2023-07-07 07:57:38
When we look at the number of transactions, we see a significant decrease in Romania, but it is one as expected, considering what is happening in many other countries. In the EU there is already a drop in real estate prices, which induces a new expectation. Why buy now? Why go into debt now? Maybe in a year, if this downward trend in prices continues, you will be able to buy cheaper, said Florian Neagu, the future head of the Financial Stability Directorate of the BNR.
Florian Neagu, the future head of the Financial Stability Directorate of the BNRPhoto: Inquam Photos / Sabin Cirstoveanu
Central bankers are talking regarding a slowdown in lending to the population, but this is no surprise to them. “It’s an expected thing. Moreover, several colleagues recommended to the population a certain caution in the decisions to take a loan, because there are a lot of uncertainties that manifest themselves”, Neagu also said.
These messages began to be given by the National Bank for more than a year amid the uncertainties that might lead to an increase in interest rates and therefore the rates you give to the bank every month.
“We are also looking at the connections between the construction market or the real estate market and the banking sector. And, historically speaking, most real estate transactions are not done with bank money. For some time we have been noticing one more thing in the Romanian banking market, that is, the majority of transactions are no longer for the first house. About 52% of the number of transactions are for a second home – either a holiday home or an apartment that you can rent out,” says Florian Neagu.
The value of transactions in the Romanian real estate market
The value of transactions on the commercial real estate market (1.23 billion euros) is significantly below that recorded in Poland (5.7 billion euros) and in line with the evolution of the markets in the Czech Republic (1.5 billion euros) or Hungary (1 billion of euros), shows the Financial Stability Report, 2023 edition.
Activity in the residential real estate market has slowed since the publication of the previous Report, but with a less pronounced decline compared to mortgage lending.
The number of individual property transactions fell by 12% nationally between April 2022 and March 2023 compared to the same period the previous year, while the number of mortgages fell by 20%. The share of mortgage loans in total real estate transactions decreased from 39% in the period April 2021-March 2022 to 32% in the period April 2022-March 2023, and is approximately 20 percentage points below the maximum recorded during 2020.
Demand was more robust in the Bucharest-Ilfov area, where the number of transactions was constant, while in the rest of the country there was a 16% decrease, according to data published by the National Bank. However, in the first quarter of 2023, a sharper reduction in trading activity is observed compared to the same period last year, both in the capital area (-24%) and in the rest of the country (-31%).
The volume of construction work for residential buildings moderated, with the level increasing by 1% in the period April 2022-March 2023 compared to the same period of the previous year, compared to the advance of 30% recorded in the period April 2021-March 2022.
The usable area related to residential building permits has decreased by almost 10%
Similarly, the useful area related to residential construction permits issued for the period April 2022-March 2023 decreased by 8%, BNR officials say
The dynamics recorded during 2022 were relatively stable, in contrast to the Eurozone, the Czech Republic and Poland where the corrections in the last quarter of 2022 were more pronounced. A notable difference is Hungary, where the value of authorizations increased during 2022, despite high interest rates.
Pressures on residential construction costs are maintained, but the growth rate has slowed slightly (+17 for the period April 2022-March 2023, compared to a maximum of 20% recorded during 2022), according to BNR data. The expectations of construction companies have slightly improved, with over 40% of companies expecting price increases.
Residential property prices rose by 6.8% in Q4 2022 compared to Q4 2021, marking a slight slowdown from the previous year (-0.2 percentage points), Central Bank data shows
At the level of the Eurozone, property prices began to decelerate from mid-2022, with the start of the tightening cycle of monetary policy.
The average period required to purchase an apartment
It can be seen that countries with a higher level of debt relative to the salary income of the population recorded a stronger decline in prices, due to the higher impact of interest rates on the population’s ability to pay (eg Sweden or Denmark).
The average period required to purchase a standard apartment at the national level was 7.4 years as of March 2023, according to the price-to-income indicator.
The indicator decreased by 6 months compared to the end of 2022 due to the slowdown in the appreciation of residential real estate prices compared to wage incomes. The level of the price-to-income indicator is close to the average of the last 8 years (7.9 years), indicating a correlated evolution of the population’s income with real estate prices, and significantly below the level recorded before the financial crisis (regarding 20 years).
On the other hand, the affordability index deteriorated significantly compared to the previous year, due to the increase in interest rates for new loans, reducing from 102% to 76%.
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