Romania Real Estate

Dan Sucu on the "First home" programme

2009-08-15T00:31:00.003-07:00

I don’t understand how banks can offer much better financial terms to hypothetical clients through the "First home" programme than to their already existing, loyal clients.

I don’t want this to be taken the wrong way, I love the "First home" programme. Everybody stands to gain from it being implemented correctly: clients get a good, affordable price, banks and real estate developers are able to attract new clients, who had not previously qualified for a home loan, the taxpayers benefit from the taxes collected, without significant risk involved; sellers of durable goods, DIY products, furniture and home appliances gain from the higher demand; public sector employees finally learn to build, not just to tear things down.
However, the immediate advantage is the pressure it will put on cutting interest rates on already granted long-term credits. If banks can afford to grant a 5% interest rate on state-guaranteed loans in euros, and ING even said it did not need state guarantees to reach this interest rate, how can they justify the 8-10% interest rates charged on already granted loans, for which they collect interest rates and instalments? I would say the state’s guarantee could not be worth more than one percentage point. Is their attitude an honest one? Obviously not!

Of course we all like margins, and a company cannot grow, be strong and healthy without a profit. However, the first rule of trade (the bank is, of course, itself a merchant) says values are more important than value, meaning that one cannot sacrifice honesty, respect, and confidence for the sake of money and profit. Clients with medium-term loans obviously have above-average economic education. They knew they were paying excessive interest rates – and now this is confirmed.

Are local bank managers not aware that respect is the most prized asset in a client-supplier relationship? And this particularly in Romania and Eastern Europe, where client interactions with civil servants and with utility monopolies are nothing short of humiliating.

This is not to say that in retail we are always successful in making clients feel respected, but we are concerned by it, and, on good days, we actually achieve it. "However, this doesn’t seem to be a concern for bankers – who are also sellers. But not even they can play with their clients in this way for a long time.

Dan Sucu is the majority shareholder of Mobexpert furniture group

Top 10 European Countries for Real Estate Property Investors

2009-08-15T00:31:00.001-07:00

Here’s an overview of the potential on offer in the top ten European countries for real estate property investors right now.

Bulgaria – Bulgaria is in position for EU accession in 2007 and as a result it is receiving massive foreign and domestic investment particularly into infrastructure and construction and the whole country is benefiting from the amount of money
being spent on it.

Those who buy now in Bulgaria are buying into the longest projected period of growth and buying before the expected boom that will begin when Bulgaria is officially made an EU Member State. Furthermore they are buying to target the burgeoning tourism market that heads for the beautiful beaches of the Black Sea Coast in the summer and the snow capped mountains of Bulgaria’s ski resorts in the winter.

Croatia – Another country tipped for full EU membership in 2007, Croatia offers property investors commercial and residential property opportunities. The numbers of international business establishing bases in Croatia has increased substantially in the last couple of years and there is demand for the development of light industrial and office space.

Furthermore Croatia has a strong tourism market that offers a real estate investor further opportunity to either target short term rental yields or to buy off plan or develop for resale to the second and holiday home market in Croatia.

Cyprus – There are two real estate economies in Cyprus – you have the well established Republic of Cyprus property market where an investor should seek to target the retiree audience or the tourism market and then in Northern Cyrus you have an emerging economy currently offering massive growth potential.

Property price increases in North Cyprus have consistently been in double digits for the past three years and there are no signs of a slow down in the offing.

Czech Republic – The majority of real estate investors consider Prague the only city worth targeting in the Czech Republic but the country’s other cities like Brno also offer an investor opportunity to purchase residential accommodation for rent to the domestic and expatriate professional population. Property price growth has been fantastic in recent years and rental rates are increasing annually.

Estonia – Real estate investors should target the local market in Estonia and consider looking for opportunities in the capital city of Tallinn. The Estonian economy is growing at a staggering rate which is affording the local people greater purchasing power which in turn is having a direct effect on the property market in Estonia.

Basically as local demand increases so prices can rise and as local purchasing power increases so it can sustain these price rises. A real estate investor can buy into this growth now and should expect the period of growth to be sustainable for at least the medium term.

Hungary – Property investors who targeted Hungary’s capital city of Budapest last year enjoyed up to 15% growth on underlying property prices and these growth rates show no sign of slowing down currently.

There is local and expatriate demand for property to buy and let in Budapest and the local economy is benefiting from foreign direct investment and strengthening. This means that there are long term prospect for growth in Hungary. Furthermore there’s an emerging market within Hungary’s property sector and that is the tourism market which offers an investor a chance to get in on both residential and commercial property ventures targeting this growing market segment.

Latvia – Latvia is benefiting from substantial foreign direct investment which has helped establish the Latvian economy as one of the fastest growing in Europe and Latvians are on target to receive one of the five largest wage increases in the world. All this means that locally the population can afford to spend more on property either in the form of rental rates payable or property prices payable and real estate investors can buy off plan and flip on to the local market upon completion or even buy to let out in the capital city of Riga or in the coastal port towns.

Poland – Having joined the European Union back in 2004 Poland has received massive aid and investment as a result which has improved the country’s infrastructure incredibly and led to a strong period of economic growth.

Many European and international companies have established bases in Warsaw and Krakow and the demand for accommodation in these cities alone has really soared. Real estate investors are targeting Poland because it offers a low risk, high potential property market. Furthermore investor confidence in Poland is high because the Polish government have already proved that they have a strong commitment to maintaining the good economic growth rates that their country is currently enjoying.

Romania – Because Romania has yet to join the EU and align all its governmental, fiscal and constitutional policies with those of Europe it is quite a tricky country for a foreign investor to get in on. However it offers a real estate investor such exciting opportunities – where else in the world can you buy anything and everything from a castle to a factory at such ridiculously low prices.

Those with a strong appetite for paperwork and red tape will make their fortunes from Romania’s property market, but for the rest of us it’s an economy to watch carefully. As the country moves slowly towards EU membership so it will become easier and more attractive for property investors to target.

Turkey – Turkey is on track for EU accession following agreement that it should begin accession talks in 2005. Since that point Turkey’s economy has been granted ‘Market Economy’ status, the country has received billions of dollars of Middle Eastern funds into its property sector and world wide investor interest in Turkey’s property market has exploded.

The majority of opportunities either exist in Istanbul or along Turkey’s southern coastline where hundreds of thousands of tourists flock every year. Prices for property in Turkey are currently incredibly low so with all the positive data and news coming from Turkey recently there is only one way prices are going to go – and that’s up!

There are so many opportunities available to an investor in Europe that those serious about profiting from real estate property should give the continent careful consideration!

AFI Europe: We pay the price because the market was purely speculative

2009-08-15T00:30:00.001-07:00

He heads the development operations of one of the biggest players in the local real estate market, AFI Europe and left Costa Rico for Romania, in a time when properties were ballooning in price. Tal Roma, Business Development Manager at AFI Europe, says that today Romania is paying the right price for the unjustified increases in real estate prices over the past few years.

“The real estate market is now paying the price for the last years’ frenzy”

In 2007, Tal Roma (photo) left the real estate market in Costa Rica behind and came in Romania to join the Israeli-based AFI Europe, part of Africa Israel group.

He found a similar market to the one in Costa Rica: prices were skyrocketing at an incredible speed, from 10 dollars to 100 within just a few months. Everybody wanted to invest in real estate, the landlords were enjoying the bargaining power, especially those who owned large land parcels and nobody seemed to be wondering for how long the prices would keep rising or by how much.

“It was incredible to see price increases like in Pipera. I’ve known persons who bought large land plots for 5 dollars per square meter and sell them afterwards for 2-3 hundred euros, dividing them into smaller parcels, destined for residential buildings. I believe we are now paying the price of those times, we are paying the price of an infant market, a purely speculative market”, representative of AFI Europe told Wall-Street.

Tal Roma says the crisis will mature players in the real estate industry, who will be more cautious over the next 5-10 years. Today, the prices of properties in Romania dropped to a decent level, affordable to a broader range of buyers. These buyers fall into two categories: persons who want to buy but don’t qualify for a banking loan and persons who afford to buy, but wait for the prices to go down.

“You don’t have to try to predict the lowest point of a market, because nobody is a fortune-teller and nobody can possibly know when the lowest point will be reached. Those who will try to speculate on that and take a guess are doomed to fail. You buy when you think prices are decent. Even though prices will continue to go down, the difference cannot be that big”, said the manager of AFI Europe.

Developers are not forced to sell and there are no distressed asset sales that everybody is talking about, AFI Europe’s manager continued.

“We see many developers freezing their projects and waiting, and not selling. Everybody’s expecting the banks to resume lending. Everybody’s laying their hopes at lending”, said Roma.

The economic crisis has its own positive side for AFI Europe, who will deliver at the end of September AFI Palace Cotroceni shopping center. “The completion of many shopping center has been put off, while others were opened and are almost empty”, Tal Roma explained.

Although the research reports of real estate advisors show price falls and rent cuts for office, commercial and residential at a monthly basis, Tal Roma says the prices didn’t plummeted at the speed everybody says they did. It all happens at a psychological level.

“People are still swarming in supermarkets, at the seaside prices dropped compared to last year, but the decline is yet narrow. Prices for apartments fell too, but the devaluation of the local currency intervenes. The declines are not so dramatic, it is rather a psychological crisis”, Roma stressed.

First Home Program in other countries and Romania – similarities and differences

2009-08-15T00:29:00.002-07:00

First Home Owner scheme was introduced by the Romanian government as an incentive for the housing market. The program is partially similar to other schemes previously established in United States, Poland and Australia. Specialists interviewed by Wall-Street outlined the similarities and differences between these schemes, as well as the shortcomings of the one adopted by Romania.

First Home Owner program in United States

First Time Home Buyer Tax Credit program in United States can be partially compared with First Home Program in Romania, as George Ene vicepresident of US-based Rabobank Group’s Leveraged Finance.

First Home program has three major flaws: 1) it is randomly capped to 60,000 euros, thus favoring a certain class of apartments, 2)it is limited to a total ceiling of 1 billion euros, which means few first-time homebuyers will actually benefit of this facility, and 3)it can pave the way to a softening of lending standards, as the banks are no longer so much concerned on the risk of default, as the government will take the brunt of it.

In contrast, in the first-time homebuyer scheme in United States, the arrangement is strictly between the government and the buyer, the state grant covering 10 percent of the purchase price of the home. This is made through a tax credit, namely an amount which is returned after filing the income statement at the Revenue Service.

Under these terms, conditions are: 1) to buy the house between April 8 2008 and December 1 2009; 2)the purchase price to be more than 75,000 dollars or 80,000 dollars if purchased after December 31; 3)to occupy it and not to be a vacation home or rental property; 4)not to own another principal residence at any time during the three years prior to the date of purchase 5) the income not to exceed 95,000 dollars/year for single taxpayers or 150,000 dollars/year for married couple; 6)you neither buy it from a close relative nor sell it by the end of 2009; 7) to be US resident.

“In Romania, all the risks assumed by the state are related to borrower’s possibility of defaulting on its mortgage under First Home program. The 80% guarantee proposed by the state instead of 100% is much better, because otherwise, the program would result in mounting losses. It is still unclear on the state’s extent of implication over lending conditions”, said George Ene.

In United States, at each guarantee provided by the government there is someone who pays, a small amount, indeed, but there is someone.

“In Romania, someone should pay for this guarantee. After all, all taxpayers will pay for only 20,000 beneficiaries – and the payers of the guarantee fees should be both banks and homebuyers”, Ene concluded.

Poland’s program

The Polish government has introduced a roughly similar scheme to Romania’s First Home program, called “Family’s own home” (Rodzina na swoim). Under the program, the government covers the repayment of 50% of mortgage loan interest due within the first eight years of taking the loan. The program is aimed at enabling married couples or single parents to purchase their first home.

The program imposes certain limits on the surface of the apartment and maximum price per square meter. In a first phase, the program generated poor results, largely due to the low cap of price/1 square meter, where few home purchases were eligible.

“The basic idea is more less the same, although Polish regulations seem to be more flexible (adjusted to the local purchase power) and affordable for the potential buyers”, said Karol Dzieciol, senior consultant at Poland’s real estate advisor Reas.

Reas’ specialist has been writing since May on the major shortcomings of the Poland’s incentive program, effective as of January 1, 2007.

“Within the two years of its operation, however, the program did not generate too good results. This fact can be attributed price per 1 square meter of usable area in residential apartments which according to the original arrangements was not adjusted to the reality of the rapidly growing market. As a result, from the moment the act came into force until the end of 2008, only 10 000 families exercised their right to loan subsidies, and the total amount of mortgages was approximately 383 million dollars”, said Karol Dzieciol.

Therefore, nearly 90% of concluded contracts concerned the purchase of real estate located outside voivodeship cities, and the share of the primary market was simply marginal.

Australia’s First Home Owner Grant

The first home program that pioneered state home ownership assistance was implemented in Australia, in the summer of 2000, under the name “The First Home Owner Grant (FHOG)” and consists in providing a grant of 7,000 dollars for eligible first-time homebuyers.

In order to be qualified to receive the grant, the buyer has to be a natural person and at least 18 years of age and doesn’t own a residential property. In addition, the applicant must be a permanent resident of Australia and must occupy the home for a continuous period of 12 months.

Furthermore, he has to motivate his/her interest for the residential property for which the applicant wishes to receive the grant. Obviously, neither the applicant nor his partner must have received a grant or previously applied for a similar grant scheme.

The Australian Government supplemented the FHOG with another similar scheme, called “First Home Owner Boost". The program is designed to homebuyers who already applied for the first program, FHOG in October 14, 2008 – June 30, 2009.

Therefore, the potential buyer of an already established home, can be provided with an extra 7,000 dollars grant (apart from the initial 7,000dollars). The applicant can receive an extra 14,000 dollars for buying or building a new home.

Romanian’ first home scheme

Locally, the beneficiaries of First Home program are natural persons who don’t own a residential property in common or individually, at the date of becoming effective (June 4, 2009), and don’t have a mortgage loan underway.

Potential buyers must pay 5% in advance of the home’s purchase price, of the price is lower or equal to 60,000 euros. If the purchase price is higher than 60,000 euros, the applicant must pay 3,000 euros in advance, in addition to the price difference between 60,000 euros and the actual purchase price.

Applicants eligible to the mortgage loans under First Home program, will pay interest rates lower by 42-49% in average than current lending conditions, as the minister of finance, Gheorghe Pogea said recently.

On May 28, the Government said the persons who would buy a house under the program will benefit of a VAT reduced by 5%, measure applicable for social dwellings.

Moreover, the persons qualified for the program are compelled not to alienate the purchased house in the first five years. The residential property purchased under First Home program must be registered at the Land Registry Office, to be located in Romania and must be free from encumbrances.

ProLogis Leases 90,000 Square Feet in Romania to Geodis

2009-08-15T00:29:00.001-07:00

BUCHAREST, Romania, a leading global provider of distribution facilities, announced today that it has leased 90,000 square feet (8,400 square meters) of newly developed space in Bucharest, Romania, to Geodis, a third party logistics and international transport provider and subsidiary of SNCF (French Railway), known in Romania as Geodis Calberson.

Geodis will occupy space in a facility at ProLogis Park Bucharest A1, a modern logistics park located along the Bucharest-Pitesti highway, which is Romania's primary east-west interstate approximately 23 kilometers west of downtown Bucharest. Geodis, which currently leases warehouse space from ProLogis in nine European countries, will operate the facility as a regional distribution center for customers with logistics requirements throughout Romania.

"It is not atypical to see a flight to quality as economic conditions soften, and this dynamic is increasing in Central and Eastern Europe," said Ben Bannatyne, managing director for ProLogis. "We are pleased our high quality facilities continue to attract leading companies such as Geodis, and to once again be working with them in one of our parks. ProLogis Park Bucharest A1 is an excellent choice, not only for its strategic proximity to both Eastern and Western Europe, but for its sustainable design and construction."

"Geodis is a global customer of ProLogis; our partnership is strong and on a long term basis," said Pierre Kosc, general manager for Geodis Calberson in Romania. "We know from experience that in order for a business to successfully grow you need reliable partners to help support you along the way. ProLogis is exactly this kind of a partner and together, we believe we can achieve our goal of being the best in the field of transport and logistics. This new agreement with ProLogis is the third lease we have signed with them in Romania, which is proof of our satisfaction with the superb logistical facilities offered by the company."

ProLogis Bucharest A1 consists of four buildings totaling 1.16 million square feet (108,600 square meters) of industrial space, of which 300,000 square feet (28,000 square meters) is EPC (Energy Performance Certificate) A-rated. The award-winning park has been recognized as the "Best Industrial Real Estate Project in South Eastern Europe" by Europaproperty.com as part of their "Project of the Year" awards program for two years in a row.

In addition to Geodis, other customers at the park include Augsburg International Impex, cargo-partner, Centrum Logistics, Flamingo Romania, Gefco, Geodis Calberson, Kuehne+Nagel and Omega Transport & Logistics.

“First Home”: Bankers and developers not optimistic

2009-08-15T00:28:00.002-07:00

Prime Minister Emil Boc and President Traian Basescu asked bankers to limit interest rates for mortgages for the “First Home” program to 5 percent for euro-denominated loans and some 12.7 percent for loans in lei.

This program is part of an effort by authorities to revive the real estate market, hit by the crisis, through the acquisition of homes guaranteed by the state. However, bankers and real estate players are not very optimistic regarding the success of this program. People who contract a mortgage through the “First Home” program will pay a 5 percent down payment for an apartment worth up to €60,000, the amount guaranteed by the government within this program.

If the price of the home exceeds that threshold, the down payment will be €3,000, plus the difference between the price and the guaranteed amount, according to the program application norms, approved by the government yesterday.

The interest rate will be calculated based on the three-month EURIBOR index, plus up to 4 percent per year, for euro-denominated loans, and the ROBOR index, plus up to 2.5 percent for loans in lei, lower than the average interest on the market. Bankers say that the government could have obtained even lower interest rates, but that this will have no impact on the eligibility of clients for such loans, given that the required revenues are still significantly above the average, at RON 3,000-4,000 (€700-950).

However, the President of the National Loan Guarantee Fund for Small and Medium-Sized Enterprises (FNGCIMM), Aurel Saramet, said that lowering interest rates will increase degree of accessibility of future clients by some 15-20 percent, as far as eligible revenues are concerned.

President Traian Basescu said that the interest rate for euro loans should not exceed 5 percent. “The Romanian banking system presently has a significant surplus of financing resources and, at the same time, very high interest rates,” he said. “Banks that wish to place their money in this program with a 5 percent interest rate are welcome, because this is an investment that is 100 percent guaranteed by the state,” Basescu added. For lei-denominated loans, the three-month ROBOR rate amounts to 10.54 percent.

The main shareholder of local lender Banca Carpatica, Ilie Carabulea, told Business Standard that banks would have accepted even lower interest rates, below 5 percent. For Horia Ciorcila, the President of another local lender, Banca Transilvania, the main challenge is not lowering interest rates, but rather dropping the minimum eligible revenues of future beneficiaries of the program. The bank will try to lower these revenues to RON 2,000-2,500 (€470-600) for a 25-30 year loan, with a 40 percent degree of indebtedness. However, players on the real estate market are skeptical regarding the program’s success. “The First Home program will not unblock the real estate market,” according to the Spokesman of the Association of Real Estate Agencies (ARAI), Radu Zilisteanu. He explained that the €1 billion allocated by the government will allow for the granting of only 17,000 loans. “Given that hundreds of thousands of deals are made annually on the residential market, the 17,000 loans are a marginal percentage on the market,” he said. For Dan Ioan Popp, President of Impact Developer&Contractor, the program will be to the advantage of old apartment acquisitions, as new ones are more expensive than €60,000.

Disaster on the Romanian real estate market: Transactions dropped 98%, up to 12 million Euros

2009-08-15T00:28:00.001-07:00

The volume of transactions during the second trimester of this year reached the lowest level in the last 5 years. The decline is also significant for the first six months of the year in course, compared to the same period 2008.

Real estate sales in the period April-June cumulated only 12 million Euros, which translates in a 98% drop when compared to last year’s period. In the second trimester of 2008, the total sum from transactions was 119 million Euros.

Not even the review for the first six months of this year is not encouraging. The volume of transactions shows a 90% market drop, compared to last year’s period. According to Costel Florea, investment director of Cushman & Wakefield Romania, the low rating Romania has and the current economical instability is the main reason why companies are reserved in new investments.

Century 21 organizes information seminars on the "First House" program

2009-06-13T06:58:00.000-07:00

Network of real estate agents Century 21 Romania will support the government "First House", by eliminating the commissions charged to customers and by organizing information seminars, free of charge for the program.
"We hold weekly seminars with free information, number of participants find four people. Depending on requirements, the seminars will be present in both real estate professionals, and specialists in the financial sector-banking, insurance or notaries. The seminars will begin in July, "said Gabriel Alexandru, vicepresident Century 21 Romania.

Meanwhile, the network of government agencies required to assume responsibility and what lies in establishing the rules of the game in the economy and to expedite the initiative to regulate the real estate market, which is working at the Ministry of Housing and Regional Development since June 2008, to establish register of agents and the real estate agents authorized to launch an index property, and severely punishing false advertising real estate.

Century 21 Real Estate LLC is the largest global Franchisor of property includes real estate agencies in 8500, owned and managed independently, in 64 countries and territories around the world. Century 21 Real Estate LLC is a subsidiary of Realogy Corporation, USA.

Wienerberger will close the brick plants in Gura Ocnitei and Triteni temporarily

2009-06-13T06:57:00.002-07:00

Wienerberger Romania, the Austrian group subsidiary – the biggest world brick producer – will close the plants in Gura Ocnitei (South Romania) and Triteni (central Romania) temporarily, as a consequence of the current economic crisis that slowed down the construction market development during the last months, Romanian press agency NewsIn informs.

"These measures are part of the Wienerberger group’s extensive restructuring programme for 2009, to adapt the local production capacities to the evolution of the markets and demand. The two plants will be closed only temporarily, meaning the activity could restart at anytime. For the moment, we have no date, it all depends on the future market development", the company’s report shows.

According to the statement, the staff will not be affected and the brick orders will be honoured, as the company has enough stock. "The Romanian real estate market has fallen dramatically within the last months, after a record number of buildings finished in 2008, namely 67,300. The main reason is related to accessing the necessary funds, both by the investors and the buyers. But the demand for new buildings has not disappeared", Wienerberger Romania general deputy Daniel Catanas declared.

He welcomed Romanian Government’s measure to reduce the VAT for buying an apartment from 19% to 5%.

Crediting standards, more restrictive in Q1

2009-06-13T06:57:00.001-07:00

The standards and crediting terms, especially for companies, continued to worsen in Q1, 2009, but at a more moderate pace and the crediting demand fell, according to a poll conducted by the National Bank of Romania (BNR) on the crediting of non¬financial companies and population.

In the sector of non-financial companies, the crediting standards became more restrictive in Q1, however the evolution has slowed down.

The net percentage of the banks, which reported the toughening of crediting norms has reported a slight contraction, however it remains at a high level.

Most banks revised the terms of crediting on the whole. Following the corrections reported by the prices of real estate assets, the requirements of collateral were more attentively scrutinized, whereas the bonuses due to more risky credits were increased.

The risks associated to companies grew, the main sectors targeted from this viewpoint being those of real estate transactions, constructions, transport and tourism.

Eastern Europe sends colourful characters to Brussels

2009-06-13T06:56:00.002-07:00

Riga - Despite generally low turnouts figures in the European elections, central and eastern European countries mustered enough votes to send a selection of intriguing new characters to Brussels and Strasbourg. Leading the list is Latvia's 74-year-old Alfreds Rubiks, who will be taking a seat in the European Union 18 years after backing a hardline Communist coup attempting to keep Latvia part of the Soviet Union.

The former politburo member served a jail term and was banned from standing for political office in Latvia but will now represent the country he tried so hard to keep from the map of European nations.

Rubiks was on the ticket of the pro-Russian Harmony Centre party, which made big gains in municipal elections held on the same day as the European vote.

Ironically, Rubiks will be accompanied to Brussels by a familiar foe. Two-time Latvian prime minister Ivars Godmanis, 57, was a central figure in the Latvian independence movement.

Godmanis, of the Latvia First/Latvia's Way party, will debut in the European Parliament after resigning from office earlier this year as the Baltic state plunged into the EU's deepest recession.

In contrast to grizzled veterans like Rubiks and Godmanis, Romania will be sending pin-up Elena Basescu, 29, the daughter of Romania's president Traian Basescu.

Sometimes called "the Paris Hilton of the Carpathians," Basescu has graced numerous magazine covers but is better known for her love of nightclubs than any desire to reform the Common Agricultural Policy.

However, her victory was overshadowed by reports on the hotnews.ro news website that her father's centrist Liberal Democratic Party allegedly ordered party branches to secure votes for the former model.

Also in Romania, controversial real-estate tycoon and football club owner George Becali was likely to make it to the European Parliament on the ticket of the ultra-nationalist Romania Mare (Greater Romania) party, which was ousted from parliament in the latest general election in late 2008.

Romanian authorities are prosecuting Becali over alleged corruption.

In Slovenia, a slew of former cabinet ministers including former prime minister Lojze Peterle and former foreign minister Zoran Thaler were also set to make it the European Parliament, according to projected results.

Tiny Estonia sprang a surprise by electing independent candidate Indrek Tarand. By day, Tarand is a museum director but in the evening he hosts popular TV quiz show "Are you as clever as a fifth-grade student?"

His mastery of general knowledge is sure to be a boon in Brussels, but if he has any questions he knows someone who can provide answers: his father Andres Tarand is a member of the outgoing European Parliament

Small-size copy of Burj Al Arab in Romania

2009-06-13T06:56:00.001-07:00

A small-size hotel of the famous Burj Al Arab of Dubai will be achieved in Mamaia resort on the Black Sea (south-east) by an investment fund of Asia, starting next year, a construction which aims to revolutionize the architectonical design of the area.
The Asian investment fund has recently bought in exchange for 550,000 euros a plot of land of 442 square metres on the bank of Siutghiol Lake of Mamaia, the construction’s project and the city planning certificate to carry out a small-size copy of the hotel in Dubai.
The Black Pearl project was bought from ECSIF Properties, an investment fund in the segment of luxury real state.
The new construction of Mamaia, situated near hotels Rex ad Scandinavia, will be named Boutique Hotel and will have 78 floors, 17 luxury apartments facing the sea and the lake.
According to representatives of ECSIF Properties despite the financial crisis, the luxury remains a safe and attractive investment in Romania and the plots of land in downtown Mamaia are well assessed and sought-after by real estate investors.
Burj Al Arab is one of the world’s highest and luxurious hotels, a symbol of Dubai, situated on an artificial island of 280 metres away from the Jumeirah beach. The building has 60 floors and is 321-m high.

Global Debt Deleveraging Recession Gets Worse as Government Deficit Grows

2009-06-13T06:55:00.000-07:00

Things That Go Bump in the Night
A Trillion Dollars as Far as the Eye Can See
The Global Recession Gets Worse
Where Will the Money Come From?
The Paradox of Deficits

From ghoulies and ghosties, And long-leggedy beasties, And things that go bump in the night, Good Lord, deliver us! --Old Scottish Prayer

There is something that is bumping around in my worry closet. The bond market is not behaving as if there is deflation in our future, and the dollar is getting weaker. Unemployment keeps rising, but most of all, the US government deficit looks to be spinning out of control. This week we look at all of this and take a tour around the world to see what is happening. There is a lot of interesting material to cover.

But first, I am proud to announce that thanks to your donations the net proceeds from the Richard Russell Tribute Dinner totaled $17,000! A donation was made in that amount to the Autism Society of America, San Diego County Chapter, in Richard Russell's name.

The evening was captured in both video and photographs, and we would like to share those with you. We have put together a DVD that captures all the wonderful moments, including tributes from Richard's longtime friends and family, an entertaining skit by Richard's daughter Daria, and another touching tribute by Richard's daughter Betsy. Perhaps the best speech, however, came from Richard himself -- which is of course included on the video. For those who could not attend in person, we have already made copies of the video and will mail it to you as soon as you order it. The cost is $29.95, and that includes shipping. You may order as many copies as you like.
The photographs were placed on Shutterfly, an online gallery where you may view them and choose the ones you would like to order. We have created a web page specifically for these photos. To access that page, please use this link: http://richardrusselltributedinner.shutterfly.com or you can link from the page above. Now, let's jump right into the letter.
A Trillion Dollars as Far as the Eye Can See

As of this week, total US debt is $11.3 trillion and rising rapidly. The Obama Administration projects that to rise another $1.85 trillion in 2009 (13% of GDP) and yet another $1.4 trillion in 2010. The Congressional Budget Office projects almost $10 trillion in additional debt from 2010 through 2019. Just last January the 2009 deficit was estimated at "only" $1.2 trillion. Things have gone downhill fast.

But there is reason to be concerned about those estimates, too. The CBO assumes a rather robust recovery in 2010, with growth springing back to 3.8% and then up to 4.5% in 2011. Interestingly, they project unemployment of 8.8% for this year (we are already at 8.9% and rising every month) and that it will rise to 9% next year. It will be a strange recovery indeed where the economy is roaring along at 4% and unemployment isn't falling. (You can see their spreadsheets and all the details if you take your blood pressure medicine first, at www.cbo.gov.)

Just a few quick thoughts. This year the proposed administration plan is to borrow 50% of every dollar spent. The CBO projects than nominal GDP will grow by about 50% over the next 10 years (which is historically reasonable), but also that revenues will double, which suggests massive tax increases in relation to GDP. Interestingly, the International Monetary Fund says growth next year will be tepid at best (more below). The deficit in 2010 is almost 10% of GDP. The average proposed deficit is almost a $1 trillion average for the next ten years. Ten years from now, the deficit is projected to be $1.2 trillion. And that is if government costs do not go up and inflation only averages 1.1% for the next six years.
The Global Recession Gets Worse

Let's take a quick trip around the world. In the first quarter, the German economy fell by 14%, Japan by 15%, Mexico by 21%, and England was down almost 8%.

Global trade is simply collapsing. The chart below is the ugliest it has ever been. Chinese exports are down 41%, Japanese exports down 38%, Germany's down by 32%, and so on
Let me quote from the very interesting study the team at Variant Perception did.

"As we have repeatedly said, Spain is set for a long, painful deflation that will manifest itself via a spectacularly high unemployment level, a collapse and general banking insolvencies. Consider this: the value of outstanding loans to Spanish developers has gone from just €33.5 billion in 2000 to €318 billion in 2008, a rise of 850% in 8 years. If you add in construction sector debts, the overall value of outstanding loans to developers and construction companies rises to €470 billion. That's almost 50% of Spanish GDP. Most of these loans will go bad.

"Spanish banks are now facing a very bleak outlook. Spain's unemployment rate reached over 17% last month; there are now four million unemployed Spaniards and over one million families with not a single person employed in the family. Spain and Ireland had the worst housing bubbles in the world and now Spain has as many unsold homes as the US, even though the US is about six times bigger.

"Why are Spanish banks not insolvent? Spanish banks are not marking their real estate loans to market. We've often wondered how it is that our thesis for Spanish real estate and industrial collapse has not created more victims. The answer is simple according to an article in Expansion, the Spanish equivalent of the Financial Times, from the 19th of April titled 'Spanish banks control half of all real estate appraisals.' You can't make this stuff up. We haven't even begun to see the worst in Spain yet."

European banks are in far worse shape than their US counterparts. That is because they utilize far more leverage, on an average about 30 times leverage. How can that be, in what is supposed to be a conservative industry?

"European banks were only restricted on the basis of risk-weighted assets, unlike the US where it is the total leverage ratio that matters, so most European banks bought assets that were rated by Moody's and S&P, who couldn't rate their way out of a paper bag, and for anything that wasn't highly rated, they bought credit default swaps or guarantees from AIG and MBIA. Because of that European banks were able to lever up a lot more than their US counterparties. Given the much higher leverage levels and general worsening of collateral values, we think that all the shoes in Europe have not dropped."

European banks have assets of about 330% of their GDP, compared to US banking assets, which are about 50%. They have over $700 billion in loans to Asian (which are watching their exports collapse) and $1.3 trillion in loans to Eastern Europe, which is in a very serious recession, and so many of those loans are simply not going to be worth anything. Simply put, there is going to be a need for massive amounts of money to bail out European banks, or we'll watch their economies simply implode.

Where is the money for the bailouts going to come from? Germany? That will be a tough sell politically in a country that is in a much worse recession than the US. How do you tell your citizens you need to bail out banks in other countries with their tax dollars? Italian and Austrian banks are going to need a lot of capital, more than their governments can pay. It is going to be a very tough problem.

Governments around the world are responding to the global recession by running massive deficits. In addition to the US, the UK, Japan, Russia, Spain, and Ireland are all running deficits of over 10%.

And, as in the case of the US, these are not going to be one-time deficits. The IMF predicts that England will shrink again next year and the recovery in the US will be modest at best. The US economy is expected to grow by 0.2% (far from the optimistic projections of various US government agencies), the 16-nation eurozone will eke out a modest gain of 0.1%, and the Group of Seven (G7) leading industrial economies will, as a whole, only grow by 0.2 percent. They project that Japan's economy will stagnate next year.
Where Will the Money Come From?

And now let's look at what is bumping in my worry closet. The world is going to have to fund multiple trillions in debt over the next several years. Pick a number. I think $5 trillion sounds about right. $3 trillion is in the cards for the US alone, if current projections are right.

Just exactly where is that money going to come from? The US trade deficit is now down to under $350 billion a year. The Fed can monetize a trillion. Maybe. Look at the yield curve on US government debt below (Bloomberg). US savings are going to go up, but where is the incentive to buy ten-year debt at 3.5%? Four-year debt under 2% doesn't do much for your savings growth. Even with monetization and the Chinese buying our debt with the dollars we send them, that still leaves the bond market about $1.5 trillion short, give or take $100 billion.

The world is deleveraging. Debt is being drawn down. Securitization of various types of debt has seriously slowed. Banks are cutting back on lending. Home prices are dropping all over the world. Commercial real estate is rolling over, and banks all over the world are exposed. "Recession turns malls into ghost towns" is the headline in today's Wall Street Journal. Personal savings are rising and retail sales are flat to down. Unemployment is rising.

All this should be massively deflationary. Interest rates should be falling or at least not rising. But a funny thing is happening. In the past two months, the yield on the ten-year bond has risen by 1%. It has moved 0.38% or almost "4 big handles" in just two weeks. Look at the chart below. What is happening?

According to Merrill Lynch, the size of the world bond market is estimated to be approximately $67 trillion, with the shares of US, Euroland, and Japanese securities each representing less than 50 percent of this total. (PIMCO)

England has been put on negative watch for its debt rating. Bill Gross said yesterday that it is not unthinkable that the US could lose its AAA rating. I think the bond market is looking at the mountain of debt that will have to be somehow sold and wondering where such a colossal sum will come from. Where do you find $10 trillion in the next ten years for US debt?

And that is just for US government debt. $5 trillion for new global debt in the next two years? In a deleveraged world? How much will the other countries need? What about money needed for businesses and mortgages and credit cards and so on?

If you add $10 trillion to the current $11.3 trillion (including Social Security trust funds, etc.), that totals $21 trillion in 2019. Let's be generous and suggest that interest rates will only be an average of 5%. That would be an interest-rate expense of over $1 trillion. That is 25% of projected revenues and 20% of expected expenses. And that assumes you have nominal growth of over 4% for the next ten years. If growth is less, tax revenues will be less. It also assumes massive tax increases from carbon credits.
The Paradox of Deficits

I think the bond market is looking a few years down the road and saying that $1-trillion deficits are simply not capable of being financed. And if the debt is monetized, then inflation is going to become a very serious issue.

When you run deficits that are 4-6-8% or more than nominal GDP, at some point things simply back up. Can we ride along for a few years? Certainly. Japan is getting ready to see its debt-to-GDP ratio rise to almost 200%. But everybody can't do it all at once.

Call it the Paradox of Deficits. We have been running a large trade deficit in the US for years, because the people (China, Japan, and the Middle East) who wanted to sell us "stuff" were kind enough to turn around and invest the money in our bonds. This in turn created Greenspan's conundrum, as it helped keep down US (and global) interest rates. Combine that with a massive increase in leverage, a few bubbles, and we now arrive at a true crisis.

Deficits are not necessarily a bad thing if kept in check and restraint is shown. But everyone cannot run deficits at the same time. If we don't buy $700 billion in goods, then that money cannot be recycled back to our debt. It is that simple.

(Sidebar: And now, China and Brazil are moving to do their trades in their own currencies rather than dollars. Very smart on their part.)

Europe, Japan, and the US cannot try to borrow $5 trillion in the next two years without a serious distortion of the bond market, not to mention the entire economic landscape.

I have long thought that "crunch time," the end game, would show up around 2013-14. But I never in my wildest imaginings thought we could run an almost $2 trillion deficit. That crazy guy on the corner telling us "The end is nigh"? He may be right.

Long before we get to 2015, let alone 2019, I think the bond markets will have called a halt to $1 trillion deficits. There will be a real crisis. The deficits will not be funded at anywhere close to an interest rate that will not break the budget. Taxes will get raised beyond what they were in the Clinton years. And Obama's budget makes some very optimistic judgments about how much will be saved in medical costs, as if no one has tried to rein in medical costs before. The crisis may come much sooner if his universal health-care bill is passed as proposed without offsetting cuts somewhere else.

Watch the bond market. Rates should be going down, not up. The bond market is telling us the deficit simply can't be financed down the road. Now, maybe a few cool heads in the Democratic Party will prevail in the US Senate and the deficits will be brought under control. (The Republicans have so far seemed as clueless as they are impotent.) We could (theoretically) run $400 billion deficits for a very long time, as GDP would be growing somewhat faster.

It would be best to run budget surpluses, but the game does not end if there are reasonable deficits. It ends with deficits that cannot be funded except by monetization. And that will tank the dollar, except against all the other countries that are monetizing their debt.

I am increasingly inclined to think that as the world comes out of its current malaise – and it will – US investors should think more globally with their investment portfolios. That is something we will explore over the coming year. But that's enough for today.
Naples, London, and Eastern Europe

Next Friday I go to London to speak at a conference for my friends at Jyske Bank. International investing expert Gary Scott will be there, as well as my friend and business associate Steve Blumenthal. It should still be possible to attend, if you would like. You can see more at www.jgam.com. And then, in theory, I will be home all of June.

The plan now is for me to return to London on July 15th. I will co-host CNBC London Squawk Box on July 17th, see clients, and then be with London business partner Niels Jensen for his 50th birthday party on the 18th. (And here's wishing him a speedy recovery from his back surgery last week!)

And then I am actually going to take a vacation. I am slowly trying to expand the list of countries I have been to. This year I am thinking of venturing further into Eastern Europe. Romania and Bulgaria are on the top of the list, and perhaps Slovenia? I would love to hear from readers in those countries, or from others who have visited them. I will have about 12 days and want to be able to see the sights and relax as well.

Then I come back, go to Maine with young son Trey for our annual get together with all the guys at the Shadow Fed fishing trip run by David Kotok, and get back in time for daughter Amanda's wedding on the 22nd. It is going to be a full, fun summer.

And speaking of Trey, he turns 15 on Wednesday. He is the last of my seven in the house. The rest are all out and (more or less) on their own. But then I get three new grandkids between now and the end of the year, so the next generation is starting.

These are interesting and serious times we find ourselves in, but we should all try and remember to enjoy life as much as possible. I am grateful that I am so busy, and count it as a blessing when so many are not. Have a great Memorial Day, and take a few moments to remember those who have sacrificed so that we can be free.

Talking crisis, real estate and stock exchange

2009-06-13T06:54:00.002-07:00

Dan Ioan Popp, chief executive officer of Impact, the sole Romanian real estate developer listed at Bucharest Stock Exchange speaks in an interview for Wall-Street how Romanian companies strive to seek a loophole out of crisis, and what’s ahead of Romanian stock market.
Scrambling for a way out of crisis

The crisis has shattered the business landscape and created new economic and financial landmarks. It has been the buzz kill to executives ready to feast on bulls. The result, a new concept in the business arena emerged “crisis managers”.

Dan Ioan Popp speaks from the standpoint of a manager in office for the past ten years. His vision to riding out the tough times: a company-wide review of activity. Although it is hard to give some clues to what the future holds for us, Popp says he’s a bit surprised of the European Union’s failure to take issue and do something as well as of US administration’s shift of focus, adding that the old regulations call for immediate change.

“Financial and accountability rules need to get back on the drawing board. Imbalances between economies in China, India, Mexic and the rest of the world must narrow. If these facts remain the same, there is nothing else to talk about”, said Dan Ioan Popp.
Barack Obama and his assumed position in this context is a good sign, he says. US markets and EU markets must even up, and soon.

“If these two markets don’t try to share common pathways, nothing good will come out. Romania will swing back and forth by the news, because we are too little, we will keep depending upon what other people decide”.

Even if the landing will be painful, we have to stay informed around the clock. We have to understand what is happening and to think the unthinkable, to see all the possible scenarios.

“It is smarter to be a tenant than a landlord”

In the last half of the year, Impact, the company headed by Popp, launched four financing facilities for apartments within the Greenfield compound. The first two facilities, CallBuy (lease-to-own agreement) and Find-L (rates to developer), were launched in November 2008, the newest solutions, Piece-by-Piece and Bridge, being available as of this month.

However, the products have something in common: they have 4-year maturity, deemed by the head of Impact as “affordable” both by clients and company.

“If a client failed to repay the loan in four years, he would be extra charged, and clients can react differently to an increase in final cost. Therefore, the market conditions in terms of financial costs make us believe that a four-year maturity is acceptable for both parts."

“We will start second stage of Greenfield project in first quarter 2010 the latest”

The first stage of Greenfield residential project covers 680 apartments, of which only 100 are to be completed, the rest being already delivered. Of 680, 200 have already been sold, but the head of Impact is confident. The company will start the second construction stage in first quarter 2010 the latest, citing “a fabrication cycle”.

The second stage of Greenfield will start with 165 housing units, and the funds will derive from downpayments, Impact’s funds and its financial partners.

The real house demand will be the driver of the residential market

If a year ago, the residential market was dominated by secondary-market transactions (e.n old apartments market), because 85% of the deals included second-hand apartments, Popp says today, it is difficult to even talk about a market with everything on ice.

“Old apartments account for 95% of the residential market and a mere 5% goes to new apartments. But a house is a vital asset, and the real house demand is still running in Romania, which will eventually drive the market back up; not the speculative investors or German funds but the evolution of mentalities, peoples’ aspirations and their possibility to borrow money to buy a house”, Popp explained.

“To Romanians, playing stock market is like playing squash”

Popp’s theory doesn’t apply to the revival of the stock market as well. There is a huge difference between residential market and stock market as it targets different public and involves capitals with totally different purposes, he continued.

If in 2000 surveys founded that only 1% Romanians would be willing to trade in the stock market, now their willingness is probably at the same low level, especially now when people think twice before investing or saving money in banks.

“It was a time when stock market prices were ballooning, with over 90,000 accounts opened. But few months ago, the same person said something about 3,000, of which a mere half is probably active. The number of investors dropped alongside with the market. To Romanians, playing stock market is like playing squash – sports little known in Romania”.

“I don’t believe in a fast-track maturation of the local stock market”

Impact manager weighs the Romanian stock market against a commercial market where marketers (issuers) bring their commodity (stocks) for shoppers (investors) and regulators oversee their activity. All these “still developing” components need to mature.

“I don’t believe in a deep fast-track maturation of the stock market in Romania. Our real problem lies in how much emotions we put in this game, we don’t know how to stay calm in extreme situations. But the capital market has its interesting side, for those who see its aspects even its downsides”, said Popp.

Listed companies’ earnings 60% lower than in 2008

2009-06-13T06:54:00.001-07:00

Companies listed on the Bucharest Stock Exchange (BVB) totaled RON 590 mln (almost €140 mln) in net profit in the first three months of this year, down 62 percent compared to Q1 2008, after registering losses worth some €150 million in the final quarter of last year.
Without including the profit of Petrom, the largest Romanian company listed on BVB, 60 issuers had a profit of RON 78.5 mln (€18.4 mln) in the first quarter of 2009, down a staggering 95 percent year-on-year. According to data centralized by Business Standard, 20 companies posted losses in the first three months of this year, compared to 36 issuers in Q4 2008. “The final quarter is usually a special one due to provisions. Q4 2009 will probably look better, but some companies may still post losses or drops. Small enterprises may not even be out of the woods yet. Actually, not even large companies are out of the woods yet, considering the poor macroeconomic data,” said an analyst within the UniCredit CA IB Securities Romania broker, Adriana Marin.

The businesses of listed companies amounted to RON 14.5 billion (€3.4 bln), a level similar to that registered in Q1 2008. “The big shock was in Q4 2008 and Q1 2009, when companies went through restructuring programs and adopted measures to counter the effects of the crisis, so things should now stabilize financially. Towards the end of this year, we could see an improvement of companies’ situation, followed by an improvement in the perspective of the share market,” said the General Manager of BT Securities, the brokerage division of the Banca Transilvania lender, Rares Nilas. Only three companies registered profit exceeding RON 100 mln in the first three months, (Petrom, BRD-Groupe Societe Generale lender, and Transgaz state-owned gas transportation company), totaling RON 861 mln worth of earnings.

Flood of hotels put up for sale

2009-06-13T06:53:00.002-07:00

The start of the year coincided in the hospitality industry with a flood of hotels put up for sale by their owners in Bucharest, the seaside, the mountains or other cities, in the context where room demand fell by 26.4% in the first quarter, but accommodation prices also went down.
At the same time, as a result of the lack of cash to finish constructions or finance further projects, over 20 hotels, put at 80m euros by their owners, were put up for sale.
"There are a lot of hotels for sale on the Romanian seaside, on Prahova Valley -over 10 hotels, in Bucharest and major cities such as Sibiu, Brasov, Timisoara at this moment," stated Mircea Draghici, project manager with the hotel unit of CB Richard Ellis/Eurisko (CBRE) real estate consultancy.
In the past four years, sustained economic growth and the favourable economic conditions have bolstered lending for hotel investments and have implicitly led to the emergence of new rooms on the market through the development of new hotels.
"The economic crisis raised borrowing costs, though. Also, it eroded demand and implicitly the occupancy rate of hotels in major cities and, last but not least, generated tougher competition amid the permanently falling accommodation rates," Draghici said.
Because of these imbalances, already operated hotel investments are registering cash flow and profitability problems. "Practically, on a cash drained market, a surplus supply of accommodation spaces has emerged because of the lack of a solvent demand," Mircea Draghici explained. Hence the flood of hotels put up for sale on the market.
For instance, businessman Josef Goschy, a major hotel owner in Romania, with 3,500 rooms in 25 hotels through Unita Holding, put up for sale six properties, that is 18.6% of the accommodation capacity. The total sum he could get from these properties amounts to 25m euros.
Another example is the four-star NH hotel of Piata Unirii in Bucharest, put up for sale for 16m euros early this year.
Stil hotel held by businessman Alin Burcea, was also put up for sale at the start of the year, for 3.8m euros, amid the lack of cash to finance other projects, though no contract has been signed so far.

Commerce, constructions and transports: sectors to register most bankruptcies

2009-06-13T06:53:00.001-07:00

Commerce, constructions and transports were the main risky sectors in Romania, registering over 50% bankruptcy cases of the total bankruptcy rates in the economy, a Coface Romania study reveals. By the end of last year, some 14,489 were on the verge of bankruptcy.

Like previous years, commercial companies are the first in the top, registering a 49.85% increase in the number of bankruptcies compared to the previous year. Thus, last year, 3553 companies started official bankruptcy procedures.

Moreover, the constructions sector was the most affected in 2008, with a 56.28% increase in bankruptcy cases compared to 2007. In Romania, this was the first sector affected by the crisis, due to the real estate market blockage and the banks' decision to stop credits.

In transports, data confirms the same trend: the sector was highly affected by the economic crisis as international demands dropped significantly. In 2008, there were 811 bankruptcy cases in the sector, representing a 12.71% increase to last year.

Romania concedes it's ill-prepared for major quake

2009-06-13T06:52:00.002-07:00

Gabriel Serbanescu was enjoying a quiet evening at home when his Bucharest apartment suddenly began to shake.
«The furniture creaked, and then everything started to move like we were on a mattress in the water,» the retired legal expert said after a 5.3-magnitude earthquake rocked much of central and eastern Romania last weekend.
Nobody died, but Romanians were left more than a little rattled.
They've known killer quakes before, including a 1977 temblor that killed more than 1,500 people. And Saturday's moderate quake _ combined with the deadly convulsion in Italy earlier this month _ have many wondering if they're ready for another big one.
Even the authorities readily acknowledge the answer is no.
Romania, Greece and Italy _ where 296 killed by an April 6 quake _ are among Europe's most «disaster-prone countries» in the event of a major quake, the U.N. International Strategy for Disaster Reduction warns in a new report.
In Romania, thousands of lives and properties hang in the balance as officials scramble to improve the eastern European nation's earthquake readiness plans.
If a quake with a magnitude of 7 or higher were to strike, 6,500 people could die and 1,900 buildings could collapse, warns the National Institute for Research and Development in the Construction and Economy of Buildings.
In Bucharest alone, 392 buildings are considered to be at risk of collapsing in the event of a serious quake, with half of those built before 1940, and some 2,000 need to be reinforced in the next 10 years, City Hall says.
Bucharest Mayor Sorin Oprescu this week appealed to authorities to speed up reinforcement work on buildings considered at risk in the capital, and make the most of a downturn in the real estate market.
«The real estate crisis is doing some good,» Oprescu said. Construction contractors «have little work, so they are willing to take on this kind of building work.
Underscoring how little progress has been made, the mayor says only a dozen buildings have been reinforced in recent years in the city of 2 million, and work currently is under way on just four others.
Romania, which shook off communism in 1989, is one of the poorest nations in the European Union and can't afford a large-scale construction upgrade.
After the 1977 quake, the late dictator Nicolae Ceausescu launched a program to upgrade old buildings and introduced tougher engineering guidelines for new ones. But funds quickly ran out and builders became apathetic.
But the problem isn't just bricks and mortar. Officials concede that few Romanians know how to respond.
«The problem is with the population. There has not been yet a national campaign to inform people about what they should do,» said Alin Maghiar, spokesman for the Inspectorate for Emergency Situations. «We don't have enough prevention inspectors ... to discuss things with students and citizens.
Britain's Ambassador to Romania, Robin Barnett, offered to help raise public awareness in schools and the business community as an efficient and affordable way for Romania to lessen risks in the event of a major earthquake.
«We plan to encourage central and local authorities here in Bucharest to promote greater public awareness of the important measures and will be very happy to work with them to spread the message,» he said.
Romania has been struck twice by major quakes in the past 70 years.
One, in 1940, killed some 1,000 people. The other, in March 1977, was a magnitude-7.2 temblor that killed 1,570 people, injured 11,000 and inflicted so much damage on Bucharest it looked as though it had been blitzed by bombs.
Since then, even relatively minor quakes can trigger trauma or terror in people over 35.
That was clear last Saturday, when a moderate quake centered in the Vrancea region, about 75 miles (120 kilometers) northeast of Bucharest, struck as people ate dinner or watched television.
«The walls shook and I grabbed my wife, and we took shelter in a doorway. For a moment, I thought the building would collapse and we would die crushed in the rubble,» Ionel Negoita, 53, who lives near the quake zone, told the Libertatea newspaper.
No deaths were reported, but 10 mostly elderly people were hospitalized with chest pains, and the quake cracked walls and tiles in some homes.
Eugen Georgescu, a Bucharest architect who survived the 1977 quake, vividly recalls dragging the bodies of dead children from the rubble and helping to save the lives of others.
«The problem is our impotence faced with a quake,» he said. «People should be convinced that dangerous buildings must be demolished _ because people will die from negligence.
But George Sotiroulis, whose luxury chocolate boutique on the capital's bustling Calea Victoriei boulevard is next to one of the city's buildings deemed at high risk of a quake-induced collapse, is fatalistic.
«If we die, we die,» Sotiroulis said with a shrug, and then paused to reconsider.
«We should be better prepared,» he said. «But nobody does anything. In Romania, it's just blah blah.

Half of Romania’s lenders in the red at the end of Q1

2009-06-13T06:52:00.001-07:00

About half of the 43 lenders, operating on the local market, registered losses in the first quarter, a first in the last two decades, considering that bankers have pushed up provisions by €0.5 billion in the first two months of 2009. The banking sector lost some €50 million in the first three months of this year, compared to earnings worth about €200 mln in January-February 2008.
The National Bank of Romania (BNR) initiated a checkup in February, suspecting that the banking system has not acted in accordance with market regulations and transferred 2008 provisions to 2009, in order to report positive financial results last year.

“Less than half of the banks in Romania ended the first quarter in the red, and they were forced to raise their capital. The whole system lost up to €50 million,” said Nicolae Cinteza, Head of the Surveillance Division at BNR.

The central bank was forced to take special measures in the case of some lenders, where arrears reached 18 percent, but even though provisions increased significantly, the degree of coverage of poor performing loans by provisions fell to 131 percent at the end of the first quarter of 2009, from 143 percent in November 2008.

The profit of Banca Comerciala Romana (BCR), the largest lender on the local market, was affected by provisions, and the bank posted a net income after taxes and the payment of minority interests worth RON 330.3 million (€78.3 mln) in the first quarter, down 13.7 percent year-on-year. The value of risk provisions for loans and down payments surged 27.1 percent compared to the level registered in last year’s final quarter, to RON 308 mln (€72.6 mln), due to the evolution of poor performing loans, especially on the small and medium-sized enterprise (SME) segment and small real estate developers. However, the profit reported by BCR for the first three months was 25.1 percent higher than the result registered in the fourth quarter in 2008. “We continued to perform well in 2009, considering a challenging economic environment. We are doing everything we can to support and help clients to overcome the difficult market conditions,” said Dominic Bruynseels, BCR’s Chief Executive Officer. The lender’s assets rose 4.9 percent, to RON 67.66 billion (€16.82 bln) by the end of March 2009. The bank’s loan market share increased to 22.1 percent, due to growth on the corporate loan segment.

The Banca Transilvania lender posted gross profit worth RON 1.02 mln (€240,000) in the first quarter of 2009, down a dramatic 98 percent year-on-year. The bank set provisions worth RON 289 mln (€67.84 mln) in the first three months of this year, and will set aside RON 350 mln this year for poor performing loans, as the gross forecast profit amounts to RON 85 mln (€20 mln). The lender’s assets soared 15 percent in January-March 2009, to €4.62 bln.

The state-controlled CEC Bank, one of the top 10 players in the banking system in terms of assets, registered a 19.9 percent increase in assets in Q1 2009, to €3.85 bln. The balance of gross loans soared 7.4 percent, to €1.91 bln, but the bank could be forced to stop lending in the fourth quarter, in the event it does not benefit from a capital increase.

Economic crisis is auspicious period for real estate investments

2009-06-13T06:51:00.002-07:00

The Israeli investors consider Bucharest an epicenter of international real-estate developers. Despite its echoes in Romania, the agitated period on international markets did not drive away the investors. Thus, the Gindi Rom Company, a member of the Israeli Gindi Group (one of the largest real-estate developers in Israel), has decided to enter the Romanian real-estate market in Romania, considering that every moment of economic crisis also represents an opportunity for investments.

The company has already developed commercial centers, office buildings and residential neighborhoods in Israel, Hungary and Switzerland, and is permanently exploring new markets. The Israeli Group benefits from the advantages of self-financing and of access to financing offered by banks or capital markets.

According to a communiqué sent to Nine O´Clock, the Israeli investors consider that from the moment it joined the European Union Romania has registered a massive growth in construction works, especially in Bucharest. This growth has transformed the city into the epicenter of international real-estate developers. One of the Gindi Company´s investment plans is represented by a centrally-located residential center in Bucharest´s District 3. ´We are convinced that Romania is still a good market, provided one comes with an appropriate and relevant offer. The people continue to need houses and we are here to offer them the best solution – an excellent design and architecture for buildings and apartments, the highest international standards, all at a fair and very attractive price right at the heart of Bucharest´ Kfir Gindi, the director of Gindi Rom, stated. In fact, according to him the company´s business strategy consists of identifying business opportunities that would answer the market needs.

The first project developed in Bucharest will consist of 4 buildings with 324 apartments, standing on a plot of land of 5.300 square meters. Likewise, the company is engaged in talks in order to buy a 16.000 square meter plot of land in Brasov, where it intends to develop a residential center.

Gindi Group´s target consists of young professionals that want to live in the city center, close to their interest points. Until now the company has built and delivered over 25 000 apartments in Israel and Europe. Gindi Group was created in 1970 and is
listed on the Tel Aviv stock exchange. In 2008 Gindi Group´s sales of apartments and plots of land have brought it revenues of EUR 33.26 mln and an operational profit of EUR 15.95 mln.

Mentor Finance recruits 15 mln euros for a residential project in Romania

2009-06-13T06:51:00.001-07:00

Mentor Finance, a subsidiary company of Mentor Group Holdings said it recruited 15 million euros for an existing residential project in one of the main cities of Romania, without disclosing the name of the project’s owner.

“The project, located in Timisoara is still under construction, and the apartments are already for sale. It is a medium sized compound and negotiations for the financing lasted three months”, representatives of Mentor Finance told Wall-Street.

The developers will have the ability to re-plan their selling strategies according to the new obligations they gave the financiers. They believe they will finish it totally up to 18 months including completing of the sales.

According to the company's statements, the latest recruitment was made following a joint venture between an international fund and a private investment group. The contracts were already signed, but the details remain confidential -regarding all the sides involved in the transaction.

“Due to the financial global crisis, we were facing many difficulties in recruiting any loans or credits for real estate projects. Therefore, we made huge changes in the money recruiting method that will fit to the "today market. In many cases we are modifying the financing structure along with the marketing strategies of the existing project,” says Osnat Peled, Marketing director of Mentor Finance, specialized in financing solutions and Investor relations in Europe.

The solutions may come from a few directions – a fund, an investor to join in, an international or a local bank, or even combination of the solutions mentioned above.

Mentor Finance obtained last year more than 35 financing and loans files in Romania, Bulgaria and Moldova. The company has also stated recently, they represent an international fund seeking for green energy projects with investments over 50 million euros.

The number of real estate transactions in Romania dropped 36.3% during the first 2009 quarter

2009-06-13T06:50:00.001-07:00

The first four months of 2009 saw the number of real estate transactions drop with 36.3% against the same period in 2008. The real estate market recorded a total of 105.793 transactions, the general manager of the National Union of Notaries Public of Romania (UNNPR) Nicolae Liviu Popa declared on Thursday for HotNews.ro. April 2009 recorded a 35.8% drop in sales compared with April 2008. The notaries predict that the number of real estate sales will contract with 30 to 50% in 2009 in Romania.

There were 27.472 transactions in April 2009, a clear drop from 42.821, the number recorded in April 2008 in the real estate sector. The first 2008 quarter recorded 166.213 transactions, as opposed to a weaker 2009 quarter, which saw only 105.793 transactions.

The February prediction of UNNPR vice-president Ion Marin, according to which the real estate transactions will shrink with 30% to 50%, is still supported today by the UNPPR general manager Liviu Popa. The prediction goes on to say the real estate market will bounce back at the end of the current year, but it will not reach the level recording during the last years.

According to the notaries’ data, last year saw a number of 484.765 real estate transactions, still a 7.07% drop compared with the figures recorded in 2007.

Romanian real estate developer records a 75% loss in income

2009-06-13T06:49:00.000-07:00

Romanian real estate developer Impact announced on Friday a 75% profit loss for the first 2009 trimester, in contrast with the same period of 2008. The net profit for the first term of the current year is 1.28 million lei.

The fist 2009 term saw Impact signing 46 contracts worth of 20.1 million lei, out of which 59% were call-buy contracts (renting but with the option of buying), 24% were paid in full and 17% are to be paid in instalments. "The sales volume exceeded our initial expectations, contradicting the pessimism brought at the start of the year by the sales figures recorded during the last 2008 trimester", Impact’s Developer & Contractor financial chief Carmen Sandulescu declared.

But the rest of the company’s financial indicators are decreasing. The turnover shows an 8% drop in value according to the figures recorded in the first 2008 term. The gross profit was 54% lower (2.88 million lei) and the net profit was 75% short of the value recorded in the similar 2008 period. The debt level is 20% lower, as the company managed pay 8.6 million euros worth of duties in February. The drop in revenues is not only the result of the expenditures – income difference. "Foreign investors cancelled contracts worth of 12.6 million lei in total", shows Impact’s report.

Impact aims to finalize the projects in progress by the end of 2009. It will also come up with various housing schemes for residential buildings.

Homes built in 2009 could be 60% cheaper

2009-04-18T23:26:00.002-07:00

The sale price of housing units included in residential projects whose construction will begin in 2009 could plunge 60 percent, to some €1,000 per square meter, considering that development costs plummeted by an annual 70 percent, due to the depreciation of land and construction costs
The final price of a housing unit includes several development costs, such as the price of land depending on the home’s constructed surface, construction costs, and soft costs, which include expenses for architects, approvals, financing (interest), marketing, and sales, plus the developer’s profit margin, an average 25 percent. This profit margin is usually divided throughout the project’s construction period, which usually lasts some two years.

The price of land per constructed square meter is some €100-150 today, down 133 percent year-on-year. The explanation is that, besides the 50 percent decline in the price of land, the Land Use Coefficient, which is considered when land plots are sold and acquired, has also dropped, to 2.5-3 from 3.5-4.

“People interested in acquiring land at present are looking for plots with a construction price per square meter of €120 at most. The price of land halved in semi-downtown areas. The problem is that those interested in acquisitions are targeting good plots of land, which were sold for €1,400-1,500 per square meter in previous years, and which they now want to buy for less money,” said Ionut Ciocan, Head of the Land Department of DTZ Echinox.

“I believe the construction price could be €500 per square meter, a price of €600-650 was possible even last year; but the value per square meter was higher because there were no construction companies available. My opinion is that a project in uptown areas could be cost €400-450 per square meter,” said Cristian Erbasu, Manager of the Erbasu group.

Cristian Tudor, Manager of the Comnord-Procema group, said that developers cannot presently demand a construction price below €600 per sqm, even if certain declines were registered on the construction material segment, because the investor must bear some indirect costs. “The value of land is an important part of the final price, so that those who will acquire plots of land in the near future to finalize work in the coming two-three years will be able to afford to cut the end price, unlike those who acquired land in previous years at double values, who will only be able to afford to cut prices per square meter by € 50-100, because they have loans to pay back,” Tudor explained.

The soft costs halved to €80, mainly due to the drop in the degree of indebtedness that developers may have when accessing financing. Thus, if real estate investors could obtain financing for some 75 percent of the project in 2008, this percentage has now dropped to some 50 percent. “The interest is some € 45 in total soft costs, as it is lower because the degree of indebtedness is lower,” said Ionut Bordei, Head of the Residential Department of CBRE-Eurisko.

Credit Crunch Brings Down Property Prices in Romania

2009-04-18T23:26:00.001-07:00

The credit crunch has brought down the price of both old and new apartments in Romania and made sellers more willing to negotiate and make concessions.

Compared to last year, the price of old apartments in Bucharest has gone down by 30 to 40 per cent and by nearly 20 per cent for new ones. At the end of 2007 in Romania’s capital, 100,000 euro was enough to buy a new one-room apartment or an old three-room apartment, the same sum is now enough for the purchase of a new two- or even three-room apartment, the Evenimentul Zilei newspaper reported today.

“There are so few sales in this period that nobody knows what the prices are as a whole. Some apartments get sold for ‘fitting’ prices and others – for insignificant sums,” a representative of the Association of real estate agencies told the publication.

In Romania’s third largest city, Cluj, real estate has gone down by as much as 50 per cent compared to last year. In Ploieşti, the ninth-largest city, a house of 120 square metres near the centre, costs 45,000 euro. New flats in Timișoara, which is Romania’s fourth-largest town, at the moment are up to 20 per cent cheaper than last year.

Source: www.balkantravellers.com