romanians prefer to buy three and four room apartments in pre-1989 buildings, that respond more to their space needs than two-room apartments in new buildings,” says Ilie.
Large apartments are not possible for Romanians. The marketing manager of US real estate developer Adama, Asher Lax says his company has specifically not built very large apartments, because they would not sell. “All Romanians want to have large apartments and high quality fittings, but few can afford to buy such dwellings,” says Lax.
Adama has only developed one luxury project, Evo Casa Selecta on Blvd. Ferdinand, while the rest of the buildings address the average Romanian, he argues. “Three years ago, when all the developers were building 120 sqm two-room apartments, we anticipated the moment when it would no longer be possible to sell them,” he adds.
Adama has ongoing projects in Bucharest and in cities such as Buzau, Bacau, Brasov and Ploiesti (Prahova county) and sells apartments that cost between 60,000 Euro and 130,000 Euro, which can fit into the Prima Casa (First Home) programme.
Lax says that in many cases developers used the high-quality fittings as an excuse to justify the high prices of the apartments. “We only use high quality construction materials, because the difference in price between low and poor materials is usually around a few tens of Euro, not more - but the difference between a good apartment and a low quality apartment is usually around 3,000 Euro,” says Asher Lax. “People do not need sophisticated, but quality materials. They need the windows and doors to close and the elevators to work well.”
Other developers, such as Romanian construction and development company Impact, sell apartments without fittings and which are not partitioned into rooms. The apartments are thus cheaper, but the owner has to invest some thousands of Euro to finish them. This can annoy some customers – especially if they were not expecting the ‘nakedness’ of the apartments once they are delivered, but can satisfy others.
“We paid 70,000 Euro for a 70 sqm apartment in the Greenfield project, close to Baneasa forest,” says married priest Sebastian Grigore. “The good news is that we can partition it ourselves and have three rooms or two rooms. Even if we cannot afford to invest now in fittings and we will have to wait for a while, we are satisfied that we can chose them ourselves, instead of paying for an apartment with fittings we may not like that much.”
However Valentin Ilie says that most developers want to build in the fittings to their projects and if possible work on the interior design as well. “This way they can use cheap and shiny construction materials and increase the selling price because they offer an extra bonus,” says Ilie. “This market in which a developer gives a unitary image to a residential complex and allows the buyer to do the interior design is not developed yet.”

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