Analysis. Safe as houses: residential market marks secure 2017

Simona Bazavan 26/04/2017 | 13:32

The residential market looks set to maintain a sustainable growth pace this year, as developers push the pedal on new projects, while price increases are expected to remain in the one-digit range.

 Simona Bazavan

Getting on the property ladder is easier today than it has been in years, real estate consultants and developers suggest. It currently takes a would-be homeowner 114 average monthly salaries, or less than nine and a half years, to buy a new apartment of about 50 sqm in Bucharest, according to Coldwell Banker’s affordability index. This is lower than the 119 salaries required last year and considerably below the 395 average salaries or over 32 years needed to buy the same property in 2008, the year when the local residential market peaked. “This is the best level in the history of the modern Romanian residential market,” Gabriel Voicu, head of the new homes division at Coldwell Banker Romania, tells BR.

All this indicates that after several years of constant, and some also contend sustainable growth, the market will remain on this positive trend in 2017 as well. There are several arguments in favor of this, market representatives say.


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The first is the fact that incomes have been going up over recent years, especially in Bucharest. “There is real demand in the market because we can see an increasingly active middle class taking shape. In Bucharest there is constant growth in the number of highly trained employees,” Silviu Grigorescu, general director of Hanner Romania, tells BR. This includes people working for various outsourcing companies and also IT specialists whose average salary exceeds EUR 1,200 per month and whose number went up by 20 percent in 2016 alone, he adds. The developer says that more than a third of those who have moved into The Park Apartments, the project it has developed in Bucharest, work in the IT industry.

Additional good news comes from the fact that banks are adopting a more and more relaxed mortgage lending policy, as well as the continuation of the government-guaranteed mortgage lending program Prima Casa for the next five years, Bartosz Puzdrowski, CEO of Impact Developer & Contractor, tells BR. This provides some much needed stability for both buyers and developers, he adds.

Trading up, where an owner sells one property to buy a better located and/or larger one, thus ensuring cash liquidity in the market, is another growth factor, adds Voicu. “I think there is a market shaping up of former Prima Casa buyers who now want to trade up. They are young people who bought an apartment five to eight years ago and who have in the meantime evolved professionally, or their families have grown,” notes Grigorescu. în business 2-01 (1)

Given the need for new housing in Bucharest, growth should continue in the years to come, Cristian Mercioniu, GM of New Residence, tells BR. “There is a shortage of some 300,000 homes. Therefore, even if some 15,000 new units are to be delivered this year according to estimations, this is still not enough to cover the existing need, which leads us to anticipate constant growth for the market over the coming years,” he says.

Last and definitely not least is the fact that on the supply side developers themselves are pushing the pedal on new investments. The number of apartments to be delivered this year will hit the highest level since 2009, Ahmet Buyukhanli, CEO of Vision Land Development, the developer of the Cosmopolis residential project in Bucharest, tells BR. “The residential market in Bucharest will go up and this is something we can all see because of the high number of projects presently being developed,” he predicts.

According to a survey carried out by online real estate platform, in Bucharest alone 76 more residential projects are being developed, in various stages, than six months ago. Outside the capital the outlook is equally positive with 25 more projects in Cluj-Napoca and 37 in Iasi to name just two regional cities. “In Bucharest we estimate that 350 projects in various stages are currently being developed, not counting those that have been fully sold. In Cluj-Napoca there are 110, the same number in Timisoara, and 120 in Iasi. These are projects with at least 30 housing units each, Adrian Erimescu, co-founder and CEO of, tells BR. This reflects the overall higher interest coming from potential buyers. The online platform reported a 40 percent increase in searches during the first quarter compared to the same quarter a year ago, according to company data.

Coldwell Banker data indicate that some 12,000 homes are scheduled for delivery this year in Bucharest and its surrounding areas, compared to 10,000 last year. “One should note that another 1,800 units were scheduled for last year but they got postponed until 2017,” notes Voicu.

The middle way

A developing trend, he adds, is the growth of the mid-market, reaching 39 percent of last year’s supply against 32 percent a year before. More importantly, this trend is expected to continue, as new projects are being developed in the vicinity of office hubs such as Barbu Vacarescu-Floreasca and Politehnica-Grozavesti. This is underpinned by both bigger budgets and more demanding buyers, market representatives say.

“Buyers’ demands and expectations are high because they have become more and more educated with regards to the residential market. This is the consumer behavior of an educated buyer who knows exactly what he or she wants,” outlines Buyukhanli.

All this translates into an increasing preference for new apartments over so-called “old” ones built before 1990, as more and more new projects are being developed and in more desirable areas. There is also a shift towards larger homes. “We’re seeing interest in two-bedroom apartments catching up with one-bedroom apartments which up until now have dominated demand,” said Erimescu. Developers confirm this. “In 2016, in our project Greenfield Baneasa, two-bedroom apartment acquisitions increased to 44 percent, and three-bedroom ones to 16 percent,” says Puzdrowski.

Similar trends can be observed outside Bucharest as well. Romanian real estate developer Ovidiu Sandor, who has kick-started a EUR 130 million investment in a mixed residential and office development in Timisoara, western Romania, expects to deliver and sell the project’s 1,200 apartments in three years’ time. “The feedback we have been given is very positive, which is proof that the market has grown more mature and that buyers appreciate a more complex project such as ISHO, even in secondary cities like Timisoara. Buyers pay attention and ask very specific questions about the quality of the construction itself, the materials used, and they often drop over with their homework done,” he tells BR. He too speaks of an interest in larger apartments as well as a developing local trend of people who already own properties in the suburbs moving downtown.

Will all this buzz on the local residential market also translate into price increases by the end of the year? “Apartment prices will go up this year, in fact, they have been on an upward trend for the past 12 months. The highest growth rates are reported in Cluj-Napoca and Timisoara but in Bucharest too they vary between 6 and 7 percent,” says Erimescu. In fact, all players talk about price increases of about 3 to 10 percent by the end of 2017 given the current market conditions. Any rise, however, must be coupled with an overall increase in average income in order to be sustainable, notes Grigorescu. “I think the market is currently balanced with regard to demand and supply. There is a chance on the short term that supply will slightly outstrip demand, but we aren’t there yet,” he says.

Developers’ forecasts are backed by good results posted last year, they say. Impact Developer & Contractor sold or pre-sold 563 apartments in Greenfield Baneasa, the developer’s flagship project, which was up by 15 percent y-o-y. This year the developer aims to maintain and even surpass this growth rate, says Puzdrowski.

The developer of Cosmopolis has set the same target. “Our objective is to maintain last year’s sales level and even mark a slight increase by reaching 540 units. Last year we sold 470 homes worth a total EUR 30 million, which was up by 10 percent against 2015,” says the CEO of Vision Land Development

Hanner Romania sold 50 percent more apartments in 2016 than the previous year and expects to sell the remaining units of its The Park Apartments this year. The next step will be to start work on its second residential project on the local market in the second half of this year, contingent on securing all the building permits, adds the firm’s GM. The project will be located on the grounds of the former Grivita brewery.

Elsewhere, some 30 percent of the housing units being developed in the New Residence project were sold last year, despite the fact that it was in its early development phase. “This year we expect to double the monthly sales figures given that works are advancing, and by the end of the year we estimate that we will reach the 90 percent threshold,” comments Mercioniu.

Des reses advance more slowly

The high-end segment is also expected to post growth this year, although the buzz here is not as great as across the overall residential market. “There isn’t the same effervescence and that can never happen, but there are encouraging signs. The reasons for this are mainly financial – the fact that there is liquidity in the market and access to it – and there is also an adequate supply. In both senses, the market looks encouraging,” Andreea Comsa, managing director of Premier Estate Management, tells BR.

Buyers are mostly prospective owner-occupiers, as the rental yield (the ratio between a luxury apartment’s value of acquisition versus the rent it generates) is unattractive to investors, Mihaela Pana, partner at the residential agency Cushman & Wakefield Echinox, tells BR. “There is however interest from those who have an immediate need for such properties, this demand stemming from a lack of new projects being developed between 2009 and 2015 as well as a relatively low appetite for such properties during the same period,” she outlines.

There is also demand for homes with a prime location which don’t necessarily qualify as luxury, but rather premium, adds Comsa. “We have in our portfolio volume projects that qualify as upper-middle and high-end without being considered luxury, where a 150 sqm penthouse sells for between EUR 300,000 and EUR 400,000. This is a clear sign that there is room for growth on the premium segment. On the luxury segment a penthouse often goes for beyond EUR 1million,” she says.

Prices of high-end properties seem to have stabilized between EUR 2,500 and EUR 3,500 per built sqm, according to Pana, who adds that she doesn’t expect any changes to that in the foreseeable future. “There will several products up for sale which, because of their unique location, will reach EUR 4,000 per sqm, but these will be an exception,” she notes.

The growth potential is also confirmed by the new projects being developed, say consultants. “Although land suitable for such developments is becoming rarer and securing the building permits is becoming equally hard, one can see that there are quite a lot of construction sites and others will start up over the coming period,” says Pana.

Proposed VAT changes worry players

While all players are optimistic about the performance of the overall residential market through to the year end, there are concerns about a possible VAT change for residential transactions. Liviu Dragnea, head of the ruling PSD, suggested earlier this year that first-time buyers who acquire a property worth less than approximately EUR 100,000 could pay no VAT on the transaction – at present they pay 5 percent. Although no concrete steps have been taken in this direction, market representatives are wary of the instability they say it would occasion.

“It would only have negative effects. It brings about a lot of instability in the market because should it come into force it is very likely that it would later be scrapped due to its incompatibility with EU legislation. There is also the question of what would happen to those who have signed a zero VAT pre-sale agreement should the law later be axed,” cautions Erimescu. While on one side the measure would cause instability by making potential homebuyers postpone their purchase, it could also lead to unsustainable market growth, warns Comsa. Such a fiscal change should instead be based on a coherent medium- and long-term strategy, says Grigorescu, adding that reducing the tax burden for larger properties would make more sense. “Properties worth over EUR 100,000 are taxed at about 15 percent more than those below this threshold. Charging 5 percent VAT on properties of up to EUR 150,000 would give buyers greater comfort, it would help those who want to start a family as well as the development of projects in better locations,” he argues.

Comsa too thinks that increasing the 5 percent VAT threshold would be of better help to the residential market, likewise raising the 5 percent VAT on acquiring a second property.

Yet not everyone agrees the proposal would be a bad idea. “I think it is too early to discuss the impact of this decision on the residential market since they haven’t adopted this bill yet. I think it’s a good initiative in social terms, as it would facilitate the acquisition of new and more spacious houses, with two or three bedrooms. At the same time, the current uncertainty is hurting the market,” concludes Puzdrowski.



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