iO Partners: "If inflation and high interest rates persist, we can expect a real estate crisis"

The decrease in the number of building permits was predictable in the given context (high inflation, high bank interest rates), the representatives of iO Partners - JLL Preferred Partner in Romania told us, specifying that the majority of building permits are generated by the residential sector, "a normal thing and generally valid".

The statement comes against the background of the fact that the National Institute of Statistics (INS) recently announced an important reduction in the number of building permits in the first semester of this year.

"Considering that, due to the increase in interest on loans, but also the increase in the cost of living, fewer people can afford or undertake to purchase or build a home with credit (and credit was the main method of purchase), then it is it's natural for (solvent) demand to decrease", the cited sources emphasize, adding: "The faster crediting returns to conditions closer to normality, let's say to the level before the start of the war in Ukraine, the more negative the impact on the sector and vice versa will be smaller".

The main consequence of the reduced number of building permits is that, in the coming years, we will have fewer options in choosing a home, but also an office or other space, experts point out.

The number of construction permits for residential buildings issued in Romania, in the first six months of 2023, decreased by 24.5% compared to the same period of the previous year, according to the data recently published by the INS.

In the first half of this year, 17,140 building permits for residential buildings were issued. Decreases were recorded in all development regions: Bucharest-Ilfov (-1,259 permits), North-West (-927), South-Muntenia (-813), West (-693), North-East (-540), South - East (-522), South-West Oltenia (-487) and Center (-331).

The quoted communique shows: "In June 2023, 3,018 building permits were issued for residential buildings (-12.5% compared to May 2023), with a total usable area of 800,353 sqm (+6.2%). Of the total construction permits for residential buildings, 68.8% are for the rural area. In June 2023, there is a decrease in the number of building permits issued for residential buildings compared to the previous month (-431 permits). In a territorial profile, this decrease is reflected in all development regions: North-East (-124 authorizations), South-West Oltenia (-98), North-West (-57), South-East (-43), West ( -39), South-Muntenia (-35), Bucharest-Ilfov (-25) and Center (-10).

In June 2023, 574 building permits were issued for non-residential buildings (-11.1% compared to May 2023), in a total useful area of 32,7067 sqm (-4.8%). Compared to the previous month, in June 2023 there was a decrease in the usable area of building permits issued for non-residential buildings (-16,531 sqm). In territorial profile, this decrease is reflected in the following development regions: West (-65,564 sq m), South-Muntenia (-49,205), Bucharest-Ilfov (-16,886), Center (-11,431), South-East (-4,164) and North-West (-1,321). Increases were registered in the development regions of North-East (+118,977 sqm) and South-West Oltenia (+13,063)".

Compared to the same month last year, in June this year there is a decrease both in the number of building permits issued for residential buildings (-24.9%) and in the total usable area (-16.3%). In a territorial profile, this decrease in the number of building permits issued for residential buildings (-999 permits) is reflected in all development regions: Bucharest-Ilfov (-252 permits), West (-146), North-West (-135 ), South-Muntenia (-113), South-East (-105), North-East (-99), South-West Oltenia (-92) and Center (-57).

Regarding non-residential buildings, there was a decrease in the number of building permits (-0.5%) and an increase in the total usable area (+31.5%). In a territorial profile, this increase in the usable area for construction permits issued for non-residential buildings (+78,321 sq m) is reflected in the following development regions: North-East (+124,030 sq m), South-West Oltenia (+12,289) and Center ( +8,173). Decreases were recorded in the following development regions: Bucharest-Ilfov (-25,708 sqm), West (-18,692), North-West (-13,975), South-East (-7,143) and South-Muntenia (-653)" .

Related to this situation, the representatives of iO Partners - JLL Preferred Partner in Romania are of the opinion that it is debatable whether we are in a crisis or not, but that we are definitely going through a period with many challenges: "Somehow, we have to get used to the idea that we will almost always face challenges of one nature or another, whether generated by a pandemic, a war in the region, climate change, unavailability on the credit market, etc. We must accept that we live in an unstable environment and adapt to all these challenges if we want to thrive. And you can respond constructively to instability only through flexibility and creativity (building alternative scenarios).

Now it also depends on how long these challenges last in time. If inflation and high interest rates persist for a long time to come, then I think we can expect a crisis. For now, the system, society still seems to cope.

After all, crisis or not, people need buildings, it is a fundamental necessity, not optional. And buildings wear out/consume over time, so we have to replace them or strengthen/renovate/modernize them. We can only postpone these interventions for a limited time, until we start to bear the consequences (earthquakes, fires, but also the increase in the cost of utilities in the conditions of reduced energy efficiency, etc.)".