Apartment Prices Holding Steady as Mortgage Lending Declines

The uncertainties that have dominated the economy since last year have also had an impact on the financial and real estate markets. The significant increase in interest rates in 2022, caused by the rising inflation, led to a sharp reduction in mortgage lending in 2023. Despite the lower demand for homes, prices have not dropped—but their growth has slowed down. Market signals for the upcoming period are positive, given the stabilization of bank interest rates and the gradual cooling of inflation.

By Aurel Constantin

High-interest rates have reduced Romanians’ appetite for mortgages, with the number of apartment transactions falling by almost 30% in Bucharest and Romania’s major cities in the first five months of the year, Colliers consultants note. Compared to the past four years, when the balance of housing loans grew by an annual average of 10-12 %, the annual evolution of housing loan stock is now growing by only 1.2 %, with the slowdown having become noticeable starting with the second half of last year.

“The stock of housing loans has fallen in each of the first four months of this year, meaning that banks granted fewer housing loans than were repaid. The outlook for interest rates in the second half of the year shows little sign of improvement, so we expect to see a continuation of this trend. The annual evolution of mortgages will go into negative territory, one consequence being that the share of transactions based on credit is decreasing because some buyers can no longer afford to access a mortgage loan, so they have to postpone the purchase,” says Gabriel Blanita, Associate Director for Valuation & Advisory Services at Colliers Romania.

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Colliers: Real estate investment market slowed down its activity in 2023, decreasing by more than half

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The IRCC, the reference interest rate for home loans, will remain relatively stable around the 5.98% level it recorded in the second quarter of 2023. It will decline slightly to 5.94% in the third quarter and end up at an estimated 5.95% for last three months of the year. In this context, following two years of sustained and widespread increases, this year will see fewer transactions, with mixed price developments. The National Bank of Romania (BNR) maintained the interest rate at 7 % in its last monetary decision, signalling that it would keep the rate unchanged until the end of the year provided that inflation would continue to slowly go down. Banks also picked up the sign from the BNR and started to lower their interest rates for bank deposits, which means that loans will be cheaper in the future.

Meanwhile, the fundamentals of the residential market remain solid and wage growth remains strong. The country’s average net wage increased by 15 % in April 2023 compared to the same period last year, reaching RON 4,564, a development that exceeds the inflation rate of the same period. A continuation of this trend will lead to an improvement in housing affordability, which has suffered over the past two years. What’s more, compared to the pre-pandemic period, the market is showing good dynamics, with the number of apartment transactions in 2023 increasing by around 20-30% in Bucharest and other major cities. However, it is worth noting that only about half of those transactions were made with the help of a housing credit, while the other half were cash transactions.

Since the beginning of this year, the 3M ROBOR rate has fallen by 1 %age point, from 7.56% to 6.55% today. The drop in interest rates on IRCC-linked loans (new loans, but also old loans that have converted from ROBOR to IRCC) will take longer, however, given the methodology used to calculate this index.

“Even though the growth in construction volume has slowed down compared to that of previous years, the first four months still reflected a 1.1 % increase in residential construction volume compared to the same period last year. Those who continue to invest in developing new projects during this period will have the most to gain in the run-up to next year, when we expect financing conditions to relax. Furthermore, the very good volume of infrastructure works during this period will unlock the development potential of both the capital area and the cities located along the highways to Moldova or Transylvania,” Gabriel Blanita argues.

In Bucharest, the adjustment in the supply of new homes against the background of lower demand was highlighted in the first quarter of the year by a sharper decrease in the number of delivered homes. Only 4,666 units were delivered in the first three months of 2023, 16 % below the same period of last year.

Prices Stagnating Across the Market

Apartment prices went up slightly in June 2023, just as they had in the previous two months. According to the Imobiliare.ro Index, both new and old apartments in three large cities that are constantly monitored by the portal have recorded increases in average listing values, with the lowest margin of increase being recorded in Craiova and the highest in Constanta.

In Bucharest, the price of apartments available for sale saw a slight decline of 0.5%, from an average of EUR 1,498 per usable square metre to EUR 1,491 per square metre. Housing in old buildings depreciated by 0.1%, from EUR 1,507 per square metre to EUR 1,506 per square metre, while the average price of newly built residential units reached EUR 1,420 per square metre.

The Imobiliare.ro index points to a slight overall price decline in June for Brasov, of 0.4%, from EUR 1,596 to 1,590 per useful sqm. During this time, old apartments depreciated by 0.3%, going from EUR 1,526 to 1,522 per usable sqm. Meanwhile, the price of newly built homes in Brasov declined by 1.9%, from EUR 1,857 to 1,821 per sqm. Cluj-Napoca was also characterised by a downward evolution of apartment prices: asking prices went down by 1.2%, reaching an average of EUR 2,416 per useful sqm (compared to EUR 2,446 per sqm at the end of May). The average value of homes in old buildings reached EUR 2,400 per sqm (from EUR 2,425, representing a 1% decline), while the new residential market saw a similar price drop, from EUR 2,547 to 2,518 per sqm.

Constanta maintained the trend that began in May, when apartment asking prices increased, seeing an increase of 2.7% in June, from EUR 1,470 to 1,509 per usable sqm. There were differences in growth rates between the two analysed market segments: old apartment prices rose by 2.5% (from EUR 1,452 to 1,488 per sqm), while newly built housing units recorded an average increase of 4.7%, ending up costing EUR 1,719 per sqm.

The Iasi market experienced a slightly negative evolution in June, with a 0.2% decline from an average of EUR 1,375 per sqm to EUR 1,372. In the last 30 days, homes in old buildings in the city recorded a slight increase of just 0.1%, from EUR 1,375 to 1,377 per square metre. Newly built apartments, on the other hand, depreciated in this period by 1.3%, from EUR 1,369 to 1,351.

Timisoara was also among the regional centres where apartment prices dropped in June: as a whole, they had a decline of 0.8% compared to the previous month, from an average of EUR 1,472 to 1,460 per sqm. By segment, old homes depreciated by about 0.3% (from EUR 1,452 to 1,447 per sqm), while new housing units saw a price drop of 2.8%, from EUR 1,562 to 1,519 per sqm.

In Craiova, the average asking price for apartments increased slightly by 0.1% (from EUR 1,475 to 1,477).