Romanian market is ‘blocked’ after bubble bursts

Hopes that the Romanian property market would escape the worst of the financial market crisis proved to be misplaced, panellists on the Romanian investment forum at this year’s EXPO REAL agreed. ‘Romania turned out to be one of the biggest bubbles in the region,’ said Christopher Berlew, managing partner at law firm Salans in Bucharest. ‘The real estate market has taken a nosedive over the past year-and-a-half.’

Ilias Papageorgiadis, head of More Real Estate Services in Bucharest, sees the rise and fall somewhat differently: ‘There was optimism in 2005 and 2006. In 2007 there was arrogance. In 2008 there was a refusal [to face] reality,’ he said.

According to Papageorgiadis the bubble was destined to burst even without the crisis because no one would have bought at the prices being asked for. ‘Everything was over-built, overestimated, as if Bucharest would replace Manhattan in three to five years,’ he added. Now the market is blocked, the victim of a gap between vendor price expectations and what investors are willing to pay. ‘Most likely the gap is going to remain until the sellers get truly distressed, and that won’t happen until the banks get tougher with them,’ said Berlew. One place where price expectations has been dropping is in secondary cities, according to Jochen Seibert, CEO of Redserve in Vienna, who thinks that the regions are precisely where new development is most needed.

Seibert is not optimistic that the crisis has taught the country any lessons though. ‘In Bucharest another bubble will start, maybe next year. The domestic investors will do it again, but not in smaller cities because that’s where people have really felt the impact of the crisis.’ Without being any more optimistic in the short-term, Papageorgiadis disagrees. ‘There won’t be a bubble because the bankers won’t allow it.’