about us | newsletter | contact | archive | members area
Bogdan Nitulescu, Tremend
Cryptocurrencies volatility is a big problem»
  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
'.$nr_comm.' comment:
'; } else { echo 'There are '.$nr_comm.' comments:
'; } while ($row = mysqli_fetch_array($result, MYSQLI_ASSOC)) { echo '
'.$row['nume'].": on ".$row['data']."
"; //echo str_replace('\n','
',$row['comentariu']); echo nl2br($row['comentariu']); echo '
'; } ?>

0 Comments  |  7026 Views
Daily Info
Smart city is not a fad, it's a necessity

In June 2018, the ranking of the most "smart" cities in the world was published. In other words, the most advanced cities in terms of human capital, social cohesion, the econo...

Ondrej Safar, CEZ Group: "Romania can become a hub for international smart solutions providers"

"We are already in the digital age, so the upward trend of implementing smart solutions is inevitable in all areas," he tells The Diplomat-Bucharest. "Especially in terms of u...

Telekom Romania, a strong supporter of Smart City development in Romania

Just like many other countries in the world Romania is now facing an unprecedented growth of the urban population, which can be both beneficial and detrimental for the society...

In the industrial era, the fight was for finite material resources. Not anymore

Now organizations fight and develop themselves for and around their talent. In a nutshell, getting ahead in today's business world is all about attracting and inspiring an e...

Richard Sareczky, Mol Limo: "We look at expansion locations across CEE including Romania"

Consumer mobility behaviour is changing, leading to up to one out of ten cars sold in 2030 potentially being a shared vehicle and the subsequent rise of a market for fit-for-p...

 
 
   
advertising

advertising

advertising

More on Features
Romanian business - Flexibility and agility in a high-potential market

It's anniversary time, with Romania celebrating its national day at a time when its image is coming into serious question at an international level. This month is also an a...

1 Comment

Telekom Romania, a strong supporter of Smart City development in Romania

Just like many other countries in the world Romania is now facing an unprecedented growth of the urban population, which can be both beneficial and detrimental for the soci...

1 Comment

Smart city is not a fad, it's a necessity

In June 2018, the ranking of the most "smart" cities in the world was published. In other words, the most advanced cities in terms of human capital, social cohesion, the ec...

1 Comment

Ondrej Safar, CEZ Group: "Romania can become a hub for international smart solutions providers"

"We are already in the digital age, so the upward trend of implementing smart solutions is inevitable in all areas," he tells The Diplomat-Bucharest. "Especially in terms o...

14 Comments

In the industrial era, the fight was for finite material resources. Not anymore

Now organizations fight and develop themselves for and around their talent. In a nutshell, getting ahead in today's business world is all about attracting and inspiring a...

1 Comment

True hospitality in Bucharest

Interview with Lior Bebera, General Manager InterContinental Bucharest

1 Comment

Richard Sareczky, Mol Limo: "We look at expansion locations across CEE including Romania"

Consumer mobility behaviour is changing, leading to up to one out of ten cars sold in 2030 potentially being a shared vehicle and the subsequent rise of a market for fit-fo...

1 Comment