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
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.
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!
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 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.
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.
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.