Bucharest apartment prices down 4 percent in Q1, sharper decreases ahead

Prices of new apartments in Bucharest will most likely remain on a downward trend throughout 2012 and go down even further after having decreased on average by 4 percent in the first quarter of this year, according to a Jones Lang LaSalle report.

“In Q1 2012, the average price on the primary market of Bucharest experienced a decrease of 4 percent quarter on quarter. While the year 2011 was characterized by slight ups and downs of the market average, it can be expected that the price development in 2012 will see a more pronounced correction,” reads the report.

Projects that were finalized “with post-crisis designs” have been better adjusted to current demand, also in terms of pricing but there are still many projects in available for sale have been finalized during the boom years and in the early crisis days that “still need to adjust their price expectations to reality”.

Overall, the outlook for Bucharest’s primary residential market doesn’t look promising for this year. “In a moderately optimistic scenario, one can expect stables sales, while only few developers will be active in supplying new projects to the market,” according to the real estate agency.

In the past year there has been a considerable decrease of dwelling completions. Around 1,600 dwellings were completed within the city limits in 2011 which means a decline of 41 percent compared with 2010, according to Jones Lang LaSalle. This was the worst result in eight years and while, residential constructions on other regional markets has also lost pace, the number of completed dwellings in similarly populated Warsaw still reached around 9,700 in 2011 and even “crisis-ridden Budapest produced twice as much as Bucharest”.

Demand for housing too, has remained weak throughout 2011 and at the beginning of 2012. While residential mortgage growth statistics showed a slight increase in crediting for dwelling purchases in Bucharest in the second half of 2011, the last three months have been less dynamic, says the report. Prices continue to be too high for many to afford a new apartment, interest rates are still high and banks’ lending policies have remained conservative, both hampering growth in demand for housing. However, the major problem lies in psychological factors, think Jones Lang LaSalle representatives.

During the boom years the residential development market in Bucharest and its suburbs witnessed an incredible number of developers’ announcements related to new housing estates. “However, until today, not only have few of these projects have been built but, worse, many projects and developers vanished, including bankruptcies and insolvencies. There is a common lack of trust for the development market, which especially hinders pre-sales during the construction period on which many developers rely on,” according to the report.