DARIAN – evaluare & consultanţă

We are now facing one of the most critical moments of the financial crisis and the major decisions that are taken on a global level can make the difference between exiting the economic deadlock or continuing the decline. All these can have unpredictable and unwanted consequences.

The perspective in the context of globalization, from which only few emerging countries (mainly the BRICS Group) can sustain high growth rates will lead to a long term repositioning of the global economic spectrum, with unpredictable long term effects. Read more…

Financial Crisis english

Lots of people are asking now when will the residential sector make its come back. It’s hard to make an estimation of when it will happen, because of the world’s economical situation and our encreased dependence regarding it. This dependence is caused by inefficient economical policies and by the low amount of european founds atrracted in the economy. Read more…

Financial Crisis, Real Estate Market english

Although all industry (investors, financiers, developers) is looking forward towards the real estate market recovery later this year, it certainly will not happen in the next six months, although there are some positive signals about a positive economic change. Other positive aspects is that the downward trend has got weaker and thereby leads to a soft landing, to the lowest point. A decrease in under-performing loans wills also appear soon and it will represent a decisive signal of market recovery. Read more…

Financial Crisis, Real Estate Market english

After 2 years of sharp decrease of the Romanian economy, all the people involved  (from earthling to millionaire investor, from  the budget man to the politician), are looking forward to and put their confidence in these first  signs of economic revival.

Unfortunately, external developments provide grounds for concern and this, at least in terms of mentality (already on the edge) can attenuate the very fragile optimism. Read more…

Financial Crisis english

Although today we may be a little more optimistic about the evolution of the Romanian economy, if we exclude the dangers that can arise from the external market, which could send the world economy back in crisis, or at least temper its positive development, we must look with caution and discover what could be the solutions for a sustainable recovery of the Romanian real estate industry.

Financial Crisis, Real Estate Market english

My opinion is that,  after two years of significant declines in GDP, we’ll be approaching the end of the economic crisis late this year, mainly due to global economic recovery (I hope we are right this time, because we had the same expectation in early 2010).

Two were the internal factors that made this possible:

* the strong restructuring of the private sector  during 2009-2010, which had as a negative effect the disappearance from the market of a large number of SMEs, a phenomenon that will continue in 2011. The restructuring also meant cost and price readjustment and sometimes the collapse and disappearance of unprofitable companies, but also an adjustment to more sustainable business models, all of these being positive connotations.

* restructuring the budget system, although made late and a bit shyly, it is going to finally show its benefits. Positive effects can be  also sustained with a severe budgetary discipline, accompanied by the release of significant amounts for infrastructure investment and financing projects with EU funds.

We should not expect to feel a drop in pressure on companies during the second half of this year, especially if we take into consideration the fact that in the foreseeable future we are about to witness two negative effects, both of which can be exacerbated by possible shortfalls of the sovereign debt crisis in the euro area:

* increasing taxation due to the pressure put by the payment of external debt which has dramatically increased during the last two years;

* the expected increase in EURIBOR benchmark interest due to overcoming the financial crisis in the European economy.

The expected economic growth in Romania, over 1%, is way too optimistic mainly due to the dramatic decrease of  consumption, which will increase with difficulty, being the main cause of a slow and sustained recovery of the Romanian economy.

The loan process will start to rise with the strengthening economy, the decrease of unemployment rate and the inevitable liquidation of underperforming loans that will be primarily made by smaller banks with bad portfolios. However, the Romanian banking system consolidation is inevitable.

The real estate industry will recover gradually, although constructions, except those in infrastructure, will continue to suffer from the lack of projects. The positive effects will be noticeable starting from 2012.

I consider  the real estate market will experience further declines during the next six months, before reaching its lowest point, particularly for those economically and functionally impaired assets, of lower quality respectively. With this statement I want to temper the ultra-optimistic opinions sustained by some analysts, who have already seen an increase in real estate prices earlier this year.

The reviving of the real estate market will be felt in 2012 but growth levels comparable to those in 2006-2008 I do not think will be achieved again soon, within a predictable horizon of time.

Dr. ec. Adrian Crivii, MAA, REV, FRICS

Financial Crisis english

Now, as this year is about to end, retrospectives are made and also predictions about what will happen in the industry and also inside the real estate market in general. After a difficult 2010 which,  unfortunately, did not bring the expected economic revival,  because of  reasons which were not related to the industry, I expect the year 2011 to be at least as difficult, especially during its first half.  I can estimate we will face an explosion of underperforming real estate loans, that will create tension and negative effects upon the banking and the real estate sector. The prolonged financial crisis and the consuming of all normal means at the disposal of financiers or real estate developers lead to a pursuit of other solutions.

Financial Crisis, Real Estate Market english

Although the capital market has a main role in attracting financial resources at reasonable costs for capitalizing companies, it is not felt in Romania in its fully benefic effect, today, in which conditions the financing cost through loans became prohibitive for many Romanian companies.

Yet, financing capital market should be one of the economic recovery solutions for the listed Romanian companies, and maybe even for the re-industrialization.

Why is it not so?

• one of the objective reasons is the investors’ perceived risk, especially regarding the predictability of excessive taxation laws, which make the possibilities to avoid this situations to be inconsistent with the transparency required by the regulated market;
• the companies’ lack of confidence in the capital market, which has no depth and did not attract significant investments from pension funds and insurances, being still in early stages of development in Romania;
• lack of investors’ confidence in the transparency and adherence to a code of corporate governance of the listed companies;
• the lack of a clear legislation, adapted to international requirements regarding the protection of minority shareholders.

Then, if we talk about de-listing, there are generally two categories of companies that waive the “advantages” to access capital market funding:

• the multinationals – who are provided with funding in good conditions from the parent companies or the more advanced capital markets;
• the local ones, sponsored by capitalists, investors, Romanian entrepreneurs who see in the current crisis conditions with weak financial results, the possibility to close the company on favourable terms, and to decide on their own on its future, thus having also a more realistic connection between the investment risk assumed and the correspondent expected profit.

Romanian capital market is still composed mainly of speculators and not investors. Speculators have a very important role: they ensure market liquidity, but those who should dominate the market are the investors – those who inject significant amounts of capital, thus contributing decisively in financing the economy.

Dr. ec. Adrian Crivii, FRICS, MAA

Financial Crisis financial crisis

The desperate chase of funds the Minister of Finance undertakes, will certainly have perverse effects of big proportions and will manage to satisfy the hunger for financing of the starving mouths of the budgetary bureaucracy to a limited extent.

Beyond the flagrant errors of vision, the shortcomings and ignorance in the organization and management of the taxation system, which characterizes the past two decades, there will remain unresolved issues that will finally impose a radical reform and modernization of all the taxation systems. This inevitable reform will be reflected upon the taxation on labour, on real-estate and other goods, the taxation on trade or capital gains.

I would like to present in the following section, one of the errors and its repercussions on the long-term, with an example from history. I was reading, not so long ago, a book written by Mr Paleologu, about the boyar families, that presents a situation from the XV- XVI centuries from Wallachia. The free peasants were obliged by the state’s enslaving fiscal system from that time, to sell their real-estate properties and their land to the boyars, becoming thus bound to them. The phenomenon was the result of the fact that the last category benefited from an advantageous fiscal system, acquiring in this way important property fortunes – whole villages.

This concentration of land fortunes in boyars’ possession had as an effect not only the impoverishment of villagers in the first instance, but a reduction in the unity of military and political forces of the state from that time. I believe this edifying example of fiscal harmonization will replicate nowadays as well – the rich ones with significant real-estate properties will have the possibility and the means necessary to further enrich themselves, to fiscally optimize their taxation level, as they should. And the other ones, with reduced financial possibilities, especially the youngest will pay the incompetence bill and will use the fundamental right of people to live in a country which is well managed and has respect for their rights, and that especially now, in the middle era of globalization.

As a result, Romania will be weaker, with a lower social unity and it will comfortably install, without competition, on the last position among the countries from EU, in terms of quality of life and civilization.

The only chance in my vision, and which should happen soon, is for the European fiscal systems to be harmonized – as an effect of the financial crisis, so that we will arrive at a sustainable level of taxation, transparent and equitable, on the territory of the Union and we would also be able to profit from its effects.

Dr. ec. Adrian Crivii, FRICS, MAA

Financial Crisis crisis, financial crisis, taxes

Romania’s economic situation becomes increasingly dramatic, and in the next 6-12 months, the damages will be hurricane sized for both living standards of the population and company balance sheets.

Failure to balance the budget deficit by decent expenditure restraining measures, makes the government to take crisis decisions with unpredictable negative effects on the future. One of these decisions is higher taxation, practically taxing multiple real estate property owners. The real estate property tax system in Romania is clearly deficient, and has an empirical ground, so it must be modernized and brought into line with its market value, which is one of the issues we have raised several times since a few years ago. But from this to discourage with duties the owners of several properties, or real estate investors who saved or borrowed and invested, for their own comfort and economic security, is a long way. How can we speak of supporting or encouraging the real estate industry, then to take such pro-cyclic actions with devastating long-term effects?

By these fiscal policies there are promoted again the immediate consumption and personal loan credit and not the long-term investments that should represent the normal evolution in the development of a modern society. Obviously, investors are taking note of this situation and will take appropriate decisions so that the intention of boosting budget revenues will not be successful. Rental market should be encouraged in terms of increased population mobility imposed by market economy law and which can not grow without real estate investors. Rental taxes should represent an important support for the local communities’ budget and an investment source for land urbanization, creating conditions for future real estate property development.

Let’s see now some specifications regarding the evolution of the crisis we face: if the economic difficulties from the 90’s overtook people at a low level of debt, now it will wreak havoc in families in Romania who were heavily indebted, and if the banking system has been successful compared to the year before, and delayed, taking the shock of bad loans, we can not say the same thing about 2010 and 2011, which will be the real endurance test.

Dr. ec. Adrian Crivii, FRICS, MAA

Financial Crisis, Real Estate Market duties, english, taxes