“According to our estimate, based on official statistics on average income per household, only the upper 10 percent of Romanian households can count on a monthly disposable income of around EUR 1,000. Those figures clearly show that the affordability of housing for an average Romanian household is very limited,” say bank representatives.
The bank has recently conducted a survey, carrying out 1,000 interviews in the capital, large cities and small villages, which revealed that 25 percent of households intend to buy real estate in the near future, of whom 17 percent are looking for an investment opportunity or a second home. The bulk of the potential buyers are the under-29s, on low incomes but with growth perspectives, says Rozalia Pal, chief economist with UniCredit Tiriac Bank.
The current residential offer in Romania mainly targets high earners, according to the survey. The average price per sqm of new housing is EUR 2,475, while old housing costs EUR 2,177 per sqm, reports the bank. According to estimates from the National Bank of Romania based on information from public notaries, prices have evolved in a very similar pattern to the capital, increasing by more than 400 percent in the last five years, according to Rozalia Pal.
The local market is expected to reach saturation point in 32 years, when demand will meet supply, which is the longest timeframe in Central and Eastern Europe. The Czech Republic is expected to reach saturation in 26 years and Bulgaria in 19 years. Russia is the closest to saturation, with only 11 years to go.
“In the foreseeable future, we expect demand for better living conditions to continue to support the residential market, with the supply of new dwellings gradually filling the demand gap and with focus gradually shifting towards other cities in the country,” says the UniCredit Tiriac Bank report.
Bucharest is projected to remain the main market for developers with a new supply of more than 35,000 units likely in the next seven to ten years. Some factors, such as the lack of specialized labor, the availability of suitable land and tightening credit conditions may nevertheless put a cap on development. Further growth in households' income is expected to increase the affordability of mortgage loans for the upper-middle class living in the major cities of the country. Attracted by this new market potential, developers are starting to show interest outside the capital. Ploiesti, Oradea, Costanta, Cluj-Napoca, Brasov, Iasi and Arad are among the cities with projects of around 3,500 5,000 units in the pipeline.
“Demand could fall this year, however, following the anticipated cooling in the expansion of lending resulting from a general increase in the cost of risk and a tightening of monetary conditions, and more generally from lower capital inflows. Still, we believe the fundamental gap between structural demand and supply is a good indicator of the remaining growth potential on the market,” conclude the UniCredit Tiriac Bank specialists.