Residential developers change rosy plans, prepare for bumpy ride

The shadow of unfinished steel skeleton high-rise blocks was a common sight in Asia after the economic collapse in the region in the late 90s. After ten years, some of these unfinished buildings still stand tall today. While the current situation in Romania is not as severe as Asia's financial troubles then, the local market will share the image of derelict, unfinished buildings, as it has already started to see construction works frozen at various stages. A drop in consumer confidence, as well as harder access to loans to buy apartments in new residential projects, plus the scarcity of loans for developers, have sent sales for residential developers with ongoing projects plunging. But it has affected their pipelines as well, which puts questions marks against the announced thousands of new apartments in Bucharest and across the country. Developers have either halted projects with ongoing construction works, or have just decided to delay the start of new investments.

RomReal halts ongoing construction works on residential projects
Recently, a Norwegian-British held developer was among the first to halt construction works at a residential project and even say it would give money back to apartment buyers, reports have said. RomReal, which had announced plans to put EUR 1.4 billion into Romanian projects by 2014, was unable to get financing for its Central Apartments project and for the 36-apartment Corallia Holiday Apartments in Constanta. The company, which runs activities through its Westhouse subsidiary in Romania, has suspended its Oasis Residences project in Constanta, a 383-apartment development, and its Central Apartments project. “The Oasis development project is suspended due to slow progress of sales. The Central development project is terminated due to slow construction progress,” the company said in a statement to its investors.
RomReal decided to suspend the Oasis project at the structure phase for the first three buildings in the first phase, of the total three-phased development. “This effectively means that the project will be suspended as of the end of 2008 until further notice, while RomReal assess whether the market conditions have improved sufficiently to move forward again on sales,” the company has said.
Of its terminated Central project, officials said, “The management is currently negotiating with the construction company how to wind down activity.”
RomReal is now considering how the necessary financing for Corallia could be put in place. The company's financials were not good either: its net asset value (NAV) was EUR 1.6 per share as of 30 September, following a decision by the management to write down the land bank/development projects by 31 percent. “The cost reduction programme is being intensified and the number of employees will be significantly reduced by year-end 2008,” RomReal has said. In the third quarter of the year, its pre-tax loss was of EUR 39.2 million.
The company, which owns 17 plots throughout Romania, has seen its land bank written down by 30 percent, while its development projects were written down by 39 percent. The company says the “write downs reflect the tougher economic environment and tighter credit situation for the real estate market.”

Developers downsize residential pipeline until better times
British-owned developer Copper Beech, which had plans to build some 17,000 apartments in Romania with EUR 2.5 billion in investment, will continue its first apartment project, but is delaying the rest and reducing its sales staff.
“The market is very slow so we have decided to delay most of the projects we were planing to develop in Bucharest. There is no demand, we are not selling so we have to control our costs. We have cut staff because we had enough people for three projects. [..] We've given up our sales team because we have nothing to sell,” said Diwaker Singh, executive director of developer Copper Beech, quoted by a newswire. The developer is building a 156-apartment project, a EUR 30 million development in Bucharest, called Blue Tower. The firm took a EUR 14 million loan from Alpha Bank to cover the development, along with its own equity. It secured a EUR 575 million loan from BCR in 2007, in order to support its planned development, but hasn't used any of that financing yet.
Meanwhile, investment fund Fabian Property has decided to delay its three planned residential projects in Timisoara, Oradea and Satu Mare until residential market conditions are more favourable.
“The strategy to develop residential projects in western Romania has been changed to reduce operational and financial risk. The opportunity will now be taken to amend the building approvals, when obtained, to incorporate an increased number of construction phases on each scheme, thereby reducing risk further, and increase the available range of financing options,” said Fabian representatives.
The Oradea and Satu Mare projects should have featured around 500 apartments in total, while the project in Timisoara was scheduled to deliver 250. None of them had been started and neither did they have financing prepared. Fabian has however continued its office projects, and has received several bank loans to finance them.
Elsewhere on the market, Greek developer QLD, which is developing the Green Lake project, has decided to put future projects on ice until better times. The firm will continue its Green Lake and Blooming House projects, but will delay the rest until next spring, when it hopes to have a clearer perspective of the local real estate market, said company representatives quoted by local media.
Local developer Newarch has also put its residential projects on hold. The company has decided to delay two residential projects it had planned for Bucharest until there is demand on the market, according to Radu Tudorache, who manages the company. “We have two large housing projects. We have received the Urban Zonal Planning (PUZ), but we will not start construction work until demand revives,” he said.
Israeli real estate developer Neocity hasn't frozen its ongoing projects in Romania, but is considering the possibility if financing is not available or sales stall due to insufficient customers, said company representatives quoted by local media. The firm is cautiously analyzing its involvement in any new real estate projects, but is also looking for opportunities emerging from the crisis.

Corina Saceanu

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