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…
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…
We have recently made a summary of the Darian’s database to assess the evolution of property values during the recent years (2006-2010). With all the weaknesses that arise from the fact that we used “average values”, which are not appropriate in many of the real estate industry assessments, I believe, however, we have come to useful conclusions that will be presented below. Read more…
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.
If we make an analysis in order to see on what basis we could resuscitate the real estate industry, including the residential property development, I think we would identify the following factors:
1. Financing on favorable terms of all viable private companies that have withstood the crisis and especially SMEs which are in fact the basis of any healthy economy. This could lead to more available jobs.
2. A legal framework to encourage companies and allow easy financing, including European Funds, in areas of sustainable development (energy, organic food).
3. Wage growth will have to strive for the European average, at least related to the recently admitted countries, but only in close connection with labor productivity and an increased level of investment in technology and efficient use of working time, and enhancing discipline. All these could lead to an increased income, increased purchasing power and will also stimulate the demand for the solvent demand.
4. An effectively functioning state economy that would allow a simplified, reasonable, transparent and low tax rate, which would provide premises for massive public investment in infrastructure and would also create more jobs.
5. Responsible funding for active people, with substantial revenues, that can access credit for the purchase of housing or personal needs, thus supporting the solvent demand.
6. Encouraging foreign investment in the real estate market, with respect to a severe urban discipline, by creating a transparent and less bureaucratic business environment, limiting corruption, as other factors that ultimately lead to an increase of the competitive offer.
The valuation consultancy company Darian has recently launched, for the third consecutive year, a detailed analysis of the national real estate market, for 27 major cities specifically, out of which 15 poles of development, and also estimated a real estate index.
I would like to make some remarks on the comments emerged after the event occurred. Darian is an independent company and a brand with over 20 years of work and experience in the Romanian economy, exclusively specialized in valuating all types of properties and having representation at a national level. This offers us the advantage of not having any interest in the estimation of a certain level of property value, on the contrary: the synthesis we presented is basically the essence of our transactions database, which is the origin of valuation reports (usually 15-20,000 within 1 year), being just an opinion and not at all a suggestion for investments.
Our interest as consultants interested in ethics and progress of the real estate industry is to contribute to its increased transparency, an important step for the growing up and attractiveness for the long-term investors, which would be an advantage for all participants. The effort and investment made in this product have no material benefits whatsoever, for it is not being sold. The analysis is certainly a useful tool and is provided free of charge by our company to our partners, investors on the Romanian market, auditors, risk departments of banks and, not least, to the public, as people need independent sources of information to make safe decisions in investment, like buying a property.
In order to very clearly summarize the position Darian held during the press conference last week, I will make the following statement: “While it is always difficult to predict, I think chances are that during 2011 the market should continue to decrease with a less stressed trend and it will stabilize itself at its lowest level, towards the end of the year. If there will be no unpleasant surprises, foreign or domestic, and the economic recovery will be felt during the second half of 2011, it is likely to witness an increase of the real estate market, starting with 2012. We should not expect dramatic increases in the near future though, similar to the pre-crisis period. These assessments should be nuanced considering the property type and also the geographic location. “
Dr. ec. Adrian Crivii, MAA, REV, FRICS
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.
However, the failure of underperforming loans will have to be assumed and divided between the main actors of the financing contract, the creditor and the debtor, within a well-balanced margin.
Dr. ec. Adrian Crivii, FRICS, MAA
These days DARIAN celebrates 20 years of formal record made of hopes and ideals at the beginning of private property which occurred at the first part of the last decade in the last century.
After these two tumultuous decades of life, in the midst of the Romanian economy in eternal transition, in addition to goals, strategies and targets to achieve, I traveled with distinguished people next to me on a road full of obstacles but also accomplishments and I can proudly say as a founder that I realized something meant to last during these years.
By honest, qualitative labor and sacrifices, DARIAN has become by its team not only a valuable consulting company if we judge it from the economic point of view, but primarily a school of really professional people, which in reality is the greatest achievement and pride having, I think – even a positive contribution to the development of the valuation profession and of the Romanian economic environment. In these 20 years we have successfully managed to cope with rapid changes in society, our clients’ requests, enriching our knowledge and gaining experience with a young team, in constant renewal.
Ourselves, those working in DARIAN, could not get here without input from our customers, investors of all sizes, financial institutions or either private companies or Romanian or foreign persons who trusted our advisory services to be offered promptly, thing on which were based important decisions in many situations.
Dr. ec. Adrian Crivii, FRICS, MAA
There is a simplistic but very actual classification of countries in terms of attitudes towards saving and investment, as it follows: companies with debt which consume and which includes U.S. and most developed countries in the EU, and companies that save and invest – category to which belongs China and other Asian countries with a strong economic development. Unfortunately in the last decade, with emphasis on the recent years, once it entered the EU economic area, Romania is increasingly evident in the first category, so that his public and private debt now exceeds 85 billion euros with increasing tendency of growth.
The profile that Romania has now, without material resources or valuable assets to sell, will lead to the necessity to pay the duty engaged in the most part in labor taxation – which unfortunately is not showing a high productivity. Many Romanian people who have abilities and labor force are living outside the country, where in many cases they are working below their level of qualification and earn only from excessive work. Another category of people is formed by the highly educated and young people who graduate prestigious universities in the west and do not return because here they don’t have a matching job offer – therefore the country can not take advantage of this category’s motivating potential. The latter could constitute the frame of highly skilled labor force with high productivity on which debt burden can be laid.
Unfortunately, as the Romanian society appears today, in a society in which entire communities – several million people – are socially assisted, have a low education or poor or insufficient “work longing”, a very bright future cannot appear. Now, the whole tax effort for the state support lays on less Romanians, entrepreneurs or employees in private firms who thus are not only drained of power but also ended up their hope.
Sacrifices which will have to be made in order to overcome the crisis must be shared equitably among all social classes. Those who produce added value and pensioners who have contributed honestly and have low pensions and the few public employees who consciously pay their debt on increasingly smaller wages. We cannot overcome the current situation without social solidarity and motivation for a better future.
Related to real estate property value, it is still on a downward trend until the moment of exceeding the critical point of growth in nonperforming loans. Prices will stabilize at a sustainable level in line with revenues, labor productivity and saving capacity. I consider the latter being limited, at least in the medium term, due to reasons stated above.
Dr. ec. Adrian Crivii, FRICS, MAA
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
At last, after a few years delay and only at the National Bank initiative, the first Romanian real estate index appeared. Expectations were at a high level, due to the present situation and the delay but also due to total lack of transparency in this market and in the industry. Initially, the mass-media and the public understood that the index will provide them with very accurate and detailed information regarding the price someone is expected to pay for a specific type of property. But in general, this is not the role an index should have. The real estate market index isn’t a “price calculator”, but a trend indicator.
The National Statistics Institute (INS) has released three indexes (total apartments, total individual buildings and the national average), based on calculations made on data gathered from notary offices. The descendant trend described by these indexes is, in my opinion, correct.
One must understand beforehand that real estate market is essentially a collection of very different goods and it isn’t what we usually call an “efficient” market. For a statistical analysis of this market, it is crucial that the approach is well-adapted to these particularities. It is not a simple task; it requires well-trained professionals and doesn’t necessarily fall in INS’s duty.
For example, the location of the property, one of the most influential factors in the market value of a property, has only two categories: capital/the rest of the country. This “forced” categorization is also applied to other characteristics of the real estate property, making futile any attempt to calculate/estimate an individual property price based on the index. But as a trend indicator (the normal and intended role), the index reaches its goal.
As for the index values published, it has to be understood that the methodology used was Laspeyres’s, which could explain the moderate variations (under 5 percent), versus the Paasche method, which could have shown a more abrupt declining of the market. In my opinion, we could see tens of percent variations until the end of this year.
Dr. ec. Adrian Crivii, FRICS, MAA