Real estate is overvalued by 20-25 pct at the moment, says analyst

Anca Alexe 10/01/2018 | 10:38

Iancu Guda, president of the Association of Financial-Banking Analysts in Romania (AAFBR), says that Romanian real estate is overvalued by 20-25 percent right now, and the “First Home” program should be gradually eliminated.

Guda said at a Bucharest Stock Market conference: “If you calculate the rent paid per square meter over ten years, with a 90 percent occupation rate of the asset and a reinvestment of the rent with a 3 percent yearly yield on an asset class with a below-average risk such as bonds, then you get to a price per square meter of around EUR 1,000-1,050. Today it’s at EUR 1,250. For niche residences in very good areas it can get up to EUR 2,000 per square meter. My calculation gets to a maximum of EUR 1,500 using the same methods of collecting rent for ten years and reinvesting it at a 3 percent yield”.

“The ‘First Home’ program, in my opinion, should be gradually stopped. Last year it made up for 80 percent of the total loans for buying new homes. It has significantly distorted the market, and it was contracted by a part of society who doesn’t actually need such a social program. There have been loans in this program where the deposit, despite the minimum of 5 percent, was paid at a level of 50-60 percent. This has made the price of residential real estate, new apartments, to be slightly overvalued through a false surge in demand, through an easy-access program that was speculated by people with higher-than-average incomes. As this program is reduced, it should be directed toward groups with low incomes who truly need a way to pay a lower deposit”, Guda argued.

The Public Finance Ministry has recently issued an order which aims to make the “First Home” program more efficient by setting methods of evaluation for financers and of adjusting ceilings at the beginning of each year until 2020, the final goal being to gradually reduce state intervention in the market.

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