Dust off the Welcome mat - Residential projects on the rise

Romania's residential real-estate sector continues to hit a home run this year, after 2014 registered record sales volumes and new stock entered the market. More than 3,300 units are expected to be delivered by the end of the year and part of them are already sold even before the construction authorizations are released. The Diplomat's Alexandra Lopotaru talks to important consultants and developers to see how long the enth

2015-06-13 19:35:22 - From the Print Edition

As Romania′s real estate industry is trying to push from behind all its sectors to rise to the surface, a particular segment seems to have found new development fuel. The residential compound section, the arm of the real estate industry that was the first one to cool during financial crisis, is the last one to revive. After many years of sluggish progress, the new residential market proved to be the star of 2014 and continues to be the centre of attention in 2015. Many investors resumed their developments or started new projects on lands they had in stock. Demand is ascending, banks switched position and are more and more interested in financing such projects, while the ′Prima Casa′ programme, with an approved budged of 2.5 billion RON (around 563 million Euro) for 2015, continues to be a life buoy. However, experts hope that the enthusiasm in the market will not lead to a ′mini-crisis′ and will keep the same path in the next period as well.

Residential stock reached over 26,000 units at the end of 2014, marking an 18 per cent y-o-y increase, according to a report by Colliers that concentrated only on projects that have more than 100 units. This has been the largest addition to the inventory since the financial crisis, reads the report. Most of the new deliveries were generated by the existing projects such as Militari Residence, Cosmopolis (Northern Bucharest), Vitan Residence (Mihai Bravu area) or Confort Urban (Rahova), while close to 700 apartments were completed in large scale projects just entering the market such as City Point (Aviatiei), Timisoara 58 or Onix Residence (Grozavesti).

This year, however, more than 3,300 units will enter the market, part of them being sold, and next year the trend will continue. Cosmopolis, developed by Turkish-based Opus land, plans to add another 500 units by the end of the year. RPF Development, the developer of Vitan Residence, finished early this year the second phase of Vitan Residence 2 - 85 apartments - and will start the construction of another two buildings this summer. Spanish-based Hercesa will invest five million Euro in the third phase of Vivenda Residence starting August-September this year. Although the luxury market is less than five per cent, activity in this sector is also noticeable: SKV Properties invested 30 million Euro in an 80-apartment building near Herastrau park, where the most expensive apartment costs two million Euro VAT included.

Complementary to the stock delivered in large scale projects, smaller developments proliferated in 2014, reads the Colliers′s report. Developers, usually local players, chose to build 30 - 60 unit projects throughout the city, in areas with good subway access. Berceni and Popesti Leordeni attracted the largest number of such players with semi-central areas coming in a close second. Given the highly competitive prices, most of this stock was usually sold before completion. Some new projects targeted more affluent purchasers, in contrast with previous years' focus on low income products. Both local and international developers sought to finalize one and two bedroom apartments in semi-central locations, or in the vicinity of popular office districts, reads the same study.

"The market made a slower recovery in the first few years after 2009 and accelerated starting with the second half of 2013," Ilinca Paun, the managing director of Colliers International, tells The Diplomat - Bucharest. "In Colliers monitored projects with more than 100 units there are over 26,000 apartments, out of which 4,000 apartments are still available for sale. As the prices of new residential compounds aligned to overall market averages, such apartments became more and more appealing for buyers. There still exists the fear of ′it's not as good as the old buildings′, but more and more people are choosing such a solution for living arrangements."

Although some developers expect double-digit growth in terms of prices by the end of the year due to increased construction costs, Paun says that prices were constant and expects to see similar price levels at end the year, due to the fact that buyers are still very price sensitive. "There are some isolated price increases on the market, but it is far from a general trend," she adds. As a comparison, if in 2008 the average price per built sqm was 1,600 Euro, in 2013 it stood at 920 Euro/built sqm and in 2014 - 885 Euro/built sqm. Furthermore, according to Colliers′s report, in 2014 low income developments closed deals at around 750 Euro/built sqm, while middle products found buyers in the 1,100 - 1,200 Euro/built sqm margin.

Mihai Dumitrescu, the managing partner of Crosspoint Investment Banking & Real Estate, notices a decrease in terms of prices in the North of Bucharest, but expects to remain stable in the following period. "In the Northern part of Bucharest, prices have decreased by ten per cent in the context of an increased competition in the area," Dumitrescu tells The Diplomat - Bucharest. "Taking into account the amount of projects that will be delivered this year, our opinion is that prices will keep the same level in the following period."

Good signs, new trends

The new apartment absorption in Colliers′s monitored projects was 3,750 apartments last year, the rhythm accelerating in the second half of the year. This marked a 25 per cent increase by comparison with 2013 and a record transaction volume in the post-crisis years. The low segment attracted the highest share of demand and the middle segment witnessed an increasing number of closed deals in 2014. The average selling rhythm was five, six apartments per month per project in Colliers′s monitored projects.

From Mihai Dumitrescu′s point of view, the managing partner of Crosspoint Investment Banking & Real Estate, the Central and Northern parts of Bucharest are very sought-after nowadays. He even observes a migration of developers with a certain notoriety in the Southern area (who previously developed projects in areas like Popesti Leordeni, Berceni and Militari) to the Northern area - where they purchased lands and started new developments.

Another noticeable trend stressed by Dumitrescu, indicating that the market is gradually recovering, is represented by the sale of apartments in residential projects under construction or even before the construction authorizations are released. "Crosspoint analysis points out a situation that was not even present on the local market in the period of 2006-2008: increasing trend of apartments contracting in new residential buildings, in stages even before the construction authorizations are released," says Dumitrescu. "In Q1 2015, the Residential department of Crosspoint Real Estate has brokered packages of such apartments in total value of more than 2.5 million Euro, in the North area of Bucharest - in projects whose start of construction will be announced in the following period."

A series of developers have already announced new residential projects and the quantity of delivered units will tend to increase in the following months, according to Crosspoint analysis. Dumitrescu also notes the return in the market of the "traditional" developers - who put their projects on hold during the crisis period and are now coming back on the market, with their projects adapted to the current context, such as Neocity or Impact. As the quality of the new residential projects is concerned, the company notes a trend of project diversification. If during the crisis years small - sized projects predominated, that were accessible with the ′Prima Casa′ programme and VAT five per cent, in the following period consumers will have a larger spectrum of offers in the residential markets: from small-sized buildings, of only 15-20 apartments, to large residential compounds, with "city-in-the-city" facilities.

Furthermore, along with diversification of projects, clients are becoming more demanding. "Customers are more informed and more demanding regarding real estate purchases," says Dumitrescu. "They are very attentive to the area where the property is positioned, to the view and surroundings, proximity to parks, the existence of facilities within the project like green spaces, playgrounds for children or the type of community targeted by the property. Maintenance costs are also very important issue and the entire acquisition should have a competitive price."

The governmental programme ′Prima Casa′, whereby the state provides government guarantees for the purchase of housing, will continue in 2015 with an approved budged of 2.5 billion RON (around 563 million Euro) and demand is expected to increase, say experts. The reduced VAT rate of five per cent, which applies to homes that have a total area not exceeding 120 sqm and have a maximum value of 380,000 RON (around 85,000 Euro, depending on the exchange rate), represents also a life buoy. Around 90 per cent of market purchases are made with VAT five per cent. However, experts believe that the residential sector could improve faster if some fiscal changes would be done in this regard: either to apply the reduced VAT only for the limited surface, either to increase the ceiling to the equivalent of 100,000 Euro. This way, they say, supply and demand will grow accordingly.

This year, Crosspoint′s Dumitrescu stresses that the residential market will be supported by other elements also: financial institutions, resuming lending activity within this sector, increased interest of foreign investors and the context of the new Tax Code. "The announcement of the entry into force of the new Tax Code created also a breath of optimism for developers regarding more relaxed fiscal conditions," says Crosspoint′s managing partner. "Developers have resumed work with consulting companies for project integrated management in terms of representation on the sale of residential projects - which is another signal of confidence. In addition, we can also mention the regional context. We have signals that a number of investors are turning their attention to Romania, especially as Poland has already reached a certain maturity."

In this context, The Diplomat - Bucharest talks next to major players to underline their view on Romania′s residential outlook, to stress the latest projects they have in their sleeves and to see how confidant is the upcoming period.

RPF continues to build development in Vitan and Tineretului and plans to start construction in Dristor and Vatra Luminoasa

Romanian Property Fund (RPF) Development, the real estate developer of the Vitan Residence compound located in the Mihai Bravu area, expects to start construction of the third phase of Vitan Residence 2 in August this year. This new phase requires an 11 million Euro investment for two additional buildings. By the end of 2016, the residential project will be completed, according to Dragos Vranceanu, the managing partner of RPF Development Romania.

"2014 was a very interesting year for the residential market and 2015 is even more important for the market recovery," Vranceanu tells The Diplomat - Bucharest. "The real estate sector will continue to grow and, in terms of the residential segment, developers still have to construct apartments to meet the high demand. This year, RPF finished the second phase of Vitan Residence 2 and in three months from now [May], we expect to start construction on the third phase that will add between 158 and 200 units."
RPF Development invested 54 million Euro in the Vitan Residence project which is comprised of 440 units and 12,800 sqm. Vitan Residence 1 was built between 2008-2010 with 30 million Euro investment, including 197 units which were all sold. In 2013, Vitan Residence 2 was built in collaboration with Europa Capital, with an investment of 17 million Euros for phase 1 of the project. 158 apartments were built and 100 are occupied.

"We started the development of Vitan Residence 2 without any pre-sales," says Vranceanu. "However, during construction, the demand grew. Usually, on average, we expect to see between eight and ten units sold every month at the beginning of a new phase and, by the time it is complete, to have around 80 per cent occupancy rate. By the end of 2015, I expect to have between ten and 15 per cent growth in terms of sales, based upon the start of the year."

Comparing the prices of Vitan Residence's apartments before and after the financial crisis, Vranceanu confesses that the current units are around five per cent lower in price. If in Vitan Residence 1, the average sales price was 1,206 Euro/sqm, today, in Vitan Residence 2, the price is 1,150 Euro/sqm. Given the fact that construction costs and land prices have begun to increase, the managing director expects to see a double-digit growth in terms of apartment prices for the entire market by the end of the year. "Three years ago, we sold phase one of Vitan Residence 2 for 980 Euro/sqm, an almost 20 per cent decrease," says Vranceanu. "In the future, however, prices will grow. The cost of construction and land has already increased and the prices will follow the same trend. By December 2015, I expect to see a 20 per cent rise for the entire market."

This year, RPF Development has other projects on the agenda. By the end of 2015, the company will deliver the first phase of Tineretului Park Residence, which consists of 93 apartments and an investment of nine million Euro. The second phase will start later this year or early next year and will need another five million Euro investment. "This is a more expensive project due to its location," says Vranceanu. "We started to sell it last year for 1,215 Euro/sqm and now the cost is 1,430 Euro/sqm, because of increased demand and construction costs. The project will have three buildings. The first one, which is due to be finished this year, already has 35-40 per cent pre-contracts and we expect to have a minimum of 60 per cent by the time it is completed. The second and third phase will be built in over the next 24 months and will need around five million Euro each."

Another project that will most likely start this year is a residential compound located in the Dristor area, on a 6,240 sqm parcel of land. The plan is to build 300 apartments and to invest five million Euro in the first phase. "We don't have an established agenda for this project yet, but we hope to begin the first phase late this year," says Vranceanu. "The land cost us 4.5 million Euro and we expect to inject another four to five million Euro in the first building."

RPF Development owns a 1,500 sqm plot in Carol Park and, together with Europa capital, another 10,000 sqm situated on two pieces of land in Vatra Luminoasa. The company does not have a short-term plan for Carol Park, but in terms of Vatra Luminoasa, RPF would like to start construction either this year, or in 2016. "As I mentioned, the market will continue to grow due to higher demand and due to a higher enthusiasm. The enthusiasm is largely justified, but it can lead to another real estate mini-crisis," concludes RPF's managing partner. RPF Development, an US investment fund, became operational in Romania in 2004 and posted an eight per cent increase in terms of turnover. This year the company expects to have a 15 per cent growth.

Hercesa registered sales up 30 per cent in 2014 in Vivenda Residence and plans to develop third phase in a few months

Spanish-based Hercesa, the real estate developer that has invested more than 150 million Euro in Romania so far in land purchases, Cismigiu Hotel refurbishment and in the development of the Vivenda residential compound, saw a 30 per cent increase in apartment sales last year compared to 2013, according to Mauricio Mesa Gomez, the general director of Hercesa Romania. If the company registered in previous years up to 80 units in one year, in the second half of 2014 it recorded even 30 dwellings per month.

"The confidence of the buyers is back and they are ready to buy," Mesa tells The Diplomat - Bucharest. "In previous years, we have seen all different periods. We came here exactly before the crisis, we had a good entry on the market, we have suffered the crisis, we have passed the crisis and we are at the end or - better to say - at the beginning of a new period. In 2014, we had more sales than in previous years. We even reached 30 units in October compared to other years when we had seven per month. Overall, we grew by 30 per cent to 2013."

The project of Vivenda Residence started in 2007 and so far the first two phases were being complete, counting 420 apartments. In early May, the occupancy rate stood at 99 per cent. Furthermore, as the market conditions are positive for new development, Mesa confesses that in August-September this year Hercesa is planning to start construction works for the third phase, counting 132 apartments divided in two blocks. The investment value will rise to five million Euro.
"The lack of new offers and the increase in demand makes the market conditions propitious for new developments," says the general manager. "We are aiming to start constructions of a new phase somewhere in August-September this year. We will start with one block of 66 apartments and then, after six months, another one identical, with 66 apartments. The buildings will be finished in one year after the start of the development."

Another sign of the residential recovery is the increased appetite of banks to finance residential projects, says Mesa, given the fact that so far financial institutions have avoided this sector. "Since last year, the banks have already started to be active in the residential sector," he says. "Large banks are still a little bit reluctant, but middle banks are very dynamic right now. We are under discussions for our third phase and we have realised that there is a big appetite to finance residential projects especially to professional developers. The banks have switched their position and want to invest in residential."

This year, the company could also develop its first building office in the centre of Bucharest if pre-lease contracts will be signed with two possible tenants that showed interest in the project, an investment that could rise to seven million Euro. Hercesa sold late last year almost 13,000 sqm of land in the Orhideelor area, out of 18,000 sqm, to a group of Romanian investors. With the around 5,000 sqm left, Mesa plans to develop a residential project that could start in 2016. "We have some discussions in this regard and we are thinking to start constructions in 2016 most probably," he concludes. Hercesa is present in Romania since 2004 and posted a turnover of up to eight million Euro last year.

Opus land to invest 18 million Euro this year in Cosmopolis to reach 2,200 units

Turkish-based Opus Land Development, the real estate developer of the Cosmopolis residential compound in Northern Bucharest, plans to build another 500 dwellings this year, increasing thus its number of homes by around 30 per cent, to around 2,200 units. So far, the developer invested up to 250 million Euro for almost 1,700 dwellings, infrastructure and facilities and this year it will inject another 18 million Euro to expand Cosmopolis.

"Since 2012, the real estate market started to get better and better every year," Ahmet Buyukhanli, chairman of Opus Land Development, tells The Diplomat - Bucharest. "Last year, it was also satisfactory, but 2015 is even better. This year, we are going to build 500 units out of which 300 units are currently [late April] under construction. The rest will start in the following months."

The occupancy rate in Cosmopolis is more than 95 per cent. From the beginning of this year and until late April, Opus Land has sold 149 units, 45 per cent representing finished units, which were already in stock, and 55 per cent being pre-sale for the units that are under construction, around 80 dwellings. However, the target for this year is to sell 400 homes, an up to 15 per cent increase compared to last year. "In our sales and turnover, 2012 was the worst year of all," says Buyukhanli. "As far as I remember, we sold 96 units back then, which is very low. Last year, as a comparison, we sold around 350 units. This year, the demand from the clients and the number of sales that we register month over month make us optimistic. If everything is okay on the market and the market is as steady as it started to be, the natural growth is around 15 per cent. For the first semester, we had a growth over 20 per cent compared to first semester of 2014."

As a long-term strategy, the chairman reveals that Opus Land plans to build between 400 and 500 units annually. Cosmopolis currently counts more than 3,000 people and by next year, around 800-1,000 inhabitants are estimated to be added. Moreover, the developer will be donating land to the Orthodox Church to build a church for the inhabitants, while next year, the company will start the construction works for a ‘mini-mall', between 6,000 and 7,000 sqm. "We have established a community here, in Cosmopolis, that we are really proud of," adds Buyukhanli.

Last year, Opus Land bought a plot in the Barbu Vacarescu area (Bucharest) to develop 100 dwellings, an investment that could rise up to ten million Euro. However, in late April this year, Buyukhanli was engaged in discussions with an investor interested in buying the land. By the end of 2015, Opus's chairman will know for sure whether the company starts the development or whether it sells the plot. "We are working on two heads," Gabriel Voicu, director of New Homes Division at Coldwell Banker, the sales agent of Cosmopolis, tells The Diplomat - Bucharest. "We are discussing the possibility to sell the land, but we are also progressing the construction stage. We will be OK with either way," he adds.

Opus Land Development posted last year 13 million Euro in revenues and the figure is expected to increase by at least 23 per cent, registering more than 16 million Euro at the end of 2015.

Luxury 30-million Euro 49 Gafencu, booked 20 per cent

One of the most luxurious residential complex built after 2008, 49 Gafencu, developed by SKV Properties near Herastrau Park with 30 million Euro investment, registered 20 per cent bookings at the end April this year, six months after the start of the construction works. The compound is due to be delivered in the first quarter of 2016 and will count 80 apartments that could reach up to 550 sqm. The most expensive dwelling is located at the eighth floor and costs two million Euro VAT included, with 405 sqm.

"49 Gafencu is very special, because it comes with a unique concept that currently doesn′t exist on the market," Andreea Comsa, the managing director of Premier Estate Management, the sales representative of SKV, tells The Diplomat - Bucharest. "The residential complex provides services comparable with a five-star hotel. The project had 110 apartments at the beginning, but they were resized according to clients specifications, they are larger, and now we have 80. Half of our bookings come from expats, who are interested mostly in five-room apartments. The pre-contracts will be signed in two months [the interview was conducted in late April] when the resistance structure will be ready."

SKV′s 49 Gafencu will be the highest residential compound built near Herastrau Park, with 11 floors. The project includes facilities such as spa, pool, gym, playground for children, guard, a reception area, concierge and lounge business. The dwellings situated between the ninth and 11th floors are not put on sale yet. "We are very confident that the project will be a success as the market′s feedback showed us so far," says Comsa. "The local luxury market counts up to five per cent and heading towards a specific niche is a the best decision a developer can take nowadays."

Premier Estate, present on the local market since 2008, manages a portfolio of almost 1,600 apartments and villas, accounting for approximately 205 million Euro. Besides 49 Gafencu, the company is also the exclusive real estate representative for residential projects such as Asmita Gardens, Ibiza Sol, Citadella Titan (all three of which are insolvent), Perla Residence, Green City and Residence Du Lac. Premier Estate totalled sales worth of 14 million Euro for 136 apartments sold in 2014 (an average of 103,000 Euro/apartment) and this year the managing director expects to see a 40 per cent increase, to reach sales worth 20 million Euro.

"The real estate market has all the potential to grow, especially the residential sector that proved to be the star of the market in the last two years with emphasis on 2014," says Comsa. "Our target is to add another four projects to our portfolio, but I would be very satisfied with two high quality projects. I would also like to increase the sales pace at the projects we represent so far - Citadella will be sold out by the end of 2015 - and to reach 20 million Euro," she concludes.

Adama invests 16 million Euro in the last three years and keeps counting

Part of Immofinanz Group, Adama has delivered over 1,700 units in Bucharest and another four cities around Romania - Ploiesti, Brasov, Bacau and Iasi - since 2004 when it was founded, gathering more than 1,200 customers up to this moment. Furthermore, the company has invested in the local residential market in the last three years around 16 million Euro, exclusively allotted from the company's funds, being one of the first international developers to resume post-crisis development. This way, Adama built the second development phases of Edenia Titan and Evocasa Optima in Bucharest and last development phase of Copou Bellevue in Iasi. During 2013-2014, the investment in Iasi reached 1.7 million Euro.

"We have resumed developments in 2012 exactly because we recorded a promising trend of the market and therefore, if this tendency maintains and improves, the company will definitely extend its investments and residential deliveries," Laszlo Csiki, Adama's CEO, tells The Diplomat - Bucharest. "Our strategy is to start developments one step before the flourishing of the market so as to have the suitable residential product completed when the demand is prepared to re-enter the market significantly. As a consequence, taking into consideration the last 18 months, the next period looks promising."

The company's latest investment and in-progress development is a completely new project located in Berceni neighbourhood in Bucharest - Evocasa Serenia - totalling up to 77 one, two and three-room apartments. On a medium to long-term, depending also on the sales speed and market evolution, Adama will keep a close eye on other plots it owns in its portfolio, both Bucharest and other large cities like Timisoara, according the company's CEO. "The domestic market size in Romania provides real estate investment opportunities, this market being more liquid," says Csiki. "We therefore notice an extensive availability for developments on our segment; besides Bucharest that is the prime eminent market, there are other large secondary cities in Romania economically progressing where residential development is appropriate."

The selling status in all Adama's projects exceeds 75 per cent on average, including also the recently developed phases in Bucharest (Titan area) and Iasi. Within most of the projects, the sales level exceeds 90 per cent, says Csiki, but there are several projects in secondary cities where the housing market gives slower signs of recovery. However, in all cases the sales reach 60-70 per cent and above, and last year's experience showed a 30 per cent increase compared to 2013. "What is worth mentioning here is the success story the last development stage of Copou Bellevue," says Csiki. "75 per cent of the new construction was sold before building completion and, at the moment, we are on the verge of announcing the selling out of the project in Iasi. Additionally, in the last 24 months, Adama registered a growth in terms of sales. 2013 reported 25 per cent more sales than 2012 and in 2014 we recorded a 30 per cent increase compared to 2013."

Analysing the real estate market, Csiki goes on to add that what the pre-crisis period left behind is the bubble level the market touched at that moment and an extreme cautiousness of all involved parties. Although there still are industry representatives evoking those years, looking retrospectively, the current context is healthier and more sustainable, he says. At a first glance, nowadays customers would seem exclusively price-oriented, but, in fact, they gradually become more educated, more aware of the new housing options they have and these are the first steps to a mature market. Furthermore, Csiki expects that housing solutions targeting the middle-market to be the "next VIP" in terms of dwellings in Romania.

"This so-called forecast is also enhanced by current statistics - from price evolution, to which we notice a steady course, to appetite for bank loans or transaction level; all of them indicate Romania is obviously on its way to a steady feasible growth both for 2015 and on a medium term," says Adama's CEO. "As for the housing sector, there is a specific prototype that will gradually become successful. For those customers who understand the importance of making an intelligent long-term purchase, the most popular flats will be those located within the town, in well-connected projects, built with respect for quality standards, from the building structure to finishes. In other words, flats addressing the middle-market segment."