As Romania’s macroeconomic indicators and outlook started to improve and bring back the interest of foreign investors (direct foreign investments of the first eight months of this year reached a volume similar to that recorded during the whole previous year), the real estate market felt a fresh boost with a year on year increase in the volume of works of over 11 percent during the first eight months of the year. According to a report released by real estate consulting company Coldwell Banker, a post-crisis record number of new real estate projects was started, ranging from buildings to shopping centers and to residential complexes.
While 2014 showed a boom in real estate, reaching levels close to the peak before the economic crisis, 2015 promises to be an even better year, with 11,000 units already completed in Bucharest and the surrounding areas and an estimate of 14,000 units by yearend.
The total stock of new homes, completed and up for sale, located in over 350 residential projects in Bucharest has a high degree of absorption (above 70 percent), as developers better adjust supply to the existing demand.
The new offer placed by the developers on the market consists primarily of projects dedicated to the mass market segment (housing units in the outskirts of Bucharest or within the large neighborhoods), purchased through the Prima Casa (First Home) program in more than 80 percent of the cases and with sale prices which rarely exceed EUR 50,000 for a one bedroom apartment. The offer for this type of housing has decreased, however, from the the almost 70 percent of previous years.
The residential projects which target the middle segment buyers have seen a boost and now account for more than one third of all the units placed on the market by the developers. Less than 50 percent of the transactions concluded on this segment are carried out by funding from the Prima Casa (First Home) program, as buyers of such housing units generally look for an upgrade (they already own a house that they choose to sell in order to purchase a new and bigger one, with more rooms and a better location).
The share of projects dedicated to the high-class segment, characterized by sale prices of over EUR 70,000 for a one-bedroom apartment, also increased in 2015, as more and more projects of this kind were started in the central or northern part of the city.
The increase in the number of residential projects dedicated to the middle and upper middle segments and also the poor infrastructure of certain areas, that can be considered as classic for the development of mass market project, resulted in a decrease of the shares that the southern and western areas hold in terms of the number of completed new units, the eastern and the northern area being the areas where we will witness a significant increase this year and during the following period.
The small sized residential projects, with no more than 50 units, continue to account for a significant share (over 30 percent) of the total number of completed new units, benefiting from advantages such as good location, on small plots located in different parts of the city, or a relatively low investment required, bank funding being rarely used on this segment.
Unlike the period before the economic crisis, the new units developed on the national residential market are much better adapted to the current demand, which led to an increase of over 40 percent in the funding granted through the Prima Casa (First House) program during the first half of this year, compared to the first half of 2014.
The purchase of a new house is now three times more accessible than it was during the economic boom period, due to the decrease in the selling prices and the successive increases in the net average wage and also due to the successive decrease of the monetary policy interest operated by the National Bank which resulted in a cheapening of the mortgage loans in RON.
While the annual return of a EUR deposit is of approximately 2 percent -3 percent, the purchase of a residential unit for its subsequent lease may bring a minimum annual EUR yield of 6 percent.
Prices have remained stable this year, at an average of almost EUR 700 per built square meter in the mass market projects, while the middle segment projects are sold at approximately EUR 1050-1200 per built square meter.
Experts expect market prices to remain stable and the annual level of absorption of the newly developed houses to remain high. The Prima Casa program will still hold the largest share in the total number of transactions if the authorities decide to continue the program in 2016, pundits say, though other types of financing will also gain ground.
The stabilization of the prices, the increase in the demand for new houses and the increase in the cap price for which the lower VAT rate of 5 percent can be applied, which is now approximately EUR 100,000, will result in a slight increase in the number of projects dedicated to the middle and upper middle segment and also in the sales of two-bedroom homes.
This year the residential segment has begun a new sustainable steady development cycle, typical of mature markets, based on an alignment of the supply with the current demand, experts conclude.