The number of homes delivered last year in Bucharest and the metropolitan area was 21,328, 3% below the 2021 level, estimate consultants Colliers, who credit the unexpectedly slow performance in the last three months of 2022 for the decline, when a third fewer homes were delivered compared with the same period last year.
At the national level, the residential market in Romania registered a record number of deliveries of 73,332 new homes, up 3% compared to 2021. Colliers consultants also note an acceleration of migration to more quiet areas in the suburbs or localities around large cities, and this trend is expected to continue in the medium term, creating new prospects for residential developers.
The Capital was not the only area where fewer homes were built last year, a significant drop was also seen in the West region, where deliveries fell by 11%, and in the North-East region, where 5% fewer homes were built than the previous year. At the opposite pole, the areas where more houses were delivered were Constanta and the coastal area, especially Navodari – Mamaia Nord, but also the metropolitan area of Cluj.
“Developers in the residential segment are mainly interested in the metropolitan areas of large cities rather than inner-city development. Thus, the trend observed in the past, especially around Bucharest, is also extending to the major cities, the reason being that the supply of land is more consistent, prices are lower and authorizations are generally obtained with fewer difficulties. Clearly, supply is adjusting in response to falling demand, and the market is moving towards a new equilibrium after the last two years of record highs. Further, falling demand, rising interest rates, inflation that reduces purchasing power, and rising construction costs add to the uncertainties affecting the short-term residential market outlook”, explains Gabriel Blanita, Associate Director Valuation & Advisory Services at Colliers Romania.
The hybrid working system, which combines remote working with office-based presence and has already been adopted by many companies, has stimulated this trend of population migration to small towns and cities, as a result of reduced pressure on existing infrastructure, whose development does not usually keep pace with private developments, according to Colliers. However, investment in infrastructure has accelerated significantly in the last two years and this will support the development of metropolitan areas in the medium and long term.
“If currently, for every house delivered in the city, 2 houses are delivered in the metropolitan area, in the next 2 years, for every house in the city, 3 houses in the metropolitan area will be delivered. The substantial pipeline of projects authorized makes a supply shock very unlikely in the coming period. Still, better predictability and transparency regarding the status of urban plans would contribute significantly to easing the real estate market and mitigating the wide variations we have become accustomed to in recent years. Due to the fact that the development cycle of a project spans on average 3-5 years, predictability is one of the most important factors in securing financing, especially in an environment where interest rates continue to rise”, adds Gabriel Blanita.
In terms of demand, apartment sales started to decrease from the middle of 2022 in the largest cities in the country with percentages between 20-30%, with the exception of Bucharest, which made a discordant note with a slight increase in the number of transactions.In the first quarter of this year, apartment sales were 23% lower than in the same period last year. While 22% fewer apartments were traded in the Capital, in Iasi the decrease was 26%, in Timisoara – 25%, and in Cluj-Napoca 36% fewer apartments were sold compared to the first quarter of 2022.
“These declines in the number of apartments sold seem large, but are not a cause for concern because they relate to a period with a record number of transactions in the residential market. It is not sustainable to break records every year, so such corrections are welcome from time to time. The fact that we still have a significant number of transactions and prices have not changed noticeably provides evidence of the solid fundamentals of the residential market, even in a high interest rate climate. Although, we are still far from a normalization of mortgage interest rates, and the IRCC index is currently at 5.98%, compared to 1.86% a year ago. The persistence of inflation for a longer period than initially estimated makes this year much more difficult for those who want to buy a home with a loan”, says Gabriel Blanita, Associate Director Valuation & Advisory Services at Colliers Romania.
Banks are also experiencing lower numbers of customers who can afford the cost of mortgage loans, and since the first quarter of this year, the drop has been considerable, with 28% fewer mortgages being granted nationally. This decrease in the first three months of 2023 led to a decline in the balance of mortgage loans in Romania, a rare development in the banking market. The outlook for interest rates for the rest of the year doesn’t bring much good news for buyers with credit, Colliers consultants note, so the most likely time horizon in which we can expect more consistent easing would be in the first part of next year. The good news, however, comes from the labor market, where the number of employees has continued to rise and average net pay at the start of this year is 15% higher than a year ago.