The beginning of the financial crisis and its effects in the real-estate industry
The signs of the financial crisis, one of them being the slowdown of the finance, start making their sequence in the economy too. The most affected sectors are the construction industry, metallurgy, automobile, and the retail market.
The question asked most frequently by the business people is: “when is this going to be over?” Taking into consideration the fact that in Romania the crisis has a delay of 12 to 14 month since its commencement in USA, we must wait for the reanimation of the economy in the middle of the crisis, and for its effects in the European economy, to analyse its duration.
The most skeptic analysts estimate an interval of 2 years, which in my opinion will be a disastrous length for an emergent economy like Romania’s.
I believe that in our situation, the most powerful and welcome correction will suffer the real-estate sector, its price level being in concordance with the salaries and the purchasing power from Romania and implicitly with our productivity.
In my opinion, in the next 6 month, the prices of residential properties will suffer a rectification of 50% and above 50-60% the prices of land. Of course, we cannot talk about an average price because the real estate market is a market of distinct goods.
In this moment, financing is restrictive because the banks wait for the moment when the values of the real-estate properties will be more realistic. So, the loans will be launched again, after the correction mentioned above.
The positive effects of this crisis, if we can talk about the ‘positive effect’ of a crisis, is the fact that bank’s collaterals will have a more realistic value, a broader range of population with certain income will have access to quality properties, and last but not least, the speculators which induced the “bubble effect” will disappear.
The lending will start when the trust in the real estate values will increase, trust that has to be sustainable in the long-run. However, the banks cannot wait a long period of time because they cannot survive only from fee-producing activities, so they’ll start pressuring the existent clients, with declining health.
It can be concluded that there is psychological war between the financial institutions, which are cautious and wait for the opportunities given by the imprudent real-estate constructors, and the investors that try to keep the prices in the real estate market as high as possible.
Adrian Crivii, FRICS, MAA