Warning for the Romanian residential market: If Euro zone prices start “adjustment”, local impact will be quick; “There is a desperate need to build more”

The price trends on the residential market in Romania have been strongly dependent on what has been happening on the housing sector in the Euro zone starting 2013 to present, according to Andrei Radulescu, director of macroeconomic analysis at Banca Transilvania.

The economist says that the local pricing for residential has converged to what has happened regionally and in Europe, but the dynamics were moderate in Romania because the level of prudence in the local economy is high.

“If on the Euro zone market the prices on residential will start the adjustment process, this will be felt immediately in Romania,” said the economist.

Radulescu has presented the results of a research he conducted on the link between the prices for residential assets and the real wage.

“Last year, the real wage grew by 12.7 percent compared to 2016, but starting with the second half of last year there is a change in the trend from acceleration to deceleration and if we look at January data, we see that in January 2018, the real wage grew by 3.5 percent, the lowest growth rhythm from 2014. From this perspective, the price of residential from now on, most probably, will also change the trend,” said the economist during a conference organized by the association of property evaluators ANEVAR and Imobiliare.ro.

Analysts and market player suggested that prices in the residential sector will continue to grow at least on the short term, but the risk of rising bank loan costs and higher inflation could hit prices going forward.

By the end of the third quarter of 2017, real estate prices had gone up by 6.2 percent compared to the similar period of 2016, according to Florin Dragu, head of the department for the monitorization of systemic risks, at the National Bank of Romania (BNR).

“The credit risk for mortgage loans has continued the downward trend from the last few years. The rate of non-performing loans reached 3.4 percent in December 2017, from 4.5 percent in the previous year.

The forecast for the annual default rate in the case of mortgage loans shows a slight increase in the next year, to 0.6 percent in September 2018, from 0.4 percent at present,” said Dragu.

Although analysts are talking about an adjustment risk for the housing market, the investments are not enough to match the demand.

The number of built housing units stood at 53,000 in 2017, up only 2 percent compared to 2016, according to Dorel Nita, coordinator of Analize Imobiliare, part of Imobiliare.ro.

“Still, too little is being built. There is a desperate need to build more,” said Nita, adding that the number of delivered units in Bucharest-Ilfov area stood at 10,000.

Although Romania boasts a home ownership rate of 96 percent, the biggest in the EU, the local housing overcrowding rate stands at 50 percent versus the EU average of 15 percent.

Economist: Real financing cost is still extremely low

Residential projects worth EUR 750 million are being developed in Romania, according to Viorel Mohorea, project manager New Homes Division Coldwell-Banker. He says that 14,000 homes are under construction this year.

In terms of financing costs, Radulescu of BT says that the real costs continue to be “very low”.

“If we adjust the interest rates with the inflation, we will see that the real financing cost is still extremely low domestically and will continue to be like this at least by Autumn,” said Radulescu.

Meanwhile, Mihai Patrulescu, senior associate Colliers International, suggested that the growth of the inflation rate is an adjustment factor “and a moderation factor for the volume of loans and implicitly of the residential sector.”

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