REAL ESTATE PRICES IN ROMANIA AND BUCHAREST IN 2014. PROGNOSIS OF THE REAL ESTATE CONFERENCE

On 10 February 2014, the annual real estate conference was held under the patronage of Institute of International Relations and Economic Cooperation of Romania.

The tile of the conference was self explaining: REAL ESTATE IN ROMANIA IN 2014. BETWEEN DEVELOPERS BANKRUPTCY AND CRUMBLING PRICES. The conference was a get together of real estate agents, bankers, property experts and evaluators, brokers and real estate funds from Romania and EU and economists.

2013: A 35% RECORD DROP IN REAL ESTATE PRICES .

 

The debates started by highlighting the latest evolution`s and drop in prices on real estate market in Romania during 2013.

The average price reduction was around 35% last year, the biggest drop since the economic crisis hit Romania, but the prices are still a long way to go before they reach the real estate real potential. New significant drops in prices (around 50% of present day marks) are expected, until the market will stabilized and the investment in real estate will become one more time attractive and efficient.

From an initial value of 1.200/1.300 euro per build square meter the prices have dropped by the year end, towards 650-450 euro per constructed square meter, but is a long way to go until normal prices, requested by the market, will come back on Romanian real estate.

The real dimensions of real estate crisis in Romania where made public: real estate frozen projects are reaching a staggering value of 8 billion euro, the bankruptcy numbers in the real estate developer`s field reach 80% of the initial investor`s numbers and 4 billion euro, announced to be invested in real estate market never materialized .

2014: THE PROGNOSIS SHOWS A 50% REDUCTION IN PRICES.

Banks don`t need homes. People do ! are crying this British evacuees from their houses. 

The real estate market will continue the downward spiral in 2014, accelerated by the economic crisis and low income, with prices decreased by 80% on rural areas and on secondary or vacation house market and provincial cities and around 40% to 50% on premium real estate objectives in Bucharest areas.

The prices are expected to fall below 200-250 euro per constructed/ square meter in prime areas of Bucharest real estate.

The falling in prices is fueled by the ongoing banking crisis, the reduction of banking institutions available to offer real estate loans, the spike in banking interest rates, high inflation, dramatic decrees in investment, drastic reduction in real income for majority of Romanians, unfavorable economic prognosis, ongoing economic crisis and also decrees in foreign investments and in revenues from Romanian working abroad etc.

To this long list of negative trends we can add the 120.000 new flats, houses and villas that will be placed on the market by the banks in the foreclosure process.

This new properties, that will be launched on the market from April/May 2014 will be sold with reduction`s in prices ranging from 50% to 25% percent from the initial announced price.

Already the banks presented the auctions starting prices as ranging fro 15.000 to 20.000 euro for one room flat, to 25.000 euro per two rooms flat and around 35.000 euro for three room flats. The mansions and villas are sold at pricing ranging from 35-40.000 euro per 200 squared meter’s villas in high luxury areas and as low as 20-30.000 euro in secondary areas.

The prices for land in Bucharest area already dropped with 50% in 2013 and will furthermore decrease with 50% this year, bellow 50 euro per square meter in central areas of Bucharest.

Other phenomena presented during conference, that are impacting downwards the prices are: a drop in population real income by 30% in 2013, this had impacted drastic the number of real estate buyers ( from a maximum of 1 million Romanians active on real estate market before the crisis to 20.000 persons to date).

The banking system is engulfed in crisis and choked by low-commercial value properties; the average real interest for real estate credit is around 20% which is making the cost of real estate credits unsustainable.

We can safely conclude that taking a real estate loan in this period is the path towards bankruptcy and foreclosure for 90% of the clients.

Who borrows today goes bankrupt tomorrow, was the bitter joke of the bankers, that confessed that banking system is in a vicious circle until the prices will reach the 200 euro per square meter mark, until this moment the loan market is blocked.

OVER FLOW IN OFFERS IS DESTRUCTIVE TO THE REAL ESTATE MARKET.

 

During 2014 the real estate collapse will continue and be aggravated on the count of individual properties foreclosures and also company bankruptcy that will flood the market with over 50.000 hectares of prime land that will press down the prices during this year.

Overcrowding the market a new stock of 3.000 villas and mansions, will also appear on the market during 2014, in areas as: Colentina, Bucurestii Noi, Pipera, Baneasa, Damaroaia etc.

This will be sold on the market at prices bellow 50.000 euro per property and will push toward collapse the luxury real estate market.

This are conservative estimates, based on property values information, listed  already on the market by the banks on the foreclosure process, already put on sale at 50% of the initially estimated price and will be further reduced at 25%, accordingly to foreclosure law, stated Lo Petersen from banking consortium active on Romanian market for more than 12 years.

 The decrease in economic activity forecasted for this year will only aggravate the situation, and new properties will be under banking foreclosure, during 2014, concluded the official.

Chief Economist Mihail Racaceanu underlined again and again the fundamental truth that: real estate market can not operate outside the negative climate of Romanian and EU economy.

The real estate market is intricately connected with the decrease of average wage and real income per person and the economy status.

 The price per square meter, in prime real estate areas, cannot be over medium salary value by more than two times. As in Romania the salary is around 150 euro a price per square meter can not exceed more than 300 euro per square meter.

It a clear axiom of economic sustainability, you are breaking it; you go out of business, concluded Mihail Racaceanu.

The responsibility of real estate crisis is resting mostly on the lack of education of Romanian real estate agencies and agents.

 The real estate agent must emphasize the necessity of a rapid reduction of prices in order to mend the crisis on real estate market. The market will restart if we will reach the financial comfort zone around 200-300 euro’s per square meter. If we don’t play honesty and sincerity, the collapse of real estate market will be a never ending story, concluded the chief economist.

This is the hard to swallow truth: who is not cutting rapidly the prices remains excluded from the market.

THE HOUSING AND VILLA MARKET: THE MASSIVE COLLAPSE DURING 2014.

15 more years of more depression on real estate market is the United States experts opinion.

The developers in the areas of villas and houses concluded that this area will be severely hit with drastic reduction of prices during 2014.

The main reason is the fact that: economic crisis had dramatically reduced the number of interested players for buying this type of real estate, corroborating this with decreasing rental market and drastic reduction in number of companies interested to rent such large spaces for offices and the growing expenses to maintain such a property, had gone up impressively, all is worsening the perspective for this type of properties.

This type of properties is the most vulnerable for banking foreclosures because rapid prosecuted and sell on the market at prices below 50.000 euro such villas can help the banks to cut their losses.

During this year areas such as: Mosilor, Pipera, Baneasa, Tunari, still offer the possibility to be sold around 50.000 euro, the rest of the areas of south and east of the capital (Damaroaia, Berceni, Timpuri Noi, Colentina), are completely unfit for marketing and selling because of the inexistence of interested buyers .

The foreclosures will open the market for villas at below 50.000 euro, concluded the panel of experts that also appreciated that around 80% of the total of transaction on real estate will belong to banking auctions and foreclosures .

SIMPLE TRUTH: WHO BUY`S IS A LOOSER !

Unfortunately during 2014 the same order is playing in the real estate market: you bought, you lost.

From the moment that you ink the deal the real value of your house has gone down by 15% and will continue to dwindle.

In order to reignite the real estate market, the key role is belonging to the real estate agencies.  They must apply the necessary pressure to bring down the prices by at least 50% and to lead the properties owners from the la la land fantasies prices to a real assessment of the value of their properties, in order to restart financial operations and re-emergence of profit on the market.

We should understand two self evident lessons: the internal market with a dwindling number of buyers and unpredictable income is blocking any major acquisitions and foreign investors are NOT coming to the market.

No investment in Romania is possible at prices of 400-500 euro per square meter as long as similar opportunities are to be found in Austria, Hungary, Greece, Turkey or Bulgaria but at prices below 100 euro.  In this moment any buyer of Romanian properties will lose big and heavy, concluded the panel of experts present at the conference.