Forecasting an end to artificial rise
Lack of supply means apartments in Bucharest are selling for the same prices as in Paris, but Shimon Galon, country manager of GTC Romania, believes the artificial rise will steady this year
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Spain is facing a fall in the real estate sector due to the high residential offer and the deceleration in prices, while Italy is witnessing a credit crunch with an increasing number of families unable to pay their mortgages.
This leaves Romania as a safer choice for developers targeting high returns on profit, due to the high demand in all real estate segments and the rapid increase in consumer purchasing power.
Although Bucharest is a top destination in Romania for project development, the city is not without its risks.
The city’s poor infrastructure, the high level of pollution and the absence of a coherent urban plan to regulate the chaos created by a mix of deteriorating constructions and new modern office and residential buildings could influence the withdrawal of developers, according to Shimon Galon, country manager of the developer of Europe House and America House, GTC Romania.
This may be a greater threat than those posed by the uneasy financial markets.
“A developer cannot afford to build everything up starting with infrastructure, sewerage, schools and kindergartens to have a successful project,” says Galon. “There are specialised companies for each of these areas. The authorities should pay much more attention to the improvement of the infrastructure and realise that all developments are built on good infrastructure. Nobody wants to buy a house and have a poor quality road in front.”
While in other European cities, with half of Bucharest’s population, over 10,000 housing units are delivered every year, only 3,000 to 4,000 units are built in the capital annually, despite demand.
“I see a lot of residential complexes [planned for Bucharest] that look very good and comply with all the development terms, but are built on a lake,” adds Galon. “The view is spectacular, the apartment is great, but the lake is usually in a terrible shape, dirty and full of insects that will enter the home if the owner opens a window.”
Now tackling the residential sector, GTC Romania will deliver this year half of its 908 apartments in the Rose Garden complex in northern Bucharest on Soseaua Colentina, of which around 700 have already been sold. The group is developing three residential projects with over 5,000 apartments in Bucharest and has ongoing projects in all the real estate segments covering 850,000 sqm.
By this December, the company will bring on the market 120 apartments in the first phase of its FeliCity project, built in Baneasa. The 1,200 apartments have been sold at prices ranging between 1,400 and 1,500 per sqm.
“In Romania the price of a built sqm is now 1,000 to 1,250 Euro for the developer,” Galon argues. “Construction material costs and land prices have gone up so fast in the past few years that developers have been forced to raise prices just as speedily, otherwise they would have earned less than they invested. It is unacceptable for an apartment in Paris to be sold at the same price as one in Bucharest.”
The manager believes that the artificial price increase will stop this year, as developers will no longer buy land from speculators unless they drop the prices. At the same time, lower profits will discourage a lot of speculators.
Besides the price, a developer’s reputation is another element Romanian customers are starting to pay attention towards, especially regarding whether the vision they buy on paper is realised in bricks and mortar.
“We started selling apartments at 1,100 Euro per sqm and we had to up the prices gradually to 1,500 Euro per sqm,” says Galon. “But I did not notice any change in the number of customers. The price is not the most important element in a transaction of this kind, as people start to care more about the quality of the dwellings they buy and want to know as much as possible about the developer and about the projects it has delivered on the market.”
New deals
Bucharest-based ‘Green Dream Residence’ and ‘Jasmine Park’ are residential projects the company is planning to start developing this year, but both have been put on hold for the moment due to issues related to permits. ‘Green Dream Residence’ will be built in the north of the capital, near Romexpo Exhibition Center, with 220 apartments. ‘Jasmine Park’ will be located on Soseaua Petricani and will include a shopping centre.
The company does not want to build luxury residential projects, including units sold on prices over 2,000 Euro per sqm, because luxury in real estate is a concept “difficult to define” says Galon. GTC also does not intend to develop projects with fewer than 900 apartments because the efforts only pay off for larger sized projects.
Last year GTC started the construction of an office building covering 55,000 sqm on 18 floors, placed in front of Romexpo Exhibition Centre, which is expected for delivery by 2010. “Around 50 per cent of the building has already been leased to customers, including a very important bank, a big law firm and an IT company,” says Galon.
GTC sold in 2007 the A-class office building America House, in Piata Victoriei, to French Group Nataxis for 120 million Euro. The transaction was considered at the time the most important on the real estate market. “It is very easy to develop office buildings,” says Galon. “All you need is a land plot where you can start building a box. All offices can be identical and tenants can chose their neighbours.”
He believes shopping centres are far more complex. The developer has to find the perfect location for each store to attract as many customers as possible. Each floor should have an anchor tenant and orientation is vital. The customer has to move from one point of the building to another without getting lost in a chaotic mix of shops and thoroughfares. “A lot of specialists have to work in the development of a shopping centre and create a unique concept,” he says. “Building shopping centres is an art.”
This year GTC Romania will deliver three Galleria shopping centres, developed in partnership with Israeli company Aura Development in Buzau, Piatra Neamt and Suceava. Others are planned for Arad, Bistrita, Craiova and Galati.
Who is Shimon Galon?
Shimon Galon has been the country manager of GTC Romania since the company was established in Bucharest. He was born in the Romanian capital and lived in Israel where he was general manager of several public construction companies. Pioneering office block Europe House on Piata Victoriei was the first development of GTC Romania. Now the headquarters of Orange Romania, this was delivered in 2002 and sold to the Austrian investment fund, Europolis.
“We developed Europe House opposite from the block of flats where I was born,” Galon says.
GTC Real Estate Investments Romania was established in 1999 and is part of GTC Group, listed on the Warsaw Stock Exchange in 2000. GTC is also present in Hungary, Czech Republic, Slovakia, Serbia, Croatia, Poland, Bulgaria and Ukraine.
By Corina Ilie
