ROMANIAN REAL ESTATE MARKET

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Some notes for a Round Table discussion (rather than a full presentation) at the 4th Romania Country Risk 2007 organised by Coface Romania.

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ROMANIAN REAL ESTATE MARKET

  1. 1. ROMANIAN REAL ESTATE MARKET – OVERHEATING? SELECTED NOTES MARTIN STOBBS 4th Romania Country Risk 2007 3 October 2007
  2. 2. ABOUT CREDITLINK <ul><li>Romania’s leading mortgage broker </li></ul><ul><li>Founded 2005 </li></ul><ul><li>13 lenders in portfolio </li></ul><ul><li>Martin Stobbs – 11 years in Romania (finance) </li></ul><ul><li>90% loans for consumers but increasingly finance and investment advice for real estate investors, both Romanian and foreign </li></ul><ul><li>www.creditimobiliar.ro (since 2003) </li></ul><ul><li>www.rez.ro (since 2007) </li></ul>
  3. 3. WORLD CONTEXT
  4. 4. UK House prices
  5. 5. CEE Capital city price ranges – new residential more mature market
  6. 6. DRIVERS FOR INCREASED REAL ESTATE DEMAND/ MORTGAGE GROWTH <ul><li>Norme relaxate – lending norms for credits ‘relaxed’ </li></ul><ul><li>Salary growth </li></ul><ul><li>Low levels of new construction until now - first large residential developments being delivered 6/2007-6/2008 (Quadra Place, Central Park etc) </li></ul><ul><li>114 000 new homes in larger projects already announced ( www.rez.ro ) - delivery 2007 onwards </li></ul><ul><li>Catalytic effect of real estate transactions </li></ul><ul><li>2 million  Romanians working in EU – 1% of these buying an apartment in Romania means 20000 sales </li></ul><ul><li>Competition & aggressive lending between Romanian banks, market entry of other EU banks? </li></ul>
  7. 7. IMPROVED MORTGAGE PRODUCTS <ul><li>‘Norme relaxate’ introduced Summer 2007 </li></ul><ul><li>LTV typically 75% ( now up to 100%) </li></ul><ul><li>Monthly installment/income 35% ( now up to 70%) </li></ul><ul><li>All mortgage loans are full documentation - long process </li></ul><ul><li>No streamlined procedures (self cert. etc) </li></ul>
  8. 8. How much can I borrow? Mortgage loan capacity evolution A couple earning combined income equal to 3 x average salary ie 150% of average each 140 105 57 Multiple 130 000 95 000 35 500 Max borrowing (EURO) for 3 x average salary 3 000 3 000 2 220 3 x average net salary (RON) 1 000 1 000 740 Ave net salary RON (approx) 2007 CHF loan +grace period 2007 EUR loan +grace period 2005 (EUR)
  9. 9. Salary indices – construction and average Source: Eurostat via demography.matters.blog
  10. 10. Salary indices – why increasing? <ul><li>Wage price inflation? </li></ul><ul><li>More employees being paid “white”? </li></ul><ul><li>Greater proportion of salary being paid “white”? </li></ul><ul><li>partially been driven by demand for access to credit – requirement to have declarable income in order to borrow </li></ul>
  11. 11. Dwellings completed each year BASELINE – 98% individual homes – self financed BUT NOW: AN ADDITIONAL 15 000 – 20 000 per year of homes in new developments on top of baseline
  12. 12. Estimated new home construction?
  13. 13. Dwellings under construction, by stage, June 2006, June 2007
  14. 14. VOLATILITY OF MORTGAGE REPAYMENTS (1) 17.0% 6.1% 10.3% INCREASE OF 2 568 2 329 2 421 2 195 COMBINED RON/EURO 3.5 EURIBOR+100Bps Initial EURO100 000 mortgage loan tracker rate in EURO Monthly payment equivalent in RON (starting at RON/EURO 3.3 and initial interest rate of 7%)
  15. 15. VOLATILITY OF MORTGAGE REPAYMENTS (2) EXTREME CASE * Repayment/net income ratio in range 40-70% Note: 139% of 40% is 56%, 139% of 70% is 97% 39.3%* 15.2% 20.9% INCREASE OF 3 058 2 528 2 655 2 195 COMBINED RON/EURO 3.8 EURIBOR+200Bps Initial EURO100 000 mortgage loan tracker rate in EURO Monthly payment equivalent in RON (starting at RON/EURO 3.3 and initial interest rate of 7%)
  16. 16. REAL ESTATE - OVERHEATING?… <ul><li>Heating? Yes, Overheating? Hmmm… </li></ul><ul><li>Will it get ‘hotter’? yes </li></ul><ul><li>Hard landing or soft landing? </li></ul><ul><li>Where is the value? in the DETAIL…MICRO not MACRO analysis for investment decisions </li></ul><ul><li>Look at fundamentals – location, price/quality, location </li></ul><ul><li>For your mortgage - set aside a medium term ‘fluctuation’ reserve </li></ul>

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