Luxury Real Estate in Romania Faces Uncertain Future

Uncertainty on the Romanian luxury residential real estate market is causing a shift in investment strategies – for both investors and developers

In the last 6 months, prices in the luxury apartment market have fallen 10% for older apartments and newer construction sales have stalled almost completely, which is a major turn-round. The last few years have witnessed price increases of as much as 30%.

Two major luxury residential developers, Sonae Sierra, and Energoconstructia, one of Romania’s largest construction companies, have abandoned projects before even breaking ground. At the beginning of the year, Energoconstructia announced they would begin construction of fifteen 4 to 11-story buildings, which would have equated to almost 3,000 new apartments and an investment of €100 million. This has now been abandoned and an attempt is being made to sell the land.

“We decided to abandon the project which we intended to build on land we own in the Berceni area, because the real estate market is confusing at the moment, and fluctuations are significant on this market. We are already negotiating with an investor to sell a piece of land of some seven hectares in the Progres area, and are asking €500 per square meter, without VAT,” according to a statement for Business Standard by Constantin Tabacaru, Energoconstrucia’s Technical Manager. If sold at this price, the company stands to make some €35 million from this transaction.

In June, Portuguese Sonae Sierra developer and Irish Caelum Development decided to abandon the development of one of the residential towers included in the original Park Lake Plaza project, one of the largest mall complexes in Bucharest, stating that the current market justifies a reduction in expenditures, even if such a move will mean less income for the developers. They are now planning a sports complex instead.

Last week, representatives of the CB Richard Ellis Eurisko real estate advisory company warned that the residential market blockage could scare away more developers from the Romanian market.

“I think that if there had not been a financial crisis, this year’s market growth would have equaled last year’s, according to a statement for Business Standard by Ilinca Paun, Residential Division Manager for Colliers International. The number of real estate agencies selling luxury homes has dropped by 50% since the second quarter of 2008 – not quite on the same scale as the Spanish markets, but a substantial drop nonetheless.

“The luxury apartment market is affected by the fact that potential clients are no longer considering the acquisition of a home a priority, because of personal business problems,” said Andrei Sarbu, Project Manager Colliers International for Business Standard. According to Sarbu, the company he represents, which is the exclusive agent for the Stejarii project, developed by Tiriac Imobiliare, was forced to adjust its sales target due to unfavorable market conditions.