ROMPRES – Romanian News Agency

The Romanian real estate market, characterized by an amazing boost in the prices, is quite atypical, with no reasonable predictability, and with the increases recorded on certain segments being unlikely for the European market at large, real estate management professor with UFI Brussels Artur Silvestri said.

He also added that the prices of the apartments in the old blocks are six to nine times higher compared with the level in 2003. Moreover, the plots for investments in Bucharest are ten times more expensive compared with the level in 2000. Also, in some regions of the country, wrongly considered as having a development potential, the prices of the plots of land came to reach even 25 times the level 6 or 7 years ago.

The atypical character of the market was also seen in the big cities. Although 97 percent of the Romanian real estate fund is private, the demand for housing has reached such proportions that are hard to imagine.

In the context there have been built a lot of houses in the last year, the official data point to 4.5 million young people wanting a house and not being able to get it because they do not have the necessary amounts and because they do not qualify for the mortgage loans at the banks.

At the same time, the apartments in the newly erected blocks presented by the real estate agents as being luxury market have no other customers than the speculators and ‘the real estate brokers’ who have a lot of money and hunt for immediate and huge gains.

‘This is an absurd evolution we are talking about and apparently inexplicable,’ professor Silvestri told the Bursa daily. In his opinion, this’ big financial game’ with an unknown finish, is to grow, probably in the next two or three years, due to specific propaganda means on the stock exchange, maintaining thus ‘the illusion of a waterfall gain’ in the case of most participants in real estate deals.

Compared to other countries, professor Silvestri said, Romania benefits from a rich and diversified real estate market including ‘housing’ and ‘residences’ both urban and rural, boyar’s houses, palaces and castles in various architectonic styles, country ‘cottages’ and ‘loisir real estate,’ that is mountain- and sea located housing.

At the same time, there is a land fund compatible with large agricultural exploitations and forests. Nevertheless, Romania is an expensive and cheap market at the same time. The market is cheap when compared to prices in similar categories, like when one sees that the value of a hectare of land in fertile fields can be bought for 400-700 euros, but can be found no where else in Europe, except in Bulgaria.


” A POSSIBLE EL DORADO ” – Professor Artur Silvestri about the Romanian Real Estate Market


Professor Artur Silvestri, president of the Romanian Union of the Employers in the Real Estate Sector (since 1997) is a reputed international expert in real estate. His vision about the evolutions registered of late in this specific market are, without doubt, a milestone for any major investment, made by local or foreign entrepreneurs. „From local to a globalised market“ – this is your theoretical point of view. Professor Silvestri, how do you characterise the Romanian real estate market at this point in the late spring of 2005?

– Real estate is the temperature chart of any society and this is more obvious in our case than in others. Of the two forms of investment or wealth accumulation – real estate versus the capital market – a much higher development goes to the former. This is how the Romanian society took shape ever since 1990. This is why in the real estate investment one can find the main trends existing in the Romanian economy. Certainly, you cannot have a business without the real estate component. In addition, this sector also defines the way of living, which implies the social structure. This results in the development tendencies of the society.

In this respect, Romania is an extremely interesting market, a big market, with a huge potential. It is for a reason that, about six months ago, Le Figaro was describing Romania as a possible El Dorado for real estate investments coming mainly from the European Union. Of late, this market became known as a strong one. Of course, we have certain characteristics. By mid – 2003, we had a local real estate market mainly fueled by the money existing in the country. The phenomena are easy to define, they are foreseeable: the key element is the way of saving money. In the late ’90s, the real estate profitability rate was around 27-30 percent, which is very high. Surprisingly, the volume of private foreign investment in terms of real estate was rather low. But since the middle of 2003, we suddenly switched to the conditions of a globalised market, through the appearance of mortgage crediting. The change not only implies a financial aspect. A lot of money appear on the market, but these are imaginary money, not sums saved by the buyers. The market had a radical, explosive change and the new conditions makes the Romanian market even more interesting.

The precedence is taken by mechanisms also known in other countries. But the market become more fragile, because it depends on the interest shown by capital until the moment when it gets attractive. At this moment, you depend on cash flows that may also go to other markets, in search of maximising profit. The growth of the prices is interesting for speculate oerations but this creates a risk on the market. This must be known and, in a future that could prove to be not so far, it will exist in reality because of this situation, the real estate market has become very expensive. Especially in the segment of homes, the price hikes have gone as far as 200-300 percent within one year and a half and it is a phantastic growth unprecedented on the European markets. In Bucharest, for example, prices are getting close to those in Western European capitals, which is abnormal. Finally, we can observe that the prices are artificial. They will regulate either by themselves, or through the pressure of external factors.


– What opportunities does the real estate market provide for investors?

– Many market segments remain very attractive. Investments in farmland remain very profitable. The average price per hectare goes around 400-450 euro. Very small! There is no forecast for the years after the EU accession moment in 2007. A report issued by the EC in 1997 puts farmland in future EU candidate countries at 3,000 USD/ha (after the integration moment). In the countries that already acceded, this forecast proved to be true. The average figure in the EU is about 10,000 euro/ha. This supports the hypothesis that, in post-accession Romania too, farmland price will reach 3,000 euro/ha. The increasing trend is already here. Those who buy now will certainlyspeculate. This is a very sought investment. The legislation being restrictive, the interest was rather low.

A good investment is building homes. The offer of apartments is however very low. Another tempting investment is in trade centers. As of 2002, the growth rate of the profit made by the companies that came with store networks doubled. This was a good opportunity and will remain so for a few years on. Attractive investments are also those in industrial and commercial parks, storage areas, and complex company premises. Especially if located in the development zones of cities, such as Otopeni is for Bucharest. These areas had a very fast development rate, though prices increased by almost 100 percent. The investment in production spaces is enough demonetised.

Romania is interesting even in the real estate field related to tourism and balneal tourism. There is much place to invest in this sector. Because we still don’t have a transport infrastructure, the development of this sector will also determine a boom in the auxiliary real estate investments – opening zones, gas stations, motels, trading areas, restaurants, services. Prior to sell and produce, there is the real estate, the space where you carry your activity. This is why I defined real estate as the temperature chart of the economy.

A „New Bucharest“ would mean the biggest real estate business of the next twenty years. But what is „The New Bucharest“?

– Bucharest is in itself a very attractive real estate market. How will it develop?

– We have a problem here, especially in terms of real estate. This is Bucharest. It suffers from the syndrome of an unusable city. It has been built for horsedrawn coaches and now it is so clogged that it gives no yield in return. The development is accelerated and the pressure is intense. In the conditions of this structure, there are no solutions. It cannot even suffer an urban correction, when this is needed.

We had four urban corrections in Bucharest. The last two of them were in the ’30s and ’80s. Bucharest could no longer cope with the development manner estimated by the Old Regime back in the ’80s. The correction was fit for 25-30 years but society changed meanwhile, in everything that relates to economic desiderata, urban weight – industrial districts and poor neighbourhoods on the outskirts. This is what happened throughout Europe, in different moments. Today, that correction solves nothing anymore: with all the solutions – passageways etc. – this is just a small ease of the pain, the outcome is inevitable. In a future, Bucharest will become an inefficient and unusable city for the Local Community, the sick man of Europe, because it is the only european capital with a high seismic risk. There is just one solution, present ever since the ’20s and reiterated in the ’70s. This is about creating a Megapolis, an urban concentration between two attractive cities, which will merge. Within the next 20 years, the process will become inevitable in the case of Bucharest and Ploiesti, this being only a first stage. This will create the largest urban concentration in this part of Europe: Brasov – Giurgiu, from Carpathes Mountains and the Danube. Bucharest is developing toward the North. In order for the process not to develop of a chaotic manner, we must add it a new town, more dynamic, the New Bucharest, which will be the largest real estate investment ever. The Old Town could thus solve its problems, it could become usable, beautiful, an active financial capital. This would be an occasion for Romanians to affirm themselves. Where there is much investment, those seeking gains always appear.

– Starting 2007, we will join the EU. Are we ready to accede in terms of real estate legislation?

– We must not invent the real estate legislation. There are verified models for any type of real estate investment. Are there no solutions for social houses, for the youth? In the ’30s, the expansion of Bucharest was made by law (public-private partnership today), through which the companies build houses for their employees. Today, 97 percent of the housing fund is private property. In the EU, this figure oscillates between 40-60 percent. We are used to live in property and this is a mistake.


– How much will the development of this market be influenced by the new tax on real estate transactions?

– It will have almost no influence because we are an inventive nation. There will be a lot of price fixing. In Romania, authorities considered unhappy that real estate transactions are exclusively made on speculative purpose. This is a similar treatment to equity transactions. But this is only partly true, as most of them are human solutions. But in the EU, there is a complicate legislation of the housing sector, with a big degree of deductibility, more severe, more logical and we’ll have a problem from this point of view. In Germany, for example, taxes start from the second property: you pay tax on the rent that you do not earn. Here, if you declare, it’s OK, if not, it’s all the same. In France, since ’69, the law of front buildings forces every house owner to renovate the street side of his building every 3 years, and this is very appropriate. We need it in Bucharest too. So, there are mechanisms that could be enforced in our case as well. We must not invent them. Property is a right, but it also comes with many obligations. Those who cannot maintain their property, must estrange it.

– How did the appreciation of the ROL influence the real estate market?

– The appreciation of the ROL has distorted the real estate market. The seller’s mentality is now to obtain in euro the same price as before October 2004. The market is made of sellers (the dictatorship of sellers), it rose by more than 12 percent, as it was the difference of exchange rate. The offer is ever more limited and of poor quality. The market now is characterised by stock exchange panic. Sellers no longer know what to do, buyers have money from banks but there is nothing to buy. The outcome? Why did the seller not sell? The buyer – the credit has risks – first distraints laid upon them. But we must know a bad news: there are no European prices. There is the illusion to have, in Bucharest, prices like in Paris. Integration does not mean setting certain prices. Each market has specific conditions, internal factors, financial components that will result in different prices. You can buy with 6 euro/sq.m. a plot of land near Paris, which does not mean land in Petrichioaia, near Bucharest, should cost the same. We still have a mentality shadowed by illusions.

April, 2005

THE INTEGRATION – BEFORE AND AFTER . Some Romanian elements of attractiveness

The development of the real estate market experienced special trends during the last 2-3 years. The interest of European investors in the Romanian real estate market is growing together with the market. Why? How can we use our advantages in the best way? Has anything changed in the way Romanians understand the living?

– And, another question: considering Romania’s accession to the EU, what does our country specifically bring to the European real estate market?

– The European integration will surely be a moment of important consequences for Romania in the real estate. In this field, EU is a market with a certain degree of balance, but it is difficult to talk about a European real estate market, in the sense of the coordination of local markets and the dawn of a European real estate market to be controlled from a central point. This phenomenon hasn’t happened and is not likely to happen, because the real estate is the realm of local markets, certainly, the European real estate market is an addition of local markets. For this reason it is difficult to talk about European prices or common European quotations. Romania’s accession to the EU will not bring European prices because on this market there isn’t a price table for sales, purchases or hires. Romania will be yet another local market, with its own specific data, attractiveness, elements of differentiation, and a certain degree of participation in what is called localized real estate investment.

– Does Romania represent an interest for the real estate investors compared to the other countries that joined or are about to join the EU?

– Probably yes! Last autumn, an important French journal was talking about Romania as a real estate El Dorado and recommended a special attention for this kind of investment. The potential of the market was less known, even by Romanians. We had and still have a remarkable potential. The Romanian real estate market is however less tempting than 8-10 years ago. The earning rate obtained through intelligent investments is 10-12%, while 10 years ago it was 27-30% a year. I am not talking here about speculative investments, with fast gaining of 50-100%, but about longterm ones. There were market segments where the price increase reached sometimes 100%. When we are talking about an annual profit, we are talking about investments with a high degree of stability obtained year after year. Increases of 30-50-80% are unlikely in the next years. For example, in the matter of the land for warehouses around Bucharest, the increase, for year 2004, was of 80-100%, but the process is not advancing at the same speed. To conclude, in the real estate the earnings are good, but no more than 15% for a stable investment.


– What are the elements of attractiveness of the Romanian real estate market for the foreign investors?

– One element of attractiveness is without a doubt the low prices. Two or three years ago, the market was pretty cheap. In Bucharest at the beginning of 2003, an apartment of 2-3 rooms was 20-30,000 euros. In Herastrau district the price of a 4-room suite was 38-40,000 euros. In Paris, with this money you can’t afford even a studio apartment. Now the data is completely changed. The low price arguments still stands only for some categories in the Romanian real estate. For instance, farmland is priced at 400-500 euros/ha, extremely low compared to the prices in the EU, which will increase by at least 100% by year, in the next interval (2005-2007). Then we have the tourist land or the picturesque areas, because we have a major tourist potential that must be used and developed through the construction of pensions and small hotels.

Another category is represented by urban dwellings. In Bucharest there are beautiful houses from the ’30s with 500,000 euros, a huge sum for a Romanian, but acceptable for a foreigner. Other types of arguments consider the deficits, especially the less known or the ones we do not talk about. First of all, the deficit of houses, which is not an objective one. We have a coefficient of real estate property of almost 98%, stunning for the Europeans, where it does not exceed 60%. The obsession of a house is given by the young ’bourgeoisie’, a social category in formation, the young managers, the young people with ’companies’, liberal professions, and who do not have a place to stay according to the social type of life they chose. The supply on the market is not satisfying enough for them and this deficit of houses could be covered by foreign entrepreneurs. We also have a deficit in the enterprise real estate, useful for the development of a company. We don’t have enough warehouses and industrial parks, a sector that will develop in the future. We must also consider the deficit of accommodations at seaside during the summer season. The deficits are real and pretty deep in order to claim a foreign participation. However, the Romanian participation was pretty low too. Another argument for the attractiveness of the Romanian real estate market is the potential in major investments like:

– building highways and additional elements, gas stations, motels, stores etc.:

– the north Navodari, with 50-60 km of barren seaside

– the Danube itself, which can be ’dressed’ with small tourist resorts

– the Canal Danube-Bucharest, investment that can be resumed

– the new Bucharest, or megalopolis, or the new city, which will definitely be the largest investment in Eastern Europe.

Without a doubt there is a lack of preoccupation in the field of development strategies we should have and we don’t. This perspective should not generate the feeling that the opportunities are countless and we’ll have an invasion of investors. We must report with a clear head to the future situation – we will be a competitor on a competitive market. Until our arguments of attractiveness will be active, we will be competitive on the European market. This is a process that happened in all countries that joined the Single Market. After the accession, Spain and Portugal passed through similar stages of real estate development real fast. A development that worked exactly on the deficient segments and where the low prices could have been used.

It is true that we won’t have other people’s arguments – strong image brands, organized tourism and strategies in this direction. It is difficult to imagine we will compete seriously where others are already classics. From Bulgaria too we have deficits. The neighbouring country has lower prices, an organization of the territory better covered from many points of view, a market more opened than Romania’s. Bulgaria has more numerous deficits and a lower economic development, which increases the interest of the investors. From this point of view we are not in a comfortable position, but we too have enough arguments in our favor.


– The state: it should intervene only through strategies and legislation? This year the increase of the constructions market will be more moderate, of 5-6%, especially due to the increase of the price of cement. What are the implications it will have in the real estate sector, without the intervention of the state?

– Romanians understand locative space almost exclusive through property. But the way of living and holding locative space in Europe is the one that considers the hire the most spread and convenient method. Why? The hire is lower than a rate for a mortgage credit. And not last, the Europeans learnt to live for themselves, not necessarily to obtain a property in 20-25 years, which you then leave it to the descendants.

The state must intervene on the real estate market through strategies and legislation. The legal regulations must show the owners that they do not have only rights but also obligations. The legislation must tax the second house or the vacation house or to ’force’ its rental. This way the balance is brought back to the real estate market.

– The taste of the Romanians changes. How will Romania adapt as life standard and especially as locative standard at this new geography that is the EU?

– We must take into consideration that a large number of Romanians is working abroad. The process of the immigration is specific to the integration because in the future EU there is already a mixture of populations. The ones coming home bring with them a different standard of locative life and the import of models already exists. The models proposed by the ones who worked abroad will bring some advantages, in the sense of mingling the locative standards. Many of the buildings constructed in Romania in the recent years express the way the living is understood from the point of view of the social position and are perfectly accepted by the westerners.

The real estate field in Romania is better than in other countries. The real estate supply is of good quality and accessible. From the locative point of view, we are a well developed country, with interior elements well-contoured in the local tradition and very interesting in its data. The elements of difference are very important in order to win over the foreign investors. Finally, this is the Romanian argument.

June, 2005

An interview by DAN BURUIANA