Romania, From A Property El Dorado, To Europe"s Property Scare

• Property fraud epidemic rampages Romania • Foreign investors sue Romanian real estate developers

Increasingly more buyers of newly built homes, Romanians and especially foreigners, are suing the developers who have failed to observe their contractual commitments. "The number of lawsuits will increase alarmingly by the end of the year. We already have tens of customers and I can tell you that nearly all developers who sold homes before they were built in the large cities in the country are now facing lawsuits with their customers. The complaints range from late deliveries to the complete cancellation of the project without a refund of the down payments. The developers have projects in cities such as Bucharest, Brasov, Cluj and Arad. Among the developers we have opened lawsuits against are Planorama, Vitan Towers and MRI Residence," Mihai Cuc, a lawyer and a partner in SCA Enescu & Cuc, told BURSA.

He stressed the difficulty in distinguishing between frauds and badly managed project. However, most buyers have good chances of winning the lawsuits against the developers, but, in some cases, any chances of recovering the money or obtaining the contracted property are weak. In the best cases, the apartments have been finished or are about to be finished and the buyers may obtain compensation for late delivery or other violations of the contractual provisions (such as poor quality in interior finishing or problems related to connections to the utility networks).

Mihai Cuc further explained that he wanted to warn all responsible stakeholders that such failed real estate development projects were driving foreign investors off the market: "Romania is now turning from a property El Dorado to Europe"s property scare. Romania does not have the laws to protect those who buy buildings before they are finished or to force developers to set up provisions for the down payments they receive. Moreover, the Romanian law does not even force developers to deliver residential buildings with all the utilities in place. I believe that the authorities need to take urgent legal steps to protect the buyers, or we face the risk of not having any foreign investors for a long time."

In Cuc"s opinion, the saddest part is that it was not the crisis that led to the failure of many real estate development projects, but the lack of minimum regulations on this type of purchases.

According to a press release from SCA Enescu & Cuc, most developers have slowed down or even stopped construction works because of a dire lack of liquidities and therefore delayed the delivery of the apartments to the buyers. In some cases, the developer - MRI Residence, for example - never even started the construction works or secured a construction permit, even for projects that were put on the market for sale in 2007, Cuc stressed.

The law firm further pointed out that many Romanian or foreign buyers had signed disadvantageous sale contracts as the developers were counting on the fact that the price of property was rising from one day to the next and therefore put pressure on the prospective buyers.