DARIAN – evaluare & consultanţă

During these troubled times of uncertainty regarding the overall economy and the real estate market specifically, it is advisable to review new visions and more optimistic sides of the future, which is inevitably going to produce some positive effects out of the crisis we are all passing through at the moment.
Although an increase of taxes (hard to handle by the private economy) was avoided in the last minute, it is certain the decisions taken now will not meet the desired effect. The curve of sacrifice was preferred today and it will mainly affect the budgetary employees and the pensioners, but an increase of taxes can not be postponed in the near future. They try to make this measure a pro-cyclic one, applied when the first signs of economic revival will show up.
Therefore, not only 2010 is a compromised year if we refer to a revival, but 2011 seems also threatened from the point of view of the real estate industry.
The prices re-establishment, so that they could meet the deeply fallen solvent demand, will continue in the next period of time.
Going back to a more optimistic tone, let us see which could be the positive effects the crisis could generate for the real estate industry:

• Higher expectations from the buyers and a better understanding of what we define a good quality property
• A good understanding of financing (terms, costs and information transparency)
• Pressure applied on increasing the quality of the services and the standards used by the real estate and financial consultants
• Increasing the real estate market transparency, mostly regarding the real value of the sold properties, which is going to lower the speculative side of the market we have noticed in the previous years
• Increasing the quality of the real estate products and a new price-quality relation which will reflect those market segments
• A significant decrease of land prices, with a major influence in the final unit price (per square meter)
• The competition between the well-known developers and also between important construction companies, which will lead to a market free of amateurs and speculative players
• A significant decrease of the profit margin of all real estate industry participants

Once the first signs of economic revival show up, which we hope it will happen as soon as possible (perhaps in 2011), the market and the real estate developments will start on a new path, from others levels of construction, land and labour force costs, with a brand-new quality and proving the real estate industry in Romania has finally grown up.

Dr. ec. Adrian Crivii, FRICS, MAA

Financial Crisis, Real Estate Market crisis, financial crisis, real estate, real estate industry

At the beginning of this year we were increasing emphasis on the possibility of economic revival and, consequently, real estate market growth. Nevertheless, the economic results of the first quarter, combined with the IMF inspection, project dark perspectives upon Romania. Furthermore, the signs offered by the real estate market in April showed a price decrease, which is likely to continue during the following period of time, mainly if we consider the possible decision of VAT and flat tax increase.

The administration’s failure to limit the spending, respectively meeting the forecast economic deficit, will considerably cost us, both individuals and companies. This pro-cyclical measure is about to push down the already fragile economy – therefore we definitely won’t experience economic growth in 2010 either.

The increasing of taxes, which ultimately leads to a decrease of the personal income, will reduce people’s saving capacity, and also the possibility to access loans – this will immediately result in the heavy decrease of the solvent demand. More than that, the construction companies (which are already in a poor condition) will experience increased costs of production and, as a consequence, the real estate offer will be less and less price competitive.

The discrepancy between the solvent demand and the competitive offer will generate a blocking of transactions, emphasising the real estate crisis respectively. In this new market environment, the equilibrium between offer and demand will be achieved at a low level and as far as only the old properties are concerned. The new apartment buildings will likely become even more unavailable, especially if present prices are involved, and the perspective of new residential developments will be close to zero. I may definitely point out this decision of both VAT and flat tax increase will kill the real estate industry and not only in the next period of time.

The worsening of economic environment, implied by this decision regarding the flat tax, will generate more unemployment and also the delay of loan revival, due to increased risks.

If this economic measure is adopted (and this is very probably to happen), 2010 will be just another crisis year. We shall be able to debate economic growth again only in a few years time.

Dr. ec. Adrian Crivii, FRICS, MAA

Financial Crisis crisis, financial crisis, real estate, real estate industry, VAT

There are numerous talks and analysts and investors spread the rumor of the imminent revival of the real-estate market. Despite the expectations of the latter category, the situation of the economy and of the real-estate industry has to be regarded with realism.

Romania had the most important gradient of economic decrease – of more than 14% in the last two years and the signs from the start of this year are not the best. A growth of approximate 1% is something normal and expected in 2010.

In this year the banks will continue to register loses on the bad loans and I do not anticipate a consistent growth of the real lending, even if the interest rates gave signs of significant decrease in the last months. Here it can be seen the effects of the spectacular growth of unemployment and the dramatic decrease of the purchasing power, phenomenon that induce a sentiment of scepticism and prudence among potential buyers. The program “Prima Casa 2” (“First House 2”) is not doing anything else than stopping a more abrupt downturn./span>

Not even the situation of the SME-s (which were the most hit by the crisis) is good, taking in consideration the voluntary or forced bankruptcy wave that they confront with – an effect of the market contraction and lending expensiveness.

Going back to the situation of the real-estate market and construction industry in particular, the sectors are almost entirely blocked, the number of projects and developments decreased dramatically, and taking in consideration the fact that from project to realization the term is minimum 1,5 to 2 years, we can expect that between the years 2010 and 2011 the supply side to suffer a significant contraction.

Having in mind that the stock from the residential market are relatively high for the current times, we will see in 2010 price decreases (approximately 10-15% for old houses), following a 2011 which is expected to be – due to the aspects mentioned in the above paragraph, the year of revival. The growth will be sustained by the decrease of unsold homes and by the lack of new finalized projects.

About the price levels which now are strongly influenced by the acquisition cost of the land and the constructions costs from previous years, I estimate that they won’t suffer significant growth in the next 2-3 years. The arguments are the following:

• The procedure for forced execution for the bad-paying mortgages will be accentuated this year, driving the supply up;
• The land market that is practically almost entirely blocked will be traded at prices significantly lower (50-60% or maybe more) for the developers that find themselves in difficulty;
• The significant drop in the purchasing power determined by the living costs and the low saving possibility of the population.

The moment of the comeback of Romanian economy, followed in some months by the real-estate market, will be determined by the global and EU economic comeback, through exports of the Romanian companies, which will give an impulse to the market’s recovery.

Dr. ec. Adrian Crivii, FRICS, MAA

Financial Crisis, Real Estate Market banks, crisis, financial crisis, First House, lands, Prima Casă, real estate, real estate industry

The end of the acute economic and financial crisis will come as early as the second semester of year 2010. Until then the economy will pass through a purgatory in which a lot of companies of all dimensions, specially SME’s and many entrepreneurships will disappear from the economic landscape. It is a normal aspect due to the competition of multinationals, once Romania entered EU, and the overlapping of this crisis of unforeseen precedent in the last decades.

A consequence will be the slow revival of the values from the real-estate industry, the sharp decline of its speculative character, as well as decent values for the companies from the other industries. The only companies which will significantly gain will be the ones in sectors like renewable energy, bio-technology, pharmaceuticals, or ecology.

The financial industry will be strongly impacted by both the loan deflation, with the supplementary risks imposed by the crisis, and the quick increase in the bad credits, which will determine a consolidation of the market, through mergers and acquisitions or the closing of banks’ subsidiaries. Either way the recovery of lending will be of long standing and will never be the same as in the period 2006-2008, not so much because of the losses that will occur in the system but because of regulation. This period of settlements that are more and more severe and done to prevent this kind of crisis, will be a long one.

I believe that Romania in general and Romanians in particular will end up with their feet on the ground, and will have to follow a long and difficult recovery with sacrifices, step by step, during at least one decade.

A beneficial succession of the crisis will be the dramatic change of mentalities, the correct appreciation of work and money at their true value and proper placement of each participant in the labor market, both in the private and public sectors. It will be a long a painful process but imminent and beneficial in the long run.

If in the previous years there were pressures on employers and the wages substantially outran the productivity level, this will not be possible anymore due to the crisis. Also, we will face the following years with high taxation levels for the payment of public debt, the high costs of the budgetary bureaucratic system, the spending related to the large number of unemployed and retirements, and also due to the investments in infrastructure without which Romania will remain an underdeveloped region of Europe, an unacceptable hypothesis for Europeans and for Romanians.

Dr. ec. Adrian Crivii, FRICS, MAA

Financial Crisis crisis, financial crisis

Romania is in the economic crisis, the first and the most affected fields being the financial and real estate industries, this being due to the fact that in the last 3 to 4 years they had a spectacular evolution, caused firstly by the explosion of foreign investments in Romania along with the integration process in the EU.

The financial crisis and the contraction of the global economy influenced meaningfully the Romanian industry as a whole starting with the end of 2009, generating problems like high unemployment and bankruptcy, another burden for the financial system, which in turn influenced the consumption as well.

Through the relaunch of the global economy, I think that the first positive signs will show up next year starting with the last affected field – the industry, especially the restructured one and in the possession of multinationals, which are going to be developed after the new post-crisis models.

When I talk about post-crisis model, I mean the relaunch of some top areas like the renewable energy, eco-automobiles, IT, agriculture and bio – food industry, which will access financing and will evolve after environmental-friendly models. Same patterns require a change in the perspective of value and money accessibility, even if they will be influenced be inflationist aspects, and also by a change in the perspective of energetic consumption. It is obviously that the energetic and environmental problems will generate the next big crisis globally.

As effects of the present crisis, I consider that most of the misfit industries and the entrepreneurs without a managerial vision will disappear, making space to an industry mainly unpopulated, with reduced energetic consumption, forward looking and lead by competent managers.

The last massive restructuration that Romania did not finish it before the entrance in the EU will be finalized be this crisis. The financial system and the real estate industry are going to be the last sectors which will overcome the crisis, because the first field did not managed to quickly eliminate the bad loans and establish a new start , and the second one is conservatory and past oriented.

The financial system will pass the next 6 to 12 month through a beneficial purgatory, preparing itself for a period of consolidation – Romania does not need more the 40 banks. The real estate sector will be confronted with amputations and resounding bankruptcies until it will start developing on a new base in which the localization, quality urbanism, low energy consumption, ecological houses will arise as a natural response, with accessible prices at the demand of pretentious clients.

Unfortunately, the recovery of the Romanian economy is not going to be fast, due to the authorities’ lack of vision, to a heavy and expensive bureaucratic system, and also because of inefficient budgets.

The only chance will arise when the IMF will get more involved in the economic policies and in the administration of the restructuration of the government spending.

Dr. ec. Adrian Crivii, FRICS, MAA

Financial Crisis crisis, financial crisis

The latest signals regarding the economic evolution are totally unfavourable, and if the economic decrease will be below 10% in 2009, this will be due to the poor results from the last trimester of year 2008 (as a comparison base), than due to the economic turnover.

Given that the government does not have the tools needed to produce significant adjustments, the devastating effects of the crisis are going to appear in all economic sectors, having a major impact on the population also. Programs like „First House” or „First Silo” are favourable but they resemble to a glass of water on a arid land: they do not generate notable changes. Before is too late, the authorities should drastically reduce the unproductive budget spending. From the amounts collected by the state budget, which are already less and less, not too many return in the economy to create employment opportunities, consumption and economic relaunch. Unfortunately, I think these gestures are the ones difficult to make given the political context. This aspect is extremely serious and leads us, in my opinion, towards the abyss.

If in the first semester the financial system (with the exception of the automobile leasing companies) managed to mask the effects of the crisis, this will no longer be possible until the end of the year. What’s to be feared is that, during 2009, Romania became the leader when it comes to inflation among the European Union countries and came into second place in regards to the economic decline, which shows the magnitude and the aggravation of the crisis.

Although very disagreeable per se, the bankruptcies of companies significant in size will clean the economy of players with bad performance that create obstructions. The banking system will be aided in this way to get rid of the bad loans that are rolled from some months now. Anyway, the economic outbreak will be generated by the evolution of the advanced economies, where so far the signals are not convincing. The only signal truly positive that has to be taken in consideration is the evolution of China, which already meets a launching that will enable the country to become the engine of the world economic revival.

Dr. ec. Adrian Crivii, MAA, FRICS

Financial Crisis banks, crisis, financial crisis

The funding obstruction continuation by the Romanian banks and, also the unbearable level of interest in the market has a pervert influence on the health of Romanian companies.

At this time, lack of funding is not only a problem for the real estate developers, who stagnate anyhow due to cold season, but also for other industries in which investments are made.

The difference between survival and bankruptcy is now represented by funding, an essential support in the life of any company. Unfortunately, the chances of obtaining money from sources, other than banks are very low, almost zero even if we exclude private funds with strong speculative nature or the hypothetical European funds, which in addition to suffering from procedural delays, also involve local funding.

Difficulties or bankruptcy of companies due to the lack of funding, or the costs related to this, will in turn create crisis and pressure on fund providers; we should not forget that we are all part of the same economic environment. Epidemic can spread quickly and it will not forgive anyone, creating social cascade effects.

If during periods of expansion, entrepreneurs valued qualities such as aggressiveness, maximizing profits and fight for market share, I think now it emerges the need for solidarity. Solidarity does not preclude competition; however, it starts with the concept that a company can not be healthy if its partners or customers are sick.

An important role in overcoming this moment might have the authorities. These will need to make decisive gestures in terms of credit recovery; I refer here to hire foreign loans, even under these conditions not really advantageous, in order to fund the infrastructure works and, also to balance the external balance of payments once with strict reduction in the budgetary expenditure, thus facilitating pressure on the Romanian taxpayer who is already in a difficult situation.

Dr. ec. Adrian Crivii, MAA, FRICS

Financial Crisis, Real Estate Market banks, crisis, funding, interest, investments