Bucharest property market analysis

1. 29 February 2009

2. The global economic situation was reflected in the macro-economic indicators of Romania only in the evolution of the last 3 months of 2008. At the end of the second quarter, the economic growth of Romania did register a record level of 9.3%, while the preliminary data of the National Bank of Romania for the end of 2008 showed a level of 8.0% (compared to 6.0% economic growth in 2007). The biggest contribution on the real growth of the GDP belonged to the services sector, followed by the constructions one. The current account deficit is still maintained at a high level, estimated for the end of the year at 13%, slightly lower than the 13.8% registered in the previous year. A considerable influence over the current account balance belonged to the trade balance deficit. The annual inflation rate decreased at the end of 2008 at 6.3%, from 6.6% in December 2007, under the inflation target established by the National Bank of Romania. In December, the national currency depreciation was felt in prices especially on the services sector, where the average increase of prices was 1.3%. According to the latest data of the Romanian National Committee for Prognosis, the estimated inflation for the end of 2009 is 4.8%, while the annually average inflation is 5.3%. RON depreciation against EUR (9.3%, in average, in 2008, compared to the previous year) created last year inflationist pressures, which will continue considering that the external deficit correction will continue and the adjustment of the internal demand will be gradually made. While at the beginning of 2008 the monetary policy rate was 7.5%, starting with the first days of January the National Bank of Romania began to intervene in the sense of increasing it, the first increase being of 0.5%. Based on the forecast regarding the monthly inflation growth (confirmed by reaching the maximum level of the year in July, respectively 9.04%), during the year, NBR increased the monetary policy rate in other 5 stages, so that starting with August 2008 the interest rate was 10.25% per annum. Romania General Overview

5. Mortgages Evolution 2004 - 2008 From 2005 till 2008 the mortgage market has know an increase of 525%, with a permanent appreciation year-over-year. We selected to present the Mortgage market from 2005, considering that the Loan sector became mature enough for Romania and the Economical background helped potential borrowers to obtain a higher value of loans. It’s important to observe the period of 2007 when the mortgages increased with more than 100 % due to the new reglementation of the N.B.R, so called “relaxation period” when the banks increased the credit limit for private from 35% of monthly income to over 65%. After 11 months of intense activity of the mortgage market, this “relaxation” period finished in June 2008 due to the worldwide financial crisis. From January 2009 started another “relaxation period” which is not so active as it was the former period – this can be easily observed by the low increase of the volume of loans from the end of 2008

6. Real Estate Market Indicators In the past period the R.E.M. passed from an “bear market” to a “bull market”, March 2008 was the maximum peak of the price increase, this is applicable for all the type of properties starting with old apartments and ending with plots of land. We will show below an evolution chart of the Bucharest Real Estate Index – for old apartments. We chose to present old apartments because they are occupying the majority in the residential market from Bucharest, only 2% from the total number of apartments are located in new residential developments, 82 % are old apartments (period range 1950 – 1989). Real Estate Market Introduction In 2008 the prices for the properties fallen down up to 30%, was also an year for innovative sales strategies – the developers, based on the drop of the sales, choose the option of real estate leasing for buyers. Despite the world crisis Romania still has a real estate market active. Indeed the sales segment is almost stagnating, but the rental market is active (at 70% from it’s former capacity). The residential market has a demand based on the lack of units. A recent report shows that Romania has 331 apartments for 1000 inhabitants which is placing us behind many E.U states. In this conditions the Romanian Government issued a law which will help the young couples to purchase their first apartment with 5% V.A.T. this law isn’t welcomed only by buyers, is good also for developers which are hoping to sell their properties.

7. Bucharest Real Estate Index 2008

8. For the past 5 years Romania was the Europe Top performer regarding the real estate market evolution. Actually this domain was evolving in such a good and fast manner that the economic growth of Romania was directly influenced by this sector of economy. Romania had an average increase of GDP of 8.28% per year in the past 5 years. Since August 2008 the prices for the properties started to decrease with an average of 5% per month. In absence of banking loans and because of the psychological pressure created in the minds of population that the prices of the dwellings will decrease, the sales of the residential units in the project stage has significantly reduced both in Bucharest and in the country. The developers who relied on banking funds and got significant incomes from the sales of dwelling units in the project stage will find themselves in the position of becoming unable to finalize the residential complexes already announced to be constructed or already under construction. Many reservations have been cancelled as well as many pre-contracts closed for housing sale, as the respective persons are no longer eligible to obtain a mortgage loan; these dwelling units will probably appear in 2009 on the market of residential spaces to let. At the end of last year there were officially announced the first projects postponed until the residential market gets stable. An optimist scenario estimates the residential market will start the process of revitalization by the end of 2009 – the beginning of 2010. It is unlikely that during this period another important residential project would be launched. There will come a period of stabilizing the market and finalization of the projects in an advanced stage of construction. The financial situation in Romania depends on macro-economic factors: economic growth, inflation rate, unemployment rate, investments volume, the evolution of the financial-banking system at international level etc. Below I will present an evolution of the real estate market prices (BREI) vs. GDP and Gross Salary in the past 5 years 2005- 2009. Evolution of the Real Estate Market

9. Real Estate Market vs. GDP and Gross Salary

11. Conclusions In the best-case scenario, the residential market will regain its health at the end of 2009-early 2010, after last year when the house prices plummeted 30% from a year earlier, reads the latest report of CBRE|Eurisko real estate advisor.