We are at a crossroad in this period between a boom and the other. The first boom meant a lot of speculative activities, price incresings just over the night without any logical reason and other related matters. The new boom which begins in this period will be the boom of professionals – developers, investors and the real estate agents. This year in a totally different project I met Mr. Pau Hortal, a very well known personality in Spanish HR market. He started his business in Romania and told me that our country looks like Spain, 20 years ago in many fields. I felt necessary to think forward and to try to guess if our real estate market will look in 5-10 years as it is in Spain right now. I considered a forward thinking of less than 20 years, because the evolution is more powerful in our market. So, how will be our market in the years ahead of us?
This is a special day for me because it is my birthday and I will make you a gift. I compressed in 10 paragraphs how I see this market based on my day by day activity, the conferences where attended and then discussions I had in the last 12 months with the top managers of the companies which are our close collaborators.
I consider this a gift because any consultancy company can charge you +10.000 euros for offering such an info in a 40 pages study. I consider this … the essence. If you don’t agree with this information, please send me your feedback at adrian.niculescu@euroest.ro.
1. Mall business – there are announced 100 projects for malls in Romania. At the beginning of this market it was simple – buy a land, hire an agency and build a mall. Now, the developers which are present in this market have a background of 10 – 20 years and the future belongs to networks of malls. At the end of the day, the big players will count. The small ones will be force to sell the businesses sooner or later or … because will not have enough power to fight with the much bigger competitors and to attract for long term contracts the kind of tenants which they have right now.
2. Mall rent – now is a market of owners because the demand is much bigger than the offer. At the end of 2009, the balance will change because of the projects which will arrive in the market. I was astonished when I saw 5-6 mall projects in Arad, for example. Who can sustain this? Fortunely, the forward-thinkers developers changed the plans for Arad. Probably at the beginning of 2010, the rent for spaces in malls will arrive to that stability point we all think of.
3. Mall outlets – the outlet concept is at the beginning in Romania. Few outlet stores were opened downtown high street having rents like any retails shop. Some of the developers having intentions to develop malls turned their projects into outlet malls and others sensed this gap in the market. Please see this market realy booming in the next two years.
4. Financing – in Romania, there is the demand, there are the fundamentals, there is economical growth, and the expectations of investors were surpassed by the results. Where we can sense the effects of international crisis? Last year for financing a real estate project the bank allowed you to come with 20% and they financed the rest, but this year, banks ask you to put at least 40% and they give you 60%. They are still investors with very good reputation which can obtain also this year financing for 80% but this is not the trend of the market.
5. Crisis? – More or less, is there any crisis in Romania? After collecting as much possible answers from the market, I drove to the conclusion that there isn’t one! The market is adjusting itself how is adjusted an emerging market and … trust me, the market will be better and better but more challenging than before. NOW IS A VERY GOOD MOMENT TO BUY!
6. Yields – Back in the days, we saw the yield of 13 in 2003 and in the second half of 2007 the medium market yield for office dropped around the value of 6. We saw transactions at a yield smaller than 6 … towards 5 especially due to the fact that for those transactions, the leasing contracts were concluded off plan at prices smaller than the market ones. The total space of class A ready-made office available for rent is … below 1% and every office building when is ready it has tenants booked for at least 50 – 70% from the available one.
7. Developers vs. Lands – prices for lands in Bucharest reached an historical maximum. The best ones which are targeted will also increase from now, believe me or not! The least interesting ones will have stable values or will decrease… logical! The developers holding big portofolios started to sell 10-20% from the actual portofolio to finance current projects or not to be able to sell them in a future at a discounted rate.
8. Lands parameters – Some owners, when selling a buildable land they calculate the price having in mind building and using at the maximum the parameters of the land. A smart developer have to think of green spaces, the general atmosphere of the project and many other issues which will place that land outside of the market in terms of price. The land promoted like this by the owner will not be sellable! The market goes … selling after selling … like in a roller coaster. Now the market gets more complex, the usual transactional sale is replaced by deals where the financial component is mixed with shares, apartments or houses in residential developments. The next step will be, for the best lands from the city to see the old buildings demolished and instead of them to be built new things.
9. Residential prices – The first period of the year was slow in end-user acquisitions for apartments in new developments. People waited to see what will happen in residential and to catch the potential wave of decreasing of price. Wrong! THE PRICES FOR NEW APARTMENTS WILL NOT DECREASE! This is the rule. And every rule has an exception: will decrease the prices in new developments where the launching price was bigger than normal for making a few extra bucks more! They are still many crowded, ugly and poor quality projects launched or accomplished which will not be good for the real estate market in the next years!
Why will not decrease?
- The construction price/sqm for residential risen from 600 to 750-800; even if the land price will decrease, the increase of construction price will be bigger;
- Only 5000 new apartments were delivered last year in Bucharest!
These are only two basic reasons. They are many more others!
Some of the projects are not sold not due to the price but because of what customers receive for the price they pay!
10. First home – PEOPLE IN ROMANIA, as a general trend ARE INTERESTED IN BUYING THE FIRST HOME. We are far, far away from the kind of crisis which fear the players from the market. The demand in residential is at least of 500.000 of apartments in houses. Some developers speak of more than 1 million after making market studies. The salaries will grow in Romania with 55% until 2011, the unemployment rate is as in other more developed contries from EU. What is very important is that developers to gain the thrust from the more and more demanding and sophisticate Romanian Customer!!!
So, dear partners, prepare yourself for Q3 and Q4 when things which are now in suspensions will transform in acquisitions and pre-contracts.
Thank you again for reading this and I will be at your disposal for any information and collaboration in the future.
Adrian Niculescu
June 25, 2008 at 5:19 pm
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