CONTENTS
contents
Demand
The idiom “This time is different” usually describes that in all facets of the economy, past lessons usually tend to hold much more value than people give them credit and that the past tends to come back life. There are some exceptions and Romania’s land market may turn out to be such an example. Compared to the previous recession of 2009-2010, the local land market has not frozen at all, deals are closing and there is still quite a lot of interest (though we acknowledge that some buyers are waiting on the sidelines for more clarity, which is normal). Some deals even went ahead during the lockdown period, nevertheless, a few big deals (in excess of EUR 10mn) that seemed likely to close in 2020 may not happen this year, rather next year.
Still, not all sectors are equal. Demand from retail players has arguably been the best in the first semester of the year. Though demand for plots geared at big shopping centers/malls has indeed stagnated, retail park developers and big box owners all continued to look towards new projects in various parts of the country that have a subpar offering of modern retail spaces. We even have a new entry on this spaces that surfaced during the lockdown period.
People moved away from consumer loans, but not mortgages, during lockdown
Source: NBR
Adjusted to earnings, residential properties seem, on average, fairly priced
Source: NSI, imobiliare.ro, Colliers
Residential developers are still holding on to a fairly robust demand for land, though not on par with 2018-2019 levels, which have seen record highs (hence, a lot of them have strong land banks); still, most remain on the lookout for any opportunities, including consolidating land around current projects.
There is growing confidence that the residential market is not as “bubbly” as it was during 2007-2008 – so no need for a major correction, while during the last few months, indicators like new mortgage loans and actual transactions were quite robust during the lockdown period. A rising category on the residential side after the COVID-19 lockdown is that of houses: hence, several developers are also looking at land plots on the outskirts of major cities, where prices are also quite cheaper.
Offices are a different story: given the healthy pipeline (particularly in Bucharest) and uncertainties on the leasing side (related to work from home and other aspects), many buyers are in wait-and-see mode, but those following a strategy of “develop and sell” must continue to look for new projects, so even here we could still see some demand.
Hotels, which were one of the hot areas before the coronavirus, continue to see good interest, perhaps also on account of the possible timing: buy now at a good price, develop and open the new project in around two years, when the market could be in decent shape.
Joint ventures between landowners and developers remain interesting for wide variety of market participants.
Supply
Supply remains adequate, coming from various categories of sellers which have been present in the market in the last years. New plots are put up for sale even now, but not necessarily at any discounted prices, rather normal prices, as if the pandemic did not exist; such asking prices are justified by the fact that demand continues to exist. Furthermore, there have not been any distressed plots to begin with, though the economic woes are still only a few months old and time may bring out some financial weaknesses for some individuals or companies, forcing them to scale back prices for a quick sale.
Usual asking land price intervals (EUR/sqm)
Price intervals are indicative and are based on Colliers’ transactions and/or market expertise. They highlight the most targeted type of land plots. As usual, the prices are influenced by size, destination, building parameters, status of the permitting process.
Source: Colliers International
Prices
In general, we have not noticed much changes on the price side compared to end-2019 levels. Prices remained stable across the market, however, in the examples where they did change, prices moved slightly lower.
Outlook
The land market is very much driven by expectations regarding what we’ll have on a macro level and in the real economy, with a special focus on the labour market. If things turn around quickly, there shouldn’t be any issues (and we sort of lean in favour of such a scenario, with a few major caveats we detailed in the macro section). That said, all major real estate categories suffer from increased uncertainties: offices – work-from-home impact in the long run, retail – the accelerated adoption of e-commerce and pandemic-proofing future projects, residential - job security and also work-from-home impact, but with different ramifications. And the answer to all these questions should tend to be on a more global scale rather than just Romania, so we have to wait for now to see how things may pan out.
On the prices front, we expect things to remain rather flat (with any adjustments on a case-by-case basis), unless things take a sharp turn for the worst. But even if such a scenario were to come to pass, any significant and generalized downward moves in prices would not take place immediately, as during the previous crisis, we did not see such changes until 2010-2011; also, in a stark difference to those years, the market is not in any liquidity crunch. Overall, this does offer some sort of reasons for mild optimism and a return to decent levels in a years time (our base case), but as we have been saying throughout this report, there are quite a few things that can go wrong.