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AristotelCostel
Member"Similar, the Romanian real estate bubble will compel the NBR to raise its rates in order to curb inflationary trends provoked by the housing market and increase of consumption, thus increasing the value of the RON against the EUR and deteriorating Romanian competitiveness on the EU market." Economia europeanPosted 2 years ago # -
steve80
MemberI think we will see falling house prices in Romania in coming years and that is going to cause headlines. It is the delayed effect of rising interests rates, which have already gone up and are going up further. More than 95pc of mortgages in Romania are on floating rates and in foreign currency, making the country also vulnerable to Europe's monetary squeeze. I can see a mortgage crisis building. We have a serious property bubble in this country and everyone is in denial; could be worse than in USA considering that the purchasing power is at least 5 times lower than in USA and the house prices are only about 20% less than in USA or in some case even more expensive than in USA. If you do not believe go to yahoo on the section for real estate and check what you can buy in USA for example on Miami Beach with EURO 150.000-220 000 (app USD 200-300.000). The central bank has warned repeatedly that the market is overheating and considering the tough fight against the inflation it will have to use “the aces from the pocket” (interest rates and minimum compulsory reserves) to cool down the consumption and credit growth. Also there is a property crash across the Europe, there could be contagion to Romania considering that the price of the property from Bucharest will be similar with the price from Barcelona and people will prefer to buy abroad where they can obtain higher rent or higher wages if they want to move abroad. Do not forget, Romania is in EU and everything that happens in EU affects Romania.Posted 2 years ago # -
steve80
MemberUnscrupulous property agents are promising massive capital appreciation and exaggerated rates of return on properties in Romania. Under-regulation in the Romanian real estate market means these agents can make the most outrageous claims. No doubt they will be the only people who come out of this bubble with a profit. The issue of honest estate agents in Romania was underlined recently by some Irish and Dutch real estate analysts, who said that advertisements promising capital appreciation of up to 50% and guaranteed rental income of 10% are becoming a regular feature of Romania property advertisements. In terms of mania, it is reminiscent of the stockmarket of the late 1990s in Europe and USA. Romania and Bulgaria are the latest hot spot, and this can be proved by the borrowings to fund buying homes which have risen by 60% over the past year in Romania. Prices have risen in Romania every year for the past 12 years, but now it seems that any further increase is being driven solely by property speculators. The eastern European property bubble looks like it is in danger of overheating, with large numbers of developments being built and investors chasing high returns, who could be easily scared off by any market wobble. 2008 “contains growing risks for housing investors”, with rising interest rates in the eurozone and local market and fears of greater currency volatility. Unprecedented rate of expansion in property lending in the past should be noted. The data on lending suggest that many households are taking on heavy long term repayment obligations at a time when house prices have reached a historical peak. This is nothing more than a fad that has turned into a bubble and should be ignored by smart investors. Every real estate website or broker in Romania seems to be advertising “the best investment opportunity”, but remember the wise words of Joe Kennedy, father of John F Kennedy, who when asked why he sold all his shares before the Wall Street Crash remarked: “when the shoeshine boy starts talking stocks, its time to sell”.Posted 2 years ago # -
steve80
MemberConsidering the macroeconomic indicators I think the Romanian real estate and consumer lending markets had fallen victims to “irrational exuberance” in the same way it happened in other countries like Spain, France, UK, Baltic countries etc. One problem is high inflation, with Romania, Bulgaria and Serbia leading the pack of countries with high inflation in Europe; prices are rising by 8%, 12% and 10% respectively. Moreover, Romania has some towering current-account deficits, making it vulnerable to outflows of foreign capital as global investors become more risk averse. Romania ’s deficit is an eye-popping 18% of GDP. The National Bank of Romania increased the key interest rate from 9.0 to 9.5 per cent. This was the third time this year that BNR raised the key interest arte, having set it at 9 per cent in February having already gone up from the 7.5 per cent to 8 per cent in January this year. The NBR decision to increase the key interest rate by 0.5 per cent didn’t determined the appreciation of the local currency as the reference exchange rate rose after decision was made public. Loans in RON become more expensive, with a limited impact upon the exchange rate. The Central Bank’s decision will have as a result higher RON loan and deposit interest rates, but limited impact upon the evolution of the local currency as NBR’s decisions had been foreseen by the market. We have to keep in mind that the growth in consumer spending has been heavily debt-fuelled, with fixed interest rates for maximum one year. People who borrowed money will see significant higher instalments when the interest rate will become variable after one year. Romania's economy is at risk of overheating, as strong private consumption and increased government spending are accompanied by a renewed rise in inflation. Do not forget the generous wage and pension settlements ahead of elections in the final quarter of 2008. Smart investors will wait the right moment to invest….time and cost of finance will put pressure on sellers/ developers.Posted 2 years ago # -
steve80
MemberSome time ago Baltic States seemed "investment heavens” as many people think Romania it’s currently. The Latvian example is a shocking reminder that a drop in real estate values is not inevitable. The property meltdown that has befallen the Baltic over the past year did not stem from economic conditions in Europe; rather it was a serious disintegration triggered by micro and macroeconomic developments and finally political. Back in 2005, however, the real estate markets in Lithuania, Latvia and Estonia looked more like investment heaven than a financial trap. All three countries boasted robust economies and low inflation rates: 1.4 per cent in Lithuania, 4.2 per cent in Latvia and 1.3 per cent in Estonia. The property boom, which had begun in 2001, had reached its peak. In 2004, the average price for residential properties in Vilnius (Lithuania's capital) was 880 euro a sq m, in Riga (Latvia's capital) 1000, and in Tallinn (Estonia's capital) 940. Just a year later, prices shot up to 2300 euro a sq m in the relatively affluent regions of Vilnius, 2700 euro in Riga and 2400 euro in Tallinn. In the centers of these picturesque cities “all of them of architectural and historic value “ prices were about 3000, 4000 and 3500 euro a sq m, respectively. Prices upward trend continued in 2005. In Lithuania, demand was slightly higher than the supply for real estate properties, while in Latvia and Estonia gap between the demand and supply was higher. Investors bought apartments, offices and commercial buildings because of rising prices and high levels of guaranteed rental income. Altogether, from 2001 to 2006, prices in all property sectors in the three Baltic countries jumped fivefold. But then, in 2007, disaster struck. Between January and July, property prices fell by 20 per cent in Latvia and ten per cent in Estonia. The Baltic real estate champion - Latvia - suffered the biggest price drop of all, becoming the first European country to be so severely affected by the global credit crisis and economic conditions. Macroeconomic conditions similar with the ones we have now in Romania have disrupted Latvia's property market. The inflation rate was already 10 per cent, meaning that entry into the euro was totally unfeasible. Because of its ineffective economic strategy, the government approval rating was the lowest since the beginning of the 1990s. Its anti-inflation policy, introduced in July, also contributed to falling real estate values. Prices dropped three per cent on the previous month. From January to October 2007, the price drop was 19 - 26 per cent. Owners in some of the new housing projects began to offer apartments for 20 - 25 per cent less than they had purchased them at from developers. The average price a sq m of residential property was 2220 euro and for standard apartments, 1700 euro a sq m. Some local experts assured investors this was just a slight correction of prices while others foresaw the beginning of a long-term slump. Easy credit Latvia's property boom coincided with strong competition between banks, substantially lowered interest rates on short term for mortgage loans, which were 4.5 per cent in 2002 and 3.5 to four per cent in 2005. The liberal bank policy led to fast and easy credit access. This, in turn, allowed many Latvians to purchase properties with non-existent money. The noose around the Latvian economy was tightening. In January 2007, a third of those who had purchased property through credit were unable to meet monthly installments as the variable interest rates went up. In June 2007, the country's official inflation rate reached 10 per cent. Prices for basic goods continued to rise against a background of stagnant salaries. Several banks responded by implementing a more conservative lending policy and soon other institutions followed. Do you think it’s similar with Romania? Buying Up This is not a strictly Eastern European phenomenon but Latvia is an excellent case in point. At the beginning of the 21st Century, Latvians with higher purchasing power exploited low real estate prices by purchasing whole blocks of flats, houses and hotels. These people gradually owned the lion’s share of the property market and kept prices at unrealistically high levels. Thus they manipulated the market, instead of leaving it to its own regulatory mechanisms. The real estate market in other Eastern Europe has started to slow down. Prices in Bulgaria, Croatia, Romania and Slovakia are predicted to decline also. Prices in Estonia and Lithuania will go down slowly, but in Latvia will continue plummeting. Even Latvia has been adapting successfully to the European Union the real estate crash couldn’t be avoid. Nevertheless, the Latvian example should give serious pause for thought to all property buyers who used to believe that a Romanian price collapse is inconceivable.Posted 2 years ago # -
grim
MemberIt's not a bubble please bring you're money to our beautiful country. If you are romanian, on the other hand, it's a very big bubble, so don't buy with you're hard worked money their s**t. when the bubble bursts you're investement money will go "puff". So steve80 how long till we see another europe bubble burst, considering that the uk is bursting already. As for the demand in romania...it's big we all dream at owning a house but the ones that can actually afford a property are very few. I think the prices go up because investors buy from each other, shark eating shark and we are left with no choice but watch. Do you think gold is another bubble? As long as all money cary debt will keep seeing bubbles.Posted 2 years ago #
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