Housing market disappointed investors in 2006. Analysis by Info-Prim Neo

Those who invested in the capital’s residential real estate market at the beginning of the year (January) won the jackpot, because the following period brought stagnation which continued since March till October. In the first month of 2006 the prices of houses suddenly went up from USD 645 per m2, to USD 745 per m2 in February, and at the end of October, the average prices on the market constituted USD 780 per m2. As a consequence, the profit at the end of the year is of about 21% and, excepting inflation, – 12.7% in 11 months of the current year, the net profit is more than 8%. Practically the real estate investments remain among the most profitable for those who made deposits in January, taking into consideration the fact that the average interest rate for bank deposits in MDL was of more than 13% in November. However, the same thing cannot be asserted concerning investments that have been made after January. In February the prices totalled USD 745 per m2, and in the next month increased by only USD 15 to an average level of USD 760 per m2. This price stayed flat till September, when it fell reaching USD 740 per m2. In October, though, the prices rose again attaining the average of USD 780 per m2. Therefore, for those who invested in February (USD 745 per m2), at the end of the year the profit constitutes about 4.7%; investments from March to August (USD 760 per m2) provided a profit of 2.63%, and those in September (USD 740 per m2) – 5.4%. Consequently, in 2006, except for January, the housing market broke the tradition of high and permanently rising income from investment. During 2005, the prices on the housing market increased by about 40% and in the period between 2001 and 2006 – by about 700 %. Even though, in 2006, the real estate market showed some signs of stagnation, the investors, having relatively little benefit from the price difference could supplement their income from house rent payments, in the case that they had let out on hire the purchased houses. In the last years the rent payment level has grown by about 20% per year. At present it constitutes an average amount of USD 120-200 for an one-room flat; USD 150 to 250 – for a house with two rooms and USD 200 to 350 – for a 3-room apartment. [Perspectives] The stagnation on the real estate market in 2006 has been caused mostly by the economic instability of Moldova – the crises provoked by the rise in price for gases and the embargo for wine export. These agitations in economy convinced many of the potential investors to hold their money for another period. The banks, on the other hand, unexpectedly limited mortgage crediting, which was staring to become more and more popular among Moldova’s citizens. However at the end of the year the market registers more activity. The prices reached USD 780 per m2. Thus, in short terms it could be possible to forecast an increase of the prices, on the background of some positive changes of macroeconomic level – the price of natural gas will be relatively stable in 2007, Russia promised the resuming of wine exports, foreign donors and financial bodies promised record financing for supporting economic development. On the other hand, 2007 is an electoral year. So an eventual political instability could have impact on the real estate market. In long terms, everything depends on the economic and political development, which is rather unforeseeable in Moldova.