The appreciation of the Euro against the leu has cancelled out the drop in home prices

Alina Toma Vereha

The leu has lost around 13.5% against the Euro since July 1st, 2008 and around 30% since July 1st, 2007. This depreciation has naturally affected the price of old and new homes alike (ed. note: prices have been denominated in Euros ever since 2005), because current as well as prospective buyers are for the most part compensated in lei.

Thus the rise of the Euro has cancelled out most of the price discounts offered by homeowners of both old and new residences lately. The real estate market has been frozen ever since the second half of 2008, when banks have significantly slowed down lending, as they were affected by the international financial crisis. Whereas owners of old homes have lowered their asking prices by as much as 50% compared to the end of 2007, according to how much they needed the cash, developer discounts on the new apartment barely reach 20% of the prices in the beginning of 2008. Thus, buyers interested in new homes only get a very small discount percentage-wise, when considering the price in lei.

Realtors claim that the drop in home prices in the last few months was caused by the shrinking number of transactions and that very few homeowners have taken into account the depreciation of the leu against the Euro. Buyers are first and foremost concerned with price and only secondly with the fluctuation in the leu-euro exchange rate. Realtors say that some sellers of new apartments may lower prices, given the appreciation of the Euro against the leu.

Irina Petrescu, partner of real estate company "Esop", said: "I think the first things that homeowners have taken into account when setting their discounts were the lockdown of the market and the drop in purchasing power of the people looking to buy homes. I think that prices will continue to closely track the customers" purchasing power and the impact of lending on the real estate market. Indeed, the depreciation of the leu against the Euro is compounded by buyer skepticism, the general "wait-and-see" state of the market and uncertainty about the current price levels".

However, Mrs. Petrescu said that developers can help alleviate this fear either by setting their prices in lei, or by choosing an exchange rate that would favor both parties, but no lower than 3.8 lei for one Euro.

Titel Folea, marketing director of real estate agency "Euroest", said that it is possible that new home developers could lower their prices in the near future, due to the fluctuation of the leu-euro exchange. He claims: "Developers have lowered prices to attract the interest of customers that have cash on hand. Discounts for new apartments have exceeded 20% in some cases and it"s possible that some developers will lower their prices. The European currency is the frame of reference on the real estate market: the prices of new homes are set in Euros, part of the buyers have their salaries set in Euros or have cash available in Euros, and the agreements between developers and their suppliers are also made in Euros. The fluctuations of the exchange rate are not the main cause of the deadlock of the real estate market and are a risk that all players on the market are aware of".

According to "Esop", the Romanian residential market was and still remains unusual and heterogeneous. For instance there are developers that haven"t offered any discounts during this period where transactions are deadlocked, and they have continued to build hoping for better times. At the opposite end of the spectrum, are developers who are having trouble completing their projects, so they have significantly lowered their prices, sometimes by as much as 20 or 30%.