Predictions for Romanian house prices in 2008 – slight fluctuations, mostly stagnating
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.
Another factor that may produce a downturn is the slight depreciation of the Romanian currency (RON, leu), and the likely increase of the exchange rate from 8% to 9% over the course of 2008. Although virtually all transactions on the real estate market quote prices in Euros, the banks tend to operate in RON in order to follow the Romanian economy, making the investment in new housing more expensive or less accessible in the near future.
To end in a positive note, the report does conclude that, in spite of the above factors, the report also comments that the current credits for housing are rather low in comparison with the western European examples and there is room for these credits to increase, subject to a more stable financial market.
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Posted: April 15th, 2008 under Reviews.
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