Residential Real Estate Market

Who are the losers of the market in case of a real estate blockage on the residential segment?

Although all real estate analysts have agreed that we are not witnessing a fall in the real estate market, but only a state of waiting, we will undoubtedly see cancellations or postponements of real estate projects. Still, developers can find solutions to overcome this period.

“All the factors involved in the real estate mechanism: banks, developers, builders, real estate companies, the state are affected, in various ways, by the situation created, and all must make joint efforts to find solutions to get customers out of the waiting state and to wants to buy.”, explains Irina Petrescu, Esop Consulting partner.

Developers, however, will be, for a start, the category most affected by this situation, because many of them have loans that they promised to cover according to a specific sales plan that, suddenly, no longer corresponds to reality. If some real estate developers can afford to wait and finance the continuation of works from sources outside the Romanian real estate market, others, who have relied on an individual pace of sales to continue the project or to pay the loans are put in a challenging situation.

To the difficulties from the beginning of the year, related to the lack of labor force or the increase of construction costs, have been added, now, those regarding the bank loans and, especially, the stagnation registered in terms of real estate sales.

“Developers are caught in between at the moment; they face the expectation of buyers due primarily to uncertainty in the banking system and the international context, at the same time banks, this time as project financiers put pressure on developers to sell, and not anyway, but to a specific price. If we add to these the increase of financing costs and the fact that the developers will obtain loans for projects much harder than before, we understand why in the next period we will witness cancellations or postponements of projects “, said Irina Petrescu, representative of Esop Consulting.

“Construction companies will also be affected. In case of cancellation or postponement of some projects, their financial plans will change completely. If we are talking about a company that had contracted a single real estate project, it will undoubtedly be on the verge of bankruptcy, “the Esop representative also explained.

  • How will the end-users of homes be affected?
  • But the ordinary people looking forward to “lowering the price of apartments” so that they are the ones who get the best offer on the market?
  • How will people who have raised money for a home, but postpone its purchase until the “great collapse of the real estate market” benefit?
  • Specifically, how does a practically abnormal state of freezing sales affect housing prices in the context of high demand?

“We believe that in the end, customers will be most affected. Many of the buyers will only qualify for the old blocks, and then they will have to be satisfied in this situation. Also, given that at the moment, there is an accumulated demand in the market, pending, and a series of projects will be postponed/canceled, it is possible to witness an interesting phenomenon in 2009: new projects will be too few for the accumulated demand and to intervene. As a result, a natural aspect of price increase “, declares the representative of Esop.

How do we get out of the crisis with very few losses? New banking products adapted to the new conditions “The first step must be taken by banks, not only by finalizing new banking products but also by coming up with new products, adapted to new realities and which restore customers’ confidence in the banking system. At this moment, the banks under the NBR are trying to minimize their risks.

At the same time, we notice a tendency to take things to extremes, both in terms of conditions for granting loans to buyers, but also the tightening of the financial conditions of a real estate project. The question is whether fewer and fewer customers will take loans, what will the banks live on?

New real estate projects or rethinking the old ones to adapt to the new conditions Real estate developers are beginning to understand that the current real estate market no longer resembles that of a few years ago. If the target audience or their needs have changed, the project must be rethought.

“80% of the projects in the market should be rethought both from the point of view of the concept and as a sales strategy and marketing plan. Construction companies have an essential role in all this gear. If they dictate the rules in relation to developers in recent years, they will have to team up with them to continue real estate developments. The Romanian state had substantial profits due to real estate development, so if it got involved, it would only gain. Given that in the last 5 years the real estate sector has been the engine of economic development, the state should get involved and support the efforts of banks, as well as developers“, ” explains Irina Petrescu.

Studying the profits of the Romanian state following the developments and real estate transactions in the last 5 years, we will easily conclude that it should be directly interested in remedying the situation. But real estate agents say: “We do not believe that the authorities will consider as a priority the support measures in the real estate sector, given that it is an election year and” real estate companies are doing so well on their own. “(Irina Petrescu, Esop Consulting partner).

Sources:

Bursa – Many new housing projects will be postponed or canceled, 21.10.2008

Cotidianul – Financial crisis: in real estate, everyone loses, 21.10.2008

Curierul National – Developers, the first to be punished by the financial crisis, October 21, 2008


Maria Neda

PR & Media Coordinator, PR & Media Consultant, with background as a journalist in the economic press and experience as a consultant in Urban Development.

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