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Romania's real estate sector, previously one of the economy's most active sectors, is slowly coming out of the hibernation forced upon it by the global financial crisis, with the majority of indicators pointing towards recovery by 2011.
At the end of March, the National Bank of Romania(BNR) lowered its key interest rate to 7.5%, the third reduction since the beginning of the year, as the reserve sought to boost lending by the country's banks and promote consumer spending, particularly in the hard-hit real estate sector.
Though the move may help restore confidence among banks and consumers alike, it appears that it will be some time before the property market starts to pick up.
According to Bogdan Chiriacescu, a senior official with the financial stability unit of the BNR, though the decline in demand for mortgage financing flattened out in the second half of last year, a poll of the country's leading banks suggests there is little optimism among lenders that the residential sector will recover any time soon.
"The banks expect that the house prices will continue to adjust in the period to come," Chiriacescu told a seminar on recent developments in the economy held on March 31. "As many as 50% say the trend will continue in the first half of 2010."
Most banks are still wary of increasing loan activity, remaining cautious over the financial situation of much of the public's underlying credit concerns, he said. This had prompted many banks to further tighten up their criteria for consumer loans, resulting in a low level of demand for financing, said Chiriacescu.
With liquidity tight, and demand flat, there is little prospect for immediate upward movement in most segments of the real estate sector, either for sales or rental. In mid-March, real estate portalwww.imobiliare.ro
In Bucharest, the price per sq metre of office space had dipped 26.7% over the past year, down to $14 a metre. Rents in the capital remained higher than in other major centres, with the per-metre cost in Brasov falling 31% to $8.60 and rental costs in Cluj-Napoca easing 30.7% to $10. Bucharest's more moderate fall and elevated base price reflected the city's greater economic strength and spending power compared to provincial towns.
It is not only office rental space that is seeing a fall in demand. The situation for commercial space is much the same, resulting in a drop off in new retailing sites being brought on-line. Last year, just 314,000 sq metres of new commercial centre spaces were completed, more than 50% fewer than in the previous year, with the drop being the steepest in all of Eastern and Central Europe, according to a report issued by property consultancy Cushman & Wakefield at the end of March.
"In 2009, most of the Central and Eastern European states recorded a drop in new commercial centres, except for Poland and Slovakia, which saw an increase against 2008," the report said. "Romania recorded the most drastic drop in new commercial centres spaces, -57%."
This low interest is to continue through this year and the next, Cushman & Wakefield predicts, with 290,000 sq metres worth of space being opened in commercial centres in 2010 and just 128,000 sq metres in 2011.
One segment where there could be solid though not spectacular growth is in industrial space, with Cushman & Wakefield predicting a 10% increase in demand over last year, which could soak up much of the 10-12% of vacant space.
Though hard hit, there could be an upside for investors or those seeking rental space. With some segments of the market oversupplied, and reports of distressed salesbeing made as developers look to consolidate and reduce their land or property banks, good deals can be struck by those looking to get in on the ground floor of economic recovery.
While canny investors looking to place a bet on Romania's rebound may buy into the country's property market, it may be some time before their bets pay off, with the World Bank predicting on April 2 that GDP will increase by a modest 1.6% this year, rising by 3.6% in 2011.
Given that most of the conditions that made Romania an appealing market for property investment prior to the global economic meltdown in mid-2008 - an educated workforce, relatively low real estate prices and central location in the region - all remain in place, the country's property market should pick up more quickly as the economies of the Europe regain health and start to look for opportunities. published the results of a study showing that rental prices for office space had fallen by between 20% and 41% over the past 12 months, with the steepest falls being in the Black Sea city ofConstanta and the eastern Romanian city of Iasi.