COVID-19 will impact each residential market segment differently

The impact of the Pandemic on the Romanian residential market will be different for each category of buyers, correlated with the sale price of the properties, the most affected being the segment that addresses buyers interested in properties with prices below 1,300 euro / sqm. This category represents the largest part of the offer of new homes in Bucharest, respectively 64 percent of the total.

Under these conditions, government measures such as the Noua Casa program or the reduced VAT rate will continue to support market dynamics in these times of uncertainty.

”Increasing the unemployment rate will mainly affect this market segment. One of the short-term effects will be a decrease in the eligibility of potential buyers in this category, for which it will be more difficult to qualify for mortgage loans. Transaction levels for this segment might see a sharp reduction, at least on the medium term and therefore selling prices will follow the same trend”, comments Andreea Hamza, Senior Director Living Department JLL Romania.

The middle-upper segment which represents approximately 30 percent of the total number of units in the market and have selling prices between euro 1,300 euro/sqm and 2.000 euro /sqp will be moderately affected as the buyers from this category presumably have more stable incomes and are more resilient to market downturns. Nevertheless, the small investors looking for buy-to-rent opportunities suitable for short term accommodation will step-back from this market on the middle term. Moreover, the presence of the opportunistic buyers will increase as they will be looking more actively for distressed acquisitions.

The high-end segment which represents approximately 6 percent of the total number of units in the market and have selling prices above 2,000 euro /mp will be the least affected, as it proved to be the most resilient segment in distressed periods over the time. We don’t foresee a change in the potential buyers’ appetite for luxury residential properties, the demand is expected to remain stable.

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The level of new units transactions in H1 2020 was situated somewhere at 8,000 units for Bucharest and 3,000 units for Ilfov, assuming that 60 percent of the Bucharest transactions officially registered by the National Agency for Cadastre and Land Registration were with new units, while for Ilfov new sales represent 90% of total transactions. ​This represents a 7 percent decrease when compared to H1 2019.

”We believe the transactions volume will be slowed down by the expected rise of the unemployment rate in the economic downturn. ​ Therefore, government measures to support the real estate segment, such as Noua Casă program or raising the value limit of the reduced VAT rate, can be a real help for developers and buyers. If the Prima Casa/Noua Casa program has already been extended and optimized, the long-awaited measure now is to increase the maximum limit for which the 5 percent VAT is applied”, adds Andreea Hamza, Senior Director Living Department JLL Romania.

About 4,000 new homes were delivered in Bucharest and Ilfov in the first 5 months of this year

Overall, the new supply in 2020 will be less than 10 percent smaller than the 2019 level, reaching approximately 12,900 units with potential delays in construction completions.  However, the number of newly supplied apartments could fell by up to 50 percent in 2021 reaching approximately 6,500 units and might continue the downward trend in the next 2 years. Therefore, the effects of the current crisis will be clearer on the longer term, when we will be able to evaluate its impact on the projects currently in the planning phase.

In the mid-term, we expect developers to be more cautious and opt for the breakdown of the projects into a larger number of phases in order to limit the exposure to market fluctuations and to keep the flexibility of adjusting their product to potential changes in demand.

The future residential supply might be increased to some extent by the new trend of reconverting previously planned office developments into mixed use projects with a residential component.