The number of high-end apartment blocks that have either been delivered or are presently under construction in Bucharest has almost tripled in 2014 compared to two years ago. Is the top end of the residential segment back in expansion mode? BR talked to real estate pundits to find out.
Two high-end residential projects totaling an investment of about EUR 36 million have been announced in Bucharest in the past month and overall the sector is on the up. The number of upmarket apartment blocks that have either been delivered or are now under construction in Bucharest increased to 22 in the first nine months of this year compared to only 8 in the period 2012-2013, according to analysis by HomeFinders.ro.
These projects are being developed in central neighborhoods such as Primaverii, Kiseleff-Aviatorilor, and Dorobanti for average prices of EUR 3,396/sqm in Primaverii and EUR 2,910/sqm in Dorobanti, according to the same source. By comparison, the average asking price for new apartments in Bucharest was EUR 1,178/sqm this August, according to data from Imobiliare.ro.
An overused and abused concept
The difference in pricing is most often the main indicator that a property is a luxury one, but one characteristic of the local market is that a higher price is not necessarily a guarantee, real estate pundits warn. The term “luxury” is overused and few of the properties currently being promoted as such deserve this tag, they believe.
“Lately, almost every new residential project is promoted as a ‘luxury’ property only because the developer has invested in better finishes or a modern façade,” Emanuel Postoaca, GM of real estate agency and developer Nordis, told BR.
Overall, luxury projects in Romania distinguish themselves through marketing strategy and asking price rather than the actual product strategy, added Georgian Marcu, owner and broker at Green Angels. “Any properties that are located in a good area or have quality finishes are promoted as being luxury, but we also see ‘luxury’ projects in non-central areas in so-called working-class neighborhoods or just outside the city,” he told BR. Even in traditional “luxury” areas such as Herastrau, for example, there are properties in blocks located 4-5 meters from one another which are still promoted as “luxury” properties, he said.
So what should a residential project actually feature in order to count as a luxury development? A premium location such as the Primaverii, Aviatorilor, Kiseleff, Herastrau or Dorobanti neighborhoods is a must but is not enough by itself.
“There is a mix of factors – the location, living concept, architecture and an exceptional panoramic view unobstructed by unaesthetic buildings. There are also the services it must provide – from a doorman to concierge services,” outlined Marcu. An impressive lobby, a gym, an indoor pool and a basement laundry are on the list as well. “The surfaces of both the apartments and the communal areas should be generous and the apartment height above the 2.8 m average. High quality finishes are also a requirement for such a project,” he summed up.
While the term “luxury” continues to be overused and abused, one thing is clear – potential buyers are becoming increasingly more “informed, selective and demanding, something that is understandable for this type of apartment,” said Postoaca.
“Customer expectations have risen considerably in relation to what the market offers. The question is whether buyers can afford this level of quality and not fall again into the trap we saw during the boom years when a clear difference between buyers’ demands and their financial possibilities was not made,” warned Marcu.
Entering a new phase?
Developers too have been upgrading their offer. On one hand, the projects being built today look different. “Over the last two or three years, we have seen an improvement in the premium segment, especially in terms of exterior architecture. But we are quite far from what this segment should look like” added Marcu.
There are more profound changes too, such as developers showing a “more efficient approach in terms of building and maintenance costs,” Andreea Comsa, managing director at Premier Estate, told BR. Before the crisis the motto was that anything sells at any price and costs were not a priority for developers. Come the crisis everything changed and many developers whose projects didn’t meet the shift in demand went bust. “The luxury projects being built today offer a perfect balance between location, the quality of construction, efficient space allocation for the apartments and communal areas, quality finishes and the asking price. Together, all these features are tailored to current market conditions and have generated an increase in the luxury segment,” she said, adding that sales are on an upward trend.
Premier Estate is the marketing and sales representatives of SKV Properties, which announced in October that it had begun works on a high-end residential project – 49 Gafencu – close to Herastrau Park in Bucharest. The project will require an estimated investment of some EUR 30 million and will feature 110 apartments which are due for completion in the first quarter of 2016.
The flats can already be bought for prices starting at EUR 1,500/sqm (VAT included) and going as high as EUR 2,500/sqm (VAT included). The target is to sell about 40 percent of the homes by the end of next year, added Comsa.
The project targets customers with above average incomes and who are generally demanding in terms of lifestyle. “They have their savings in bank deposits or have invested them on the stock exchange or investment funds, and when given the alternative to make a more attractive investment choose an apartment in the project,” said the managing director. The value is set to increase by between 8 and 16 percent by the first semester of 2016 when it will be delivered, she believes.
Overall, the entire real estate market has performed well this year, say industry representatives. “Most players on the residential market reported positive signs in the first nine months of this year. Besides, all real estate segments have experienced a significant increase and the overall evolution is upwards compared to the previous year,” Andreea Cojocaru, sales director at Stejarii Residential Club, told BR.
The high-end segment, along with the entire residential market, has experienced a positive evolution this year and there is further potential for growth, agrees Postoaca. “Right now, we have a lot of demand from buyers for the Herastrau, Dorobanti, Primaverii and Kiseleff areas, but relatively few projects have been developed over the past few years,” he said.
The time is right to start such new projects, thinks Comsa. Developers who benefit from a good location and a project with above-market quality are now plucking up the courage to invest, she added. “So, we can say that today we’re seeing the start of projects targeting both the upper middle class and customers who want luxury apartments,” she commented.
Marcu agrees that both demand and the number of transactions involving high-end properties are on the rise, but stresses that this is not enough to suggest a trend. “I don’t believe that there is currently a high and unmet demand for luxury properties,” he said. One example in this sense is the Prezan Boulevard which is full of residential developments, none of which are in the luxury segment, he believes. Another example is the tender for the Triumf Hotel, a property that could meet all the criteria necessary for reconversion into a luxury residential project but did not attract a buyer, he went on.
And the recent news is not necessarily a sign that developers have an appetite for high-end investments. “This is just a perception that developers have, and unfortunately they continue to come up with unsuitable projects for the segment they target. It is obvious that we will have some losers in this game,” he warned.
A particularity of the high-end residential segment is that, compared to the overall residential market, it is dominated by rental transactions. Given its other specifics this is normal, say realtors: the renting process takes less time than the selling process and many buyers acquire such properties to rent them out. “In a premium location such as Nordului Road-Herastrau, Kiseleff or Primaverii, a rented apartment generates a yield of about 5 to 7 percent per year while the interest rate for savings in euro is 1.5 percent on average. This has boosted the number of apartments being bought to be subsequently sold for capital gains,” said Postoaca.
Another market specific is that expats are the main tenants of high-end residential projects. For example, they represent 85 percent of residents of projects located in the Nordului Road-erastrau area, according to data from Nordis. When it comes to acquisitions however, foreigners make up only 10 percent of buyers.
Rental transactions are so important on this segment that some projects are developed for this purpose alone. One such project is Stejarii Residential Club which was delivered in 2010 by Tiriac Imobiliare in Bucharest’s Baneasa neighborhood.
Rentals have performed well this year and their number was up by 20 percent between January and September compared to the same period of 2013, said Cojocaru. The occupancy rate presently stands at 75 percent and given the rise this year, it is expect to increase further in 2015. Monthly rents in this category start at EUR 1,000 for a one-bedroom apartment and reach EUR 2,400 for a three-bedroom unit.
This positive performance was generated by customized offers, more active involvement from real estate agencies and premium residential projects’ proximity to sought-after educational establishments, she believes.
The typical tenant profile is expat, aged between 35 and 45, married with one child and staying in Romania for between one and three years, she outlined. Some 65 percent of the club’s tenants are expats while the remaining 35 percent are top local managers and entrepreneurs.
A project’s location, membership of a multicultural community, diverse range of services and proximity to commercial centers and schools are the main reasons expats choose to live in a high-end residential project.