Interview: Crisis will clean the market, says Ocif co-general manager

How do you expect the residential downturn in Romania to evolve over the coming year?
The Romanian residential market is one of the most difficult to predict because of the different trends and market forces that will push it in different directions. Unlike in the US or Britain, here there is a real demand for new apartments and for improving lifestyles. Banks and speculation created the demand in the US and not real clients. Banks in Romania never gave mortgages in the same volumes, terms and without any real conditions like in the US. In Romania, around 30 to 40 percent of residential buyers are investors, most of them foreigners, so actually the residential market, mainly for the middle class, is only at its beginning.
For the next five years, however, I would say that the Romanian market will be one of the strongest and most interesting markets to invest in. Clients will start to buy apartments again. The blockage should end when buyers discover that prices cannot go down dramatically. Exclusive projects, which don't require buyers getting loans, and cheap projects, between EUR 1,000 and EUR 1,300 per sqm, where buyers can afford the loan, will sell quite well. Unfortunately I don't think that the middle class will be able to buy apartments in the near future to the extent that many developers had hoped for.

How could developers turn the residential slowdown to their advantage?
Every slowdown brings opportunities. Firstly, after this crisis, only solid and professional players will stay on the market, which will ensure maturity and a high level of professionalism. This crisis will clean the market. Secondly, some investors will have to sell their plots to meet their obligations to banks. I predict some good investment opportunities will appear on the market in 2009.

How hard will residential developers be hit by the new central bank ruling limiting access to loans?
The influence of the new central bank ruling will be very strong. Middle class people who live in old blocks and want to upgrade will have to postpone doing so. Still, the effect will be felt differently in different locations and different projects. I still believe that the market in general will be better than in the last few months when the blockage was mainly psychological. Developers are already delaying launching new projects or not starting new phases, which will cause a new shortage in supply compared to demand. Another possibility for developers in some projects in central locations is to rent the apartments that are not sold. Usually when people cannot buy apartments, rents go up and so do yields.

How do you think the profitability rate on residential projects will evolve in Romania on the medium term?
In the last year the profitability for developers has gone down because the cost of land and construction went up while sales weren't good enough to sustain a price raise. When developers cannot foresee a certain level of profitability they will simply not develop. Then supply will not meet demand and prices will start to go up. It is a fine balance, changing all the time, but market
forces keep profitability within certain limits.

By Corina Saceanu