Romanian Property News

After a round of optimistic predictions, including my own, regarding the state of its real estate market, it looks like the price of flats and houses is going down across Romania, following the international trend. Under the pressure of the media, putting up big signs for a catastrophe, buyers started to back up big time since the first half of last year. As expected, after inducing a slight shake in the demand, with the “support” of the problems in US, at the end of 2008 the market came to a grinding halt across the sector, with a handful of transactions for houses, flats, and even land.
What happened? The immediate answer would be “well, the international real estate market collapsed, therefore Romania had to follow the trend”. And this is partly correct – Romania did follow the trend, but it was more due to the external pressure rather than the internal situation of the economy and banking. However, with extremely tight regulations in giving out mortgages (at list in comparison with the western countries), the Romanian banks never faced the prospect of “toxic loans” or high levels of repossessions, which would flood the market with unsellable properties. It is true, indeed, that prices escalated to unsustainable amounts, but the market could have cooled down slowly, rather than go into freefall. Therefore, the main culprit would be the external pressure – (Romanian) buyers seeing the house prices falling rapidly in US and UK and starting to play the waiting game, not wanting to risk a lossy investment. This hesitation then snowballed into a complete stop, with virtually no buyers ready to put their money up for a flat; in fact, the only reason why the market did not reach a round fat zero in terms of the activity was due to ongoing transactions – people who already paid 30-50% deposits towards flats in new developments and decided to add the rest of the money to the sum rather than lose the deposit. Meanwhile, the Romanian media supported all this tumbling with warnings, more or less true but likely to sell; a good example is  the one in Ziarul Financiar (a Romanian equivalent of the Financial Times) who was announcing on the 1st of July 2008 in its online edition that house prices in UK dropped to the level (of prices) of 1992. Yes, the house price in the UK is not rosy at all, but prices are definitely far from the ones in 1992. What happened was that the newspaper mis-translated an article from Bloomberg, which was reporting that “house prices fell in June from a year earlier by the most since the end of the last recession in 1992”. Clearly, news like this one did not help undecided buyers…So, what is the current situation?
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Back in January 2008, Erste Bank published a report to comment on the evolution of house prices for 2008 in Romania. Although relatively unknown on the international scene, the bank is one of the big players on the Romanian market due to its acquisition, back in 2005, of the Romanian Commercial Bank (one of the largest banks in Romania) for €3.7 billion.
According to the report, the house prices in Romania are likely to stagnate over 2008. The authors do not dismiss slight fluctuations, but the current market situation seems to indicate that the number of new developments is starting to counter-balance the demand for “old flats”, that is flats in blocks built before 1990, by providing more (and wider) choice to the buyers. The report also advises that this overall stagnation will reflect differently for specific types of housing – the price of luxury flats will slightly increase, the price for new/affordable housing is likely to remain the same, while the price for old flats might see a decrease. So, what are the factors behind these changes?

Although not exactly a measurable quantity, the rumors and fears of the buyers may account for some of the changes in the Romanian housing market. Following the example from UK and US, where a combination of a few alarm bells from the banks and overwhelming bad publicity from the press led to a significant shake of the real estate business, the Romanian market is now in expectancy – any rumor or speculation that the market may fall is amplified by the press and may lead to a decrease in prices. There is a precedent already, with the Romanian stock exchange recording significant drops since the beginning of the year – all for no tangible reason apart from the fears that the US economy is slightly shaking. Having said this, while the investment in the stock exchange is an option, Romania is a country that has a “culture” of people owning their houses, culture which would maintain healthy the appetite of the buyers.
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I’m not sure what the latest real estate news is the US, but at least in the UK I’m getting rather fed up with warnings about plummeting house prices. By all means I am not neglecting/ignoring the issue, but I believe that the overwhelming attention of the media is just fuelling the market fury, adding panic to an already worried decreasing army of buyers, rather than providing people with actual information. So, while we see all this worrying picture in UK and US, what’s happening to the Romanian real estate market?

Let’s start with the recent developments. The demand for housing is still booming, particularly in the large cities; while this was no surprise for Bucharest, others, such as Cluj and Ploiesti, will see a sustained increase in the near future due to international companies relocating some of their production lines to Romania. Cluj was already chosen by Nokia, who is rapidly setting up a strong production division nearby the city, and Ploiesti has been already favoured by an increasing number of large companies due to its closeness to Bucharest (about 40 miles) and the relatively lower price tag for land in the area. Next, the banks – currently the Romanian National Bank is slowly trying to impose stricter loan regulations in order to avoid banks encouraging high-risk buyers to go ahead and invest. While this seems like an aggressive measure, which may slightly discourage the market, it is actually beneficial on the long term as it is one of the steps towards avoiding house market crashes. As expected, at the other end, the number of houses or apartments offered is increasing, but there is a previously unnoticed issue that might substantially slow down this increase: availability of workforce. Yes, after being a “keen” exporter of construction workforce, Romania now is bracing itself – as fewer and fewer builders stay in Romania, construction companies are finding it increasingly difficult to gather the necessary workforce to start their project. So, after revealing all these details, what does the big picture look like?
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The Colentina/Doamna Ghica zone is recognized as a good area for large development projects – the constructors of Rose Garden and Planorama already exploited the potential of the area with their blocks of flats. No surprise therefore that, on the (still available) plots of empty land more projects are shaping up. The latest one of these projects is Romfelt Plaza, put together by Romfelt Real Estate and Bog’art (a significant player in the current Romanian construction market).

Romfelt is a medium-large project, stretching over almost 14000 sqm, costing over 70 million including a total of nine blocks of flats. The blocks vary significantly in terms of size – one is a 24 story high tower (quite daring for the relatively soft soil of Bucharest), four are 16 story high and the last four blocks are only four story high. According to the project website (www.romfelt.ro), from the total of 616 studio/1-/2-/3-bedroom flats, 130 were already sold.

The biggest selling point of the project is its proximity to the green area of Doamna Ghica. As a result, on one side of the development two of the 16 story high blocks are likely to get a good view of the greenery, with the Fundeni lake featuring further in the background. On the other side of the project, the other two towers might actually “enjoy” the relatively animated Bucharest East Rail station. This is why the interest in the flats differed between the two sides – most of the sold flats are located on the “green” side, with very few of them being sold on the main skyscraper and the side towards the railway station. Although location is quite important, pricing is also on the slightly cheaper side…
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It’s been a while since anything but housing came up on the website. However, next week it’s a special occasion: the Transgaz shares go live on the Romanian Stock Market. Not having any financial analysts amongst my friends, I’ll keep this brief, more of an announcement.

Transgaz Medias is the company that transports natural gas throughout Romania. For the UK readers, it is the equivalent of Transco (I know that ,meanwhile, they became the National Grid; if you still don’t know what that is, have a look at the website). Is it profitable? Well…only if people need gas in their homes (that is a big YES!). It does excellent, as it is a monopolist company, without competitors and plenty of demand, so far owned by the state. Is it worth buying shares for Transgaz? The brief answer is: (at least) very likely!
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The Ghencea area is most well-known for one thing: it is the home of the Steaua Bucharest football club. Beyond that, Ghencea used to be one of the North-West exit points of Bucharest, mixing poorer, outskirts housing, unused land, and a few industrial large beasts producing mostly pollution and noise ready to overwhelm the Bucharest atmosphere. With the increase witnessed by land prices, Ghencea now also benefits from a facelift, where all the above disadvantages transform the area into an attractive one for the near future.

What’s the relationship with the Spring then? A Romanian developer, the company Can Serv SRL, and the corresponding backing bank, Credit Europe Bank, are due to build in Ghencea a group of three blocks of flats, 3, 6, and 14-story high, under the project name Spring Residential. Ghencea is not exactly central Bucharest; this is why the flat prices are rather concerning, particularly for the smaller units. Just as in the example of the Trident blocks of flats in Berceni http://www.romanianpropertynews.co.uk/2007/12/08/trident-pinpoints-south-of-bucharest-for-affordable-flats/ , the overall prices for the smallest units are reasonable, but the sqm prices are plainly scary. The cheapest studio flats are just under 40sqm, with a 3sqm terrace – all available for purchase for around €70,000 once you add in the VAT…
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After getting their share of city craze, packaged with pollution, noise, overcrowding and mad traffic, the medium-upper class in Bucharest is looking for alternatives to move out from all the…errr…civilization. The first wave was Baneasa – from spacious plots, positioned next to the woods or greenery, Baneasa became an expensive, over-posh, overcrowded and overpriced area. One by one, other areas just outside the Bucharest ring road went through the same transformation, making them less and less attractive for large developers aiming to provide villa neighbourhoods. Now it’s time for the second stretch – with the plots nearby the ring road raising to unreachable levels, developers are starting to look further away from the capital to find suitable plots for their projects.

Tartasesti is a small village in the Dambovita district, around 15 miles away from Bucharest. Tartasesti is not particularly famous for anything – it is far enough from Bucharest and not on the busy DN1 (national road 1). The only detail that made it famous in the past was that Adrian Nastase, the Romanian prime minister during 200-2004, was actually born in Tartasesti. This did help, as the ex-prime minister apparently used some of his influence to improve the overall look and feel of the village as well as its infrastructure. Back to the present, the price of land varies in Tartasesti, depending on position (versus the Bucharest-Targoviste national road), facilities, and access, between €10-35/sqm (or at least these were the figures from here back in December 2007).

Ozone Forest Residences is the latest residential development project to balance lower land prices, slightly away from Bucharest, with commutable distance to the capital. Located nearby Tartasesti, 13 miles away from Bucharest (according to the developers), Ozone Forest Residences is a neighbourhood of 73 houses built on a 51000sqm plot. The villas in Tartasesti will come with plots between 330-660 sqm and are organised, as you can see in the picture above, in a rather military-square style. The total built surface for the villas is between 178-233sqm, occupying between 87-121 sqm of the land plots. Based on the available pictures, all the houses seem to be detached, so you might have either a narrow passageways between houses or a rather small backyard.
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Trident is the latest residential development currently taking shape in southern Bucharest, in the Berceni area. Trident is a medium-sized project, consisting of three ten-story high blocks, including 109 apartments. Most of the units are studio flats (82 out of 109 flats), which makes them very attractive from a financial perspective to potential buyers.

The area of Berceni is an interesting mixture: it starts with the Berceni market, which gathers all sorts of small stores and “mobile” stalls, then it continues with a few wide streets, surrounded by tall trees and (tall) blocks of flats, then it finishes with what used to be agricultural/industrial area and nowadays is slowly filling up with supermarkets, warehouses, and commercial/office buildings. Behind some of the tall blocks you can still find small patches of greenery and, strangely, very old houses, most of them in bad need of renovation. So, is Berceni a good choice? Probably 5-10 years ago the typical answer would have been “well, if you must…”. Currently however, with available land plots running out around in the north and escalating prices, the south of Bucharest becomes increasingly attractive for potential developers. As witnessed by other large investors, the price of land for real estate projects creeps beyond 50% of the total investment, making the location a crucial factor in determining the final cost of the apartments. After all this talk about cheaper prices, how much do the Trident flats actually cost?
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If you want to look for the busiest traffic spot in Bucharest, with a flyover, lots of heavy traffic, crowded ring road, even a railroad, and queues stretching for miles, there’s one place to go: the Otopeni bridge. With a flyover that is part of the busiest road in Romania (DN1 – national road 1) going over the Bucharest ring road (which is – still – not a dual carriageway), Otopeni bridge is the nightmare to avoid when you are on your way to the Otopeni (a.k.a Henry Coanda) airport or trying to avoid central Bucharest by going East-West vie the ring road. Nevertheless, the area is next to the overcrowded posh-er Tunari and it’s likely to get decongested in the near future once the ring road moves another 10-15 miles further from Bucharest and all the heavy traffic goes there. Further, if there is any greenery left nearby Bucharest, quite a bit of it is around Baneasa and Otopeni (it used to be more, but, unfortunately, then the supermarkets showed up and cleared some of it). The only thing missing from the area are…a few blocks of flats. But not for long.

It is nearby the Otopeni bridge where a small project, including a total of 72 apartments, is currently being built. The project is actually named Otopeni Bridge, and is on the small side (the blocks are only two-story high), but indicates a slow change in the developments in the area. So far, we’ve seen plenty of villas and mansions being put together in Otopeni, Baneasa, and Tunari, but it looks like, as the space is running out, developers are moving to the next stage, providing blocks of flats to the market. It is yet to see whether the approach will be successful, as the prices are slightly spicy. In spite of the distance to Bucharest, as well as the slightly problematic area of Otopeni bridge, a 87.5sqm one-bedroom flat costs just over €109k while a two-bedroom flat will set you back €151k.
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Rental prices are always a reality check for real estate investments – are the owners still getting good returns on their investment? Looking at this autumn’s offer, it seems that the rental market is on the rise, likely to have been influenced also by the arrival of the students for the new academic year. Once again, the focus is on Bucharest exclusively, as other cities still seem to have a relatively low and too variable rental market in order to extract meaningful comparisons.
Enough introduction, let’s see the figures. From a sample of 300 rental offers in central areas, see below some statistics for the zones that got at least five offers. On the vertical axis, you can see the price of rental, per month, in Euros.

 

The area between Vital Mall and the Chamber of Commerce (Camera de Comert) took the lead in terms of the rental pricing. Camera de Comert topped the price chart with an average rent of €540 per calendar month. On the last position amongst the fifteen areas, studio flats in Titan were rented for €325/month. Closely following on top, Mircea Voda, Nerva Traian, and Alba Iulia, had average rental prices higher than €500/month. There are also some slight discrepancies – the Unirii area is more central than the other four above it, but several offers for €470/month led to a lower average, in spite of its privileged position. Bear in mind that these statistics are based on areas with at least five offers. (even more) central areas were further up, but had very few offers: SplaiulUnirii, Magheru, Traian, StirbeiVoda, Victoriei, Casa Poporului all had rental prices of at least €600/month. In case you prefer figures instead of pictures, here they are:

Studio Flats in Bucharest - rental autumn 2007

Area	Price (€/month)
Titan	325
Mihai Bravu	342
Dristor	356
Iancului	367
Drumul Taberei	400
Calea Calarasi	409
Vitan Mall	428
Tineretului	442
Turda	465
Burebista	492
Unirii	496
Alba Iulia	500
Nerva Traian	516
Mircea Voda	520
Camera De Comert	540

What about the wider averages? From the entire set of offers, the average was €447/month. This spread evenly amongst the six sectors that form Bucharest, with Sector 1 taking the lead due to the posh area it includes and Sector 6 slightly trailing behind, as you can see below (once again, the vertical axis is the price of rent per month in Euros)

 

The following posts will provide some similar statistics for larger apartments, as well as the purchase prices for flats.