Competition hots up on housing finance market

There are two types of bank customers who want to buy a house: rushed or patient. Those who want things done ASAP apply for a mortgage. The others go to one of the two local housing banks giving loans in a Bauspar system.
This is a collective self-help system consisting of a savings phase prior to the investment and a loan phase after the actual investment. In Romania, clients also receive a state subsidy of 15 percent of their savings annually, not exceeding EUR 150.
Raiffeisen Banca pentru Locuinte (RBL) is the veteran of the Romanian Bauspar market, having started its activity in June 2004. RBL now has a market share above 90 percent. The bank has yet to turn a profit, but will break even in 2009 at the latest, considering the year on year growth figures, said RBL president Ionut Costea.
“The Romanian housing market is continuously growing and the offer for houses does not cover the demand at present. Figures are telling us that it will be several years until this happens,” said Costea.
“We expect the growth rate of housing banks this year to exceed last year's and maintain a clear rising trend in the coming years,” said Petre Tulin, president of the other housing bank on the market, HVB Banca pentru Locuinte (HVB BpL).
“In developed countries, where the Bauspar system has been around for at least 10 years, these type of contracts account for at least 30 percent of the total house financing. Following European accession, we estimate that Bauspar contracts will reach comparable levels in Romania as well, provided that the legislation is stable,” said Tulin.
Indeed, growth rates are encouraging. RBL doubled its loan portfolio last year against 2005, reaching EUR 55 million. This proves that Romanians are increasingly turning to housing banks for their homes and have got past their initial guardedness about the odd-sounding Bauspar products, said Costea.
HVB BpL has also tripled the number of contracts to 11,000 in 2006 and is maintaining the growth pace in 2007. “In the first quarter of 2007, the number of contracts has doubled compared to the corresponding period of last year. The contracted value has gone up 3.5 fold, reaching EUR 65 million,” said Tulin.
The business is growing, allowing banks to expand their product range. Last year, RBL started putting out loans in RON and is now considering the launch of loans in Euro, said Costea. The bank will also put out mortgages with advance payments under the current 25 percent as soon as the Central Bank approves RBL's new crediting conditions probably at the beginning of July, said the bank's vice-president Luminita Manolache. There will be certain clients for whom the bank will not require any advance payment, she said.
Both HVB BpL and RBL use multiple distribution channels for their products. HVB BpL has four regional centers, a collaboration with banks UniCredit and HVB-Tiriac and a partnership with the Creditcoop network.
RBL uses its own agencies and the 3,500 active collaborators working in them, Raiffeisen Bank outlets and those of business partners. One such partner is Volksbank, which does not have its own Bauspar product and is marketing RBL's services instead.
The diversification of distribution channels will increase further once the product gains more awareness and extends to brokers, insurers and post offices, said Tulin. However, this is but one of the two major business trends on the housing market at present. The second one regards the integration of Bauspar products with traditional ones.
“It is to be expected that Bauspar products will start being used as advance payments for mortgages, as means to refinance previous loans or as a way to provide connected services like the opening of a current account or the issue of a credit card,” said Tulin.
Other banks have seen the potential in housing products and are seizing the opportunity to get their share of the market.
The National Savings House (CEC) will launch a housing bank this year and has already taken up the project with the Central Bank, said president Eugen Radulescu.
“The shareholder of the new housing bank will be CEC, not the Finance Ministry [the sole owner of CEC],” said Radulescu.
Banca Comerciala Romana (BCR), the biggest lender on the market, might also step into the housing market this year. Its specialized bank will be established with one of the companies within the Erste Bank group in Austria, BCR's main shareholder. The bank will thus try to ride the wave of booming mortgage levels anticipated for this year, said BCR president Nicolae Danila.
The coming of the two players is welcomed by the existing housing banks, as it will provide everyone with a smaller share of a bigger, more complex market and increase the awareness of Bauspar products.
“We expect that their entrance will result in a more substantial promotion of the Bauspar system, which can only help us reach our commercial objectives,” said Tulin.
Costea also greeted BCR and CEC's plans to become competitors and estimated that effects would appear as early as this year.
“In 2007, we plan to keep our market share as close as possible to 90 percent, but we are aware that it will not stay at its current level following the entrance of BCR and CEC on the market,” said the RBL president.
Further competition is expected and probably on its way.
“I estimate that the number of players on this market will go up in the coming years. Take the Czech Republic as an example, where there are already six Bauspar banks,” said Tulin.

Ana-Maria David