Other countries which saw double digit house price rises in the first half of 2006:
France (14.3%),
South Africa (13.5%),
Sweden (13%),
Norway (12.4%),
New Zealand (12.3%),
Spain (10.8%),
Canada (10.8%),
US (10.06%).

US housing market slowdown
However the US housing market, where prices have been rising in earnest since 1995, is experiencing a slowdown after successive interest rate increases by the Fed (Federal Reserve Board, US’s central bank). Second quarter of 2006 house prices registered their lowest rate of quarterly increase since 1999, at 4.68%.

There have also been dramatic slowdowns in the UK and Hong Kong. Annual house price growth in the UK was only 4.7% in 2005 and 6.6% in Q2 2006, down from 12.7% in 2004. The UK experienced 15% house price rises on average during the past five years.

Hong Kong’s house prices actually declined in 2006 (-1.94) after impressive 27% and 24% annual increases in 2004 and 2005, respectively.

Conversely there are signs that the frozen property markets of Japan and Germany are finally thawing. However, the price movements were mainly in the upper market, and are not yet reflected in current indices. In 2005, Japan’s urban land price index declined by a 4.67%, while Germany’s house price index increased by 0.73%.

An extraordinary decade
It has been an extraordinary decade. House prices in Ireland rose 270% over the ten years 1995-2005, UK house prices by 209% and Spanish house prices by 166%.

Other countries that experienced a doubling of prices over the ten year period were: Australia 155.4%, Norway 137%, Denmark 130%, France 121%, Finland 118%, Netherlands 116%, New Zealand 110%, and the US 101%. Continuous house price rises from 2000 to 2005 in South Africa have led to a remarkable 178% price increase (the series is not long enough to display the growth for 10 years).

Asian countries are joining the boom. Singapore has begun a recovery from the price declines that started with the Asian Crisis of 1997. From June 2000 to 2005, house prices declined by 18% but house price figures for 2Q 2006 show 6% y-o-y growth, on top of the 3.87% growth recorded in 2005.

South Korea’s house prices are also rising despite the government’s attempts to suppress prices.

Some recovery is observable in other countries affected by the Asian Crisis such as the Philippines, Malaysia, and Thailand.

Eastern Europe has seen remarkable increases, exceeding most of the developed world’s price growth, spurred by the entry of fresh capital from EU citizens. Estonia’s house prices, for instance, rose 67% y-o-y in 2005 and 77.5% y-o-y in 2Q 2006.

Not to be outdone, the Middle East is in the midst of a building boom. One by one, property markets in the Middle East are opening up to foreign investment. The trend was initiated by Dubai of the United Arab Emirates, but Qatar, Bahrain and Oman have followed suit and are now open to foreign ownership. Despite the recent war in Lebanon and Israel, demand for property is still strong in the region.
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Strong Economy, Low interest rates
Two reasons are commonly cited for the impressive house price booms:
• Low interest rates
• Strong economic growth

 Households can now service much more debt because of the fall in interest rates, greatly enhancing their purchasing power, and enabling them to buy more expensive houses.

Strong GDP growth
Strong economic performance is equally important. It boosts purchasing power, and also makes people more optimistic.

Ireland’s strong house price growth has been, for example, clearly linked to its strong economic performance. Irish economic growth has been unparalleled in Europe, averaging a spectacular 9.8% over six years (1995-2000), with strong growth since then. One consequence has been 17 unbroken years of house price appreciation, with an increase in housing values of 253% between 1995 and the present.

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Strong economic growth has also been arguably a major reason for house price booms in China, Spain, Australia, Denmark, Canada, and New Zealand.

Sociology, demographics, taxation
Changes in demography, sociology, and tax structures complete the picture of the factors behind the house-price rises.

South Africa is a good example. A key result of the end of apartheid was the birth of a financially stable black middle class, which is now the housing sector’s main growth engine, and has greatly broadened the housing market.

France and Italy have experienced anemic economic growth, but seen substantial house price rises. In France, house prices have also been boosted by purchases by non-residents, especially Britons. In 2003 foreigners brought €9.2 billion into the French housing system. Similarly in Spain, foreign buying has had an appreciable impact.

Italy’s house price rises have been due to another shift, the increasing popularity of owner-occupancy. The Italian tax system is generally biased in favor of ownership, but demographics have also played a role, because the increasingly aging population tends to prefer house ownership over rental (this demographic effect on house ownership can also be seen in other European countries).

Tax regimes can play a central part too. An important factor in the increased popularity of buy-to-let properties in Australia has been the tax treatment of negative gearing, allowing rental investment losses to be offset against an individual’s principal source of income.

 Marching in step
The recent house price boom has been the biggest in history, both in magnitude and extent and above all in its synchronization. This really is a world-wide phenomenon.

One reason is the internationalization of the financial markets. Interest rates around the world now move in tandem, at least in the developed world. In the EU, particularly, the creation of the Eurozone has resulted in an enormous block of countries with structurally unified interest rates. The US, at the center of the world’s economy, is in a curious position, because the US housing boom has been boosted by low interest rates resulting from the insatiable demand for T-bills of the Chinese government and Chinese investors.

A second reason is that labour and residence markets are also beginning to internationalize.

On the demand side, there has been a significant increase in international mobility. In the euro zone, families are increasingly moving from one country to another to find new jobs. Retirees and holiday-markers are now much more willing to buy houses in other countries. Migration to developed countries has also increased. Demand for housing the newly-arrived has been significant in the UK, New Zealand, Australia and Canadian booms.

Looming banking crisis?
In country after country, at the tail-end of housing booms, a catastrophic scenario repeats itself. As house-prices fall, severe problems emerge in the banking system. A large collection of individuals with negative equity are unable to repay their debts, which translates into a banking system crisis. Because banks in crisis are reluctant to lend, housing market downturns routinely stall economies.

Japan’s stagnation of the past 15 years was preceded by a stock market and property market bust. This would not have been so devastating had the bubble not been financed through heavy borrowing using overvalued land as collateral. Many loans to small businesses were backed by property, and three quarters of the local banks’ lending was to these small businesses.

For the reasons stated above, central banks have increasingly asked whether they should focus only on general price stability, or monitor real estate price movements. Yet the general consensus among central bankers is still that monetary policy should not target specific markets and intervention should come only if asset inflation spills over into general inflation. 

However, even if monetary authorities deny that they target the real estate market experience shows otherwise. When the monetary and housing authorities feel that there is overheating in the housing sector, interest rates are gradually increased.

Interest rate hikes
In Australia, between December 2003 and March 2006, rates moved up from 6.8% to 7.55%. Those small changes were sufficient to curb rising house prices.

In New Zealand the variable mortgage rate inched up to 9% in March 2005 and to 9.6% in December 2005. The Reserve Board of New Zealand (RBNZ) warns that further increases in interest rates are imminent.

In the US, the Fed kept the key interest rate at 5.25% (as of Sept 2006), ending a two year cycle of hikes. Finally, the housing market is responding to the medicine.

Following the US lead, interest rate increases have also taken place in Canada, Hong Kong, Singapore, South Korea and several south-east Asian countries. Even Japan has abandoned its five-year strategy of zero-interest rates, by increasing key rates to 0.25% in July 2006.

Euro zone interest rates have also increased. After remaining fixed at 2% from June 2003 to Dec 2005, the European Central Bank’s key lending rate was hiked four times to 3% in Aug 2006. The UK’s key interest rate was likewise hiked by 0.25% to 4.75% in July 2006.

Don’t buy yet
A period of rapidly rising house prices is not the best time to buy houses, either for investment or owner occupancy.

House prices are cyclical, and a correction is likely to occur afterwards. Be warned.  

CBRE Eurisko study: Romania real estate market stagnates. 2008 started with 20% price falls

Household prices will increase with only  5 to 15% this year, as compared to 50% in 2007. 2008 brought about land price decreases of up to 20% in several areas in Bucharest. Experts forecast that this is the first year in which, in several areas prices will either fall or stagnate. Office rentals will also stagnate in 2008 and after 2009-2010, prices in the sector might fall. 

CBRE Eurisko Evaluation department manager Adrian Nicolescu declared that starting with 2007, the real estate sector in Romania showed signs of stagnation and for some sectors, even a decrease in prices.

CBRE Eurisko experts argue that land prices started to decrease at a steady pace and land owners even consider selling them now when prices are still high. Nicolescu added that for 2008, experts estimate that unless prices fall, then at least they will stagnate.

When it comes to office rentals, prices are forecast to drop starting with 2009-2010 and to stagnate in 2008. Moreover, in the following years Bucharest will host some 1,950,000 sq. meters of buildings for office use only

Atisreal Romania: Market View on Bucharest Property

In our desire to keep clients and partners permanently informed, Atisreal Romania, a BNP Paribas Real Estate company, offers you the latest Market View on Bucharest Property.

Covering all the relevant aspects of the real estate field, the report is the most realistic overview of the Bucharest real estate market. We are confident it will be a valuable source of information when making important decisions related to the real estate business.Among the subjects of our real estate report you can find analysis for office, retail, residential, industrial, land and investment markets.

Bucharest office market has continued the trend recorded in the last 2 years with increasing supply surpassed by the growing demand. Despite the significant number of new completions recorded in 2007 the local market is still witnessing shortage of available quality office accommodation.

The office stock has remained focused in the northern and central submarkets. The western part of Bucharest is expected to emerge as one of the most active submarkets considering properties currently under construction or in advanced planning process. On the investment market the strong demand has been sustained by the important capital inflows coming from investment funds and property investment companies targeting Romania to diversify real estate portfolios and risks across regional markets. Albeit the investment market continues to mature, it is still primarily limited by the shortage of quality investment products offered on the market which are not sufficient to satisfy the ever-increasing demand.

 As a consequence of the rapid yield compression the local market has experienced unprecedented trends. New low risk funds have entered the market while some funds have taken the advantages of the lower yields and exit their first investments.

The lack of quality investment products and high level of pre-lease transactions on specific submarkets offer investors the opportunity to acquire off-plan or under construction schemes, especially offices. The market has witnessed a clear tendency towards forward purchase transactions over standing investments as investors are keen on securing better yields and attaining control over the project development. The local investment market is less affected by the U.S. sub prime crisis and Romania is still perceived as an attractive market. However, the lenders are more prudent in granting finance for real estate projects and transactions.

Under the circumstances of the instability of the international markets, in 2008 the investment funds will become more precautious in their decision to acquire expensive properties, but will still be looking for alternative products with higher yields.

Although the lack of transactional evidence is still making accurate pricing difficult, it is clear that prime yields are moving towards the levels recorded in H2 2006 (7-7,25%).

Perhaps the most significant trend recorded on the local residential market is the increasing number of announcements for large residential projects comprising hundreds or thousands of housing units to support an efficient cost policy. This trend is expected to continue in the future, allowing developers to promote units at affordable prices addressing medium-income customers.

The purchasing power and the sale price per sq m directly influence the required unit size and type of finishing. Most customers prefer to purchase one or two-bedroom apartments while three bedroom apartments and duplexes are currently less popular among buyers as demand is highly price sensitive.

The increasing competition on the residential market enlarges the portfolio of advantages for clients, thus being offered a variety of financial arrangements such as buy-back solutions, favorable terms for mortgage lending or other facilities (furnished rooms, several finishing options etc).

Colliers International to launch supervising instrument of apartment price evolution in Bucharest

Real estate consultancy company Colliers International will launch by the end of the month a quarterly estate index, Bucharest Real Estate Index (BREI) that will monitor the price evolution of Bucharest apartments. The index, set up by the company's analysts starts off with 2005 data and will analyze the price evolution in all six sectors of the capital city.

The Index will monitor both old and new apartments and will be the first objective tool to measure the price evolution in Bucharest, Colliers International Residential department director Ilinca Paun. She added that the index will place rumors and speculations in the real estate sector on a secondary place. The Index's method is the same as the one used on the European capital markets but it also takes into account the volume and sales weight in different areas of Bucharest, team coordinator Calin Bucur said. He added that BREI takes into account all specific differences among apartments.

                Prior to 1990, most land in Romania was owned by the state, by state-owned entities or by so-called "agricultural cooperatives". Individuals owned only a limited amount of farmland and residential land. After 1990, specific regulations were passed governing the retrocession of property taken over by the state either legally or abusively during the socialist regime back to their former owners. The main regulations are Land Law no. 18/1991, Law no. 1/2000 on the Retrocession of Agricultural and Forestry Land, Law no. 10/2001 on the Legal Regime of Immovable Properties Abusively Taken from their Legal Owners between 6 March 1945 and December 1989 and Law no. 247/2005 on the Reform in Property and Justice Domains and Certain Adjacent Measurements, as subsequently amended.
            Romanian individuals and legal entities (regardless of the citizenship or nationality of their shareholders) are free to acquire ownership title to the land. Romanian legislation currently in force prescribes a specific legal status for the acquisition of real estate properties by foreign nationals (individuals and/or legal entities).

            Regarding the acquisition of title to land, as a rule, European nationals (which includes residents of the European Union and of the European Economic Area) are able to acquire ownership under the same terms as Romanian citizens and entities, as from Romania's accession to the EU. European nationals will be allowed to acquire title to agricultural lands, forests and forestry lands within seven years as of Romania's accession to the EU (except for European farmers having Romanian residency, who are allowed to acquire ownership of this category of land as of Romania's accession to the EU). Likewise, European non-residents in Romania will be allowed to acquire land ownership for establishing a secondary residence or a secondary office, within five years of Romania's accession to the EU. Foreign nationals from outside the EU and European Economic Area are allowed to acquire land ownership under the terms of international treaties and based on reciprocity.  By no means may the rules applicable to non-European nationals be more favourable than those established for European nationals. Authentication by a public notary is compulsory for the land transfer to be valid. Validity of transfer of title to the land against third parties is to be ensured by recording the title with the relevant Land Registry. When purchasing real estate properties, one should take into account that there are certain regions in Romania where the registration of ownership in the Land Registry has been implemented only recently, and therefore a proper review of ownership when purchasing real estate property may be quite difficult. It is therefore advisable to conduct legal title checks for any property before acquiring it. 

            Furthermore, the National Cadastre and Land Registration Agency has recently been established (through the reorganisation of the former National Cadastre Office), with its remit to include real estate property registration in Romania, a role taken over from the Ministry of Justice. This Agency also coordinates and oversees the performance of cadastral work at the national level. Under the new legal provisions, ownership right and other in rem rights on immovable properties are to be recorded with the real estate information register (i.e. Land Registry) solely on the basis of transfer deeds, which must be concluded in authentic (notarised) form. Upon authentification of an instrument establishing, modifying or cancelling a legally enforceable right in property, the public notary should request a Land Registry abstract for authentication or, as the case may be, a certificate of charges. During the term of validity of the abstract for authentication, the Land Registry may only register the transaction for which the abstract was issued After the public notary has prepared the deed of conveyance, which alters, establishes or cancels a legally enforceable right interest in real estate, the public notary must by law send the relevant documents to the Land Registry Office, applying for the registration with the Land Registry of such deeds. A recently enacted regulation also requires the existence of a fiscal certificate assessing the payment of taxes over the real estate property for a valid transfer of ownership.
            Mortgages are created under authentic deeds and in order to have effect towards third parties they must be recorded in the Land Registry. Mortgages are created either over land/buildings as a whole or over the ownership of shares of the co-owners.

            The creation of mortgages over a future asset is subject to compliance with specific regulations regarding the mortgage credit for real estate investments, based on the prior registration with the Land Registry of the building permit and the partial delivery and acceptance minutes. 

            Also the intent to create a mortgage for land/building can be recorded in the Land Registry. Further to the intent being registered, if effectively created, the mortgage has a ranking corresponding to the intent of creating the mortgage already registered with the Land Registry. The record of the intent to mortgage expires two months after its registration in the Land Registry.

            In order to enforce the mortgage, the mortgager (e.g. a bank) must resort to an enforcement agent to start the enforcement procedures. Commencement of this procedure is registered in the Land Registry. Objections can be filed against the enforcement procedure before a competent court, which could suspend such a procedure based on a specific request to this effect. In case of bankruptcy, the mortgager submits its claim with the liquidator and has priority in the sale proceeds of the asset mortgaged, over any other receivables, except for the taxes, stamp duties and liquidation costs relating to the sale of the asset.

Source: PwC Romania - Doing Busines in Romania

Showing a steady decrease in yields that now stand at eight per cent, compared to 12 per cent in 2004, the real estate market is still expected to grow in 2008. Apartment buildings seem to be the new attraction on the market, as such projects could target a large part of Romania's population, the medium income segment. The residential segment is closely followed by the office sector and the industrial segment, which will see around 230,000 sqm of facilities built this year alone. In turn, the retail segment is also gaining speed outside the capital.
                                            Need an office?

You might just have to wait in line, as it seems the demand for such spaces has been overwhelming. From 2005 to 2007, the demand was bigger than the offer, despite a much more substantial supply of office buildings than in the previous years. Over 80 per cent of the requests resulted in the signing of pre-lease contracts. Tenants will seek to secure good locations via pre-lease contracts, even if they're leasing unfinished spaces lease prices for A class buildings will vary between 18 to 20 Euro per sqm, and 16 - 17 Euro per sqm for pre-lease deals, while for B class buildings they will reach 12 to 15 Euro per sqm.

For office space sale deals, prices range between 1,200 and 2,000 Euro per sqm, depending on the location and finishings.This is a definite call for investors who should start building quality office spaces both for lease and sale.The Romanian market is facing a lack of office buildings while the economy develops fast, companies evolve and grow in size and new firms are opened. The vacancy rate for modern office space in Bucharest is under 5  per cent at the moment.

Industrial segment explodes

With about one million sqm scheduled to be delivered in the next five year, the industrial segment will be the driving force for the market's increase. One of the biggest projects is Bucharest West will cover over 100 hectares and will be built on the A1 highway. The western part of the city is the most developed industrial area. Because there is not much land available along the Bucharest's ring road, the land there is expensive, and development is now focused along the A1 highway, with projects such as Bucharest West, Cefin, Mercury Logistic Park and ProLogis spanning to kilometer 22 of the highway.  Recently small local developers have started to build modern warehouses for lease or sale on a speculative basis or have extended their current developments in order to attract potential tenants or buyers. They are preferred by medium and smaller distribution companies. Main investors in the sector come from Austria, United States, United Kingdom, France, Greece, Spain and Israel. With rent prices ranging between 4.5 and six Euro per sqm, large logistic companies prefer building their own warehouse facilities, after testing the market by leases. Modern logistic and industrial warehouses are present in other key strategic cities of the country including Brasov - Brasov Logistic Park, Timisoara - Incontro Platform and Dunca Logistic Center, Arad - Incontro Platform, Iasi - North Point Business Park and Bacau - Hit Industrial Park. Cluj and Constanta are also expected to be key locations where important logistics companies intend to establish their cross docking and distribution centre operations. Commenting on trends, investors were also interested in refurbishing old facilities.

Another rapidly growing trend on the industrial space segment is the acquisition of such properties due to facilities offered by banks and leasing companies.This is an excellent business opportunity as monthly sums obtained from renting out property usually match exactly the monthly payment to banks to repay the loan. Therefore owners have no expenses, just beautiful long-term profits.

Shop till you drop!

The retail space to triple by the end of 2008, from the current 150,000 sqm in 2005 if opening schedules are met. With malls and huge shopping centers emerging in all areas of the city, Bucharest still lacks a dominant retail "high street" location, the downtown sector remaining under developed. The prime retail locations are along Magheru and Balcescu Boulevards, Calea Victoriei and Mosilor. These locations, have managed to attract many international retailers in the last few years. Big names include Hugo Boss, Lacoste, The Body Shop, Steilmann, Lancel, Terranova, Max Mara, Furla, Guess, Beauty Shop, Nike, Intersport, Timberland. More new entrants are exploring the market and can be expected to appear in the medium-term. nIn this segment too there is a lack of balance between offer and demand. Thus prices, range between 40 to 100 (even more …!) Euro per sqm in downtown and central areas, 20 - 30 Euro/sqm in medium-central areas, and 10 - 15 sqm Euro/sqm in city districts, while for shopping centers rents reache 150 Euro per sqm, banks, insurance companies, pharmacy networks, auto showrooms and companies that are looking for branch locations will develop significantly over the year.

Romanians are still looking for new apartments

Started few years ago, the trend of building apartment buildings for clients with medium incomes, will take over the residential market, concentrated so far on villa complexes. With prices fluctuating up and down within a ten to 15 per cent range, the Civic Center area and Sector 1 are expected to have the biggest development. There is a significant demand for apartment blocks, but apartments will be bigger than those built before 1990, and with higher quality finishing meant to offer the required comfort. A few thousands apartments are supposed to be delivered in the next two or three years.In the residential rental market, the most successful areas are Herastrau, Dorobanti, Floreasca and Primaverii. These apartments have a modern design, they're large and have better facilities.

In few words, I tried to present to you, local market, trends, statistics , using our local newspapers, analists from biggest Real Estate Companies and personal observations. I hope these facts will help you to understand more our Real Estate market and what is happening here…