It is quite probable that in 2011 Romania will come out of recesion with an increase of about 1.5%. If this optimistic scenario will be confirmed, in 2012 the GDP could go up with about 3% which will prove to be a big consolidation. The GDP increase will have benefits on the incomes of the population, the unemploymenent will be reduced and other good aspects will appear after the inflation will decrease, influencing the financing area. All this will lead to an increase of the solvable request on the residential market especially in the big cities.

Considering that the amount of housings available for sale is quite consistent, although it’s probably 50% lower that in 2008,  there are still no significant developing projects that seem to appear. This will put some pressure over the competitive offer in the middle of the next year, which could be reduced only by selling the mortgages behind the nonperforming loans. If these assumptions will turn it will significantly influence the real estate market. It could be possible for the market to reach a limit in the last six months of 2012, which will represent the inflection point in returning to the real estate market growth.

In my opinion the recovery will be slow and it will probably take a decade until we will have some non inflated prices in the real estate market, comparable with those before the economical crisis. What determines me to make these assumptions is the fact that the market will mature, the incomes growth will not exceed productivity, and another wave of cheap money is very unlikely to hit.

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

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.

If we do a brief analysis of some aspects of food prices, energy prices, interest rates inside the euro area, BNR interest rate, reference rate of inflation, changes in income, etc., all that suggest that we can not have a strengthening of the solvable demand during the near future. The signals coming from developers are no more encouraging either, as long as there are no large projects scheduled for the near future, which shows that they also look with some restraining the real estate market development. If we speak of a recovery in the housing market perspective, it will initially produce for the industrial, office, retail, then for the residential segments (the residential  one presents the highest risk factor). The clearest sign to sustain this statement can be found in the demand for funding, rather advantageous through PRIMA CASA programme, which is also the last and the only stimulant of this segment. In connection with the signal that the number of transactions would have increased in the first quarter, in my opinion this is mainly due to decisions taken by several property owners to harmonize the tax charge level related to the aberrant taxation.

Speaking of real estate industry recovery, I think the time is coming, but it is hardly predictable, given circumstances and external factors. About the trend by the time the recovery will happen, we can safely assume that it will be much reduced, in close correlation with the GDP growth and we will not go through another real estate bubble soon, like the one we faced in the past decade.

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

The real estate market has increased, on average, during January 2006 – October 2008, with 100% throughout the country and 110% in Bucharest. In other words, prices have almost doubled. Inside this housing bubble we may highlight two periods of time with spectacular growth trend: August 2007 – February 2008 and June 2008 – October 2008, 15-20% throughout the country and over 30% in Bucharest, respectively.

During the second part of the period October 2008 – February 2011, property values ​​have fallen with about 60% in Bucharest and 40-45% throughout the country. The most dramatic decreases in the second interval were recorded during October 2008 – February 2009 and November 2009 – February 2010, approximately 20% in Bucharest and 15% in Romania. The smallest decrease trends have been recorded during the last year , February 2010 – February 2011, approximately 12% in Bucharest and 8%  in Romania. Which means that prices are approaching a minimum level. Another interesting and obvious observation is that, where increases were spectacular, the decreases were just as dramatic also.

If we take the period as a whole, we can conclude that between 2005 – 2010 housing prices rose by about 40%, currently standing at the level reached in mid 2007.

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

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

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

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

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