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?

The statistics are indeed showing a significant decline in the market. Back in October, according to the RE/MAX real estate agency quoted by Mediafax, the average price of transactions for flats dropped by 15-30%.  The drop throughout last year was so significant that, back in July 2008, the price of flats reportedly dropped under the fixed values for recording the transactions (used to establish the taxing for the sale of the property, acting as a recommended minimum price for the sale).
The drop of sale prices had a knock-on impact on the construction industry, with several projects being put on hold, but the trend is still positive. It appears that the developers did account for some resilience in their offer for their ongoing projects; for example the Planorama project, which was one step away from bankruptcy back in 2007, finished successfully and is now fully occupied. According to the Romanian national institute for statistics, the volume of the construction market had a 19% like-for-like yearly increase back in October 2008. The number of planning permissions in the first half of 2008 also saw a like-for-like yearly increase of almost 13%. So, once again at least trying to end up on a positive note, the prices do seem to keep dropping, but the constructors will not give up their projects, which, somehow, seem to reach the completion stage.