More than 25,000 state-guaranteed Prima Casa mortgages will be taken out in 2015, surpassing the average of recent years. Moreover, after the number of regular mortgages in the national currency saw a substantial increase last year in response to falling interest rates, the trend is expected to continue in 2015, fuelling hopes of a new growth cycle for the residential market.
About 7,000 new RON-denominated mortgages were taken out in December 2014, more than three times the volume registered at the beginning of the year, according to data from Romania’s central bank. This was mainly the result of falling interest rates for mortgages in the national currency – by mid-2014 interest rates for RON-denominated mortgages dropped below those of euro-denominated mortgages – but also of an overall increase of transactions involving residential properties.
Real estate developer Adama sold 30 percent more apartments last year after reporting a 25 percent increase in 2014, Alina Necula, head of marketing & sales at Adama Group, told BR. Overall, there is growing demand for housing and the market is showing signs of maturing, she added. For once, buying a property is no longer seasonal as was the case a few years back and buyers are no longer reluctant to purchase a home during its development phase. Moreover, they are more informed and have a better understanding of the market context, she added.
All this is also reflected in the financing options available to home buyers. “Over the past few months banks have launched standard mortgage offers which are serious competition for Prima Casa and which are more advantageous for those who can afford to put down a larger deposit. In fact, even over the past year the government program has been exclusively for those who couldn’t afford to pay a deposit of more than 5 percent under any circumstances,” said Necula.
Nevertheless, the Prima Casa (First Home) state-guaranteed loan program will remain an important element of the local residential market in 2015 as well, but its contribution will not grow, she added. At present it is estimated that Prima Casa loans represent about half of the total number of mortgages in the country.
As for the overall evolution of the market in 2015, Necula reckons that this year will be one of stabilization. “We strongly believe that we are heading towards a mature and stable market with no sudden upswings from one year to another but with constant positive evolution – a sustainable market,” she predicted.
More Prima Casa loans to be taken out in 2015
The government said it wants to allocate some RON 2.5 billion (approximately EUR 557 million) this year to Prima Casa to which will be added funds left unused from 2014 for state guarantees under the loan scheme. By comparison, last year a total of RON 2.3 billion was allocated as guarantees for 25,000 mortgages.
The government-backed Prima Casa (First Home) scheme was set up in 2009 as a means to support the residential market by encouraging first-time buyers to get on the property ladder. Over the following five years approximately 130,000 mortgages were taken out under this program with a combined value of more than EUR 4.8 billion.
Over the years the program has undergone several changes and since 2013 it is only available for loans in the local currency, a measure that also contributed to last year’s surge in RON-denominated mortgages. Unlike a regular mortgage, Prima Casa beneficiaries can buy an apartment or a house with a deposit of only five percent and half the credit risk is guaranteed by the state. This means that a total of at least EUR 5 billion of mortgages could be given in 2015 by the 18 banks participating in the program.
This year the scheme could be changed to also include home-owners who want to upgrade to a larger property, announced finance minister Darius Valcov earlier this year. However, market representatives argue that this would have little impact on the total number of Prima Casa loans. Moreover, it could prove difficult to implement without creating a blockage, said Necula.
While expanding the program to include more beneficiaries is a welcome measure, the government should consider other measures that could have a direct impact on the construction of new homes. “The government could turn its attention to an aspect that would clearly support real estate developments – expanding the 5 percent VAT threshold over the current RON 385,000 limit (e.n. approximately EUR 86,000), for example,” she recommended.