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.

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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  • 1. ROMANIAN REAL ESTATE MARKET – OVERHEATING? SELECTED NOTES MARTIN STOBBS 4th Romania Country Risk 2007 3 October 2007
  • 2. ABOUT CREDITLINK
    • Romania’s leading mortgage broker
    • Founded 2005
    • 13 lenders in portfolio
    • Martin Stobbs – 11 years in Romania (finance)
    • 90% loans for consumers but increasingly finance and investment advice for real estate investors, both Romanian and foreign
    • www.creditimobiliar.ro (since 2003)
    • www.rez.ro (since 2007)
  • 3. WORLD CONTEXT
  • 4. UK House prices
  • 5. CEE Capital city price ranges – new residential more mature market
  • 6. DRIVERS FOR INCREASED REAL ESTATE DEMAND/ MORTGAGE GROWTH
    • Norme relaxate – lending norms for credits ‘relaxed’
    • Salary growth
    • Low levels of new construction until now - first large residential developments being delivered 6/2007-6/2008 (Quadra Place, Central Park etc)
    • 114 000 new homes in larger projects already announced ( www.rez.ro ) - delivery 2007 onwards
    • Catalytic effect of real estate transactions
    • 2 million  Romanians working in EU – 1% of these buying an apartment in Romania means 20000 sales
    • Competition & aggressive lending between Romanian banks, market entry of other EU banks?
  • 7. IMPROVED MORTGAGE PRODUCTS
    • ‘Norme relaxate’ introduced Summer 2007
    • LTV typically 75% ( now up to 100%)
    • Monthly installment/income 35% ( now up to 70%)
    • All mortgage loans are full documentation - long process
    • No streamlined procedures (self cert. etc)
  • 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. Salary indices – construction and average Source: Eurostat via demography.matters.blog
  • 10. Salary indices – why increasing?
    • Wage price inflation?
    • More employees being paid “white”?
    • Greater proportion of salary being paid “white”?
    • partially been driven by demand for access to credit – requirement to have declarable income in order to borrow
  • 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. Estimated new home construction?
  • 13. Dwellings under construction, by stage, June 2006, June 2007
  • 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. 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. REAL ESTATE - OVERHEATING?…
    • Heating? Yes, Overheating? Hmmm…
    • Will it get ‘hotter’? yes
    • Hard landing or soft landing?
    • Where is the value? in the DETAIL…MICRO not MACRO analysis for investment decisions
    • Look at fundamentals – location, price/quality, location
    • For your mortgage - set aside a medium term ‘fluctuation’ reserve