SOP: Nearly 90% Residential Construction Projects Frozen

Sales of newly built homes in Bucharest halved in 2008 compared to 2007. Irina Petrescu, a director with the real estate agency Esop told Bursa that some 90% of the residential projects under construction had been frozen or were facing extremely low sales. She added that the freezing point in the sales of new homes could be traced back to April 2008, when the developers shyly started to offer discounts to compensate for the setback.

Later on, in Autumn, when sales slumped even more, discounts became substantial. In 2008 alone, the price of newly built homes decreased by 10-15%, according to Esop estimates.

According to Irina Petrescu, the residential market will come back to life upon the resumption of lending, the restoration of consumer confidence in new projects, as well as through flexibility and openness on the developers" part. She believes that owners need to be realistic about their profit target and the prices they should ask. Esop representatives believe that 2009 will mark a more noticeable slowdown on the real estate market, compared to 2008 and 2007. The market will be dominated by developers who are able to finance the full project without depending on the off-plan sale of deliverables that have not been built yet. "It will be harder and harder to sell homes before they are built. Considering the uncertainties on the lending market, buyers will be much more cautious about signing pre-sale contracts. In most cases, apartments will be sold only after they are entered in the Property Registry. Petrescu added that both developers and their banks will have to rework the system of financing and marketing homes. Most buyers claim that a loan that is pre-approved now may no longer be viable in 6-8 months. Hence the reluctance to buy homes that do not yet exist. The first step would be for developers to promise less and do at least what they promise. It is very important that each detail of the project be implemented precisely as designed. It is also of critical importance that facilities and delivery deadlines promised to buyers be respected precisely, Petrescu added. Developers need to do whatever they can to minimize the risk on their customers and ensure them full confidence. Minimizing the buyer"s risk of not seeing the transaction completed becomes a key element instead of the former sales strategies focused on small prices, which, however, were valid only with a whooping 90% down payment.

According to Esop, developers started in November to rework their sales strategies and accept flexible payment terms. In turn, the buyers are expecting developers to adapt their products to the new economic context.