About Land and its Value in Romania – part I
The land, the most important capital of a nation, object of wars between countries and countless litigations between people, represents an important subject in consideration of the value and its estimation.
If, prior to 1989, the land could not enter in the civil and economic circuit, due to the impossibility to transfer the right of property, once we entered in the market economy, it became a more and more valuable merchandise, the object of a very active market, with a very speculative character, especially in the last 4-5 years.
In the first years of the last decade, the market was in an incipient phase, due mainly to the problems related to the right of property. This represented the main reason for the real estate underdevelopment and the economic crisis which characterized the period between 1990-2000. The lands and big part of the assets under the State property were removed from the economic circuit, suffering physical moral, and economic decays, which lead to important decreases of the values of the Romanian companies in the process of privatization.
After the year 2000, the relative improvement of the legislation and the economic growth lead to an increase of the offer of lands. On the other hand, the sustained growth of the direct foreign investments, the beginning of the big developments for the retail networks, as well as the residential developments on the grounds of the constant improvement of financing in the latter years lead to a constant increase of the solvable demand for lands. Therefore, a consistent, active marked was created, sending positive signals to the investors.
Along with the developers, another particular category of investors responded to these signals, the so-called “speculative investors”. These ones had an important role in introducing lands (valuable assets) in the commercial circuit. By merges, solutions to litigations, passing agricultural lands into the circuit of construction, a substantial contribution to the increase of the competitive offer was recorded.
At the beginning of the present decade, the square meter of land had one figure values. After changing two or three owners, the value already had two figures, and in the late two years it exceed three or even four figures, an exaggerated level, considering the economic and social development the infrastructure, and the position of Romania, in general, in terms of standard of quality of life. This abrupt increase was equally caused by the speculators and the banks, who, in the rush for profits and market share, financed all the categories of lands for development, regardless the quality of the locations, design, or investors.
One of the internal causes which lead to the crisis on the real estate market was this increase of the prices of the lands, and the consequence was that the value of the residential real estate developments became inaccessible for the Romanians with average incomes, and for value of the mortgage of the banks which conceded real estate credits became exaggerated.
As a conclusion, one of the most important effects of the abnormally high value of the lands for constructions is, at present, the very high level of debts of those who accessed credits.
To be continued.
Dr. ec. Adrian Crivii, MAA, FRICS