Housing market will become dull if leu depreciates significantly. Info-Prim Neo analysis

The market of land for construction and private houses will enter a deadline if the leu loses half of its value. Realty experts say that such a situation will be caused by the world financial crisis that determines the depreciation of the national currency against foreign currencies. Though the land for construction was always in demand, no investment is made at present. Experts say that this is due to the fact that the population got into a general panic, not to economic factors. In 2008, the average prices of land remained practically unchanged, and the variations did not exceed the limits of 7-10%. The average price varied between 15,000-34,000 euros per hectare. The prices on the private houses segment were also stable. [The land for construction market between hammer and anvil] Ghenadie Gurdis, the head of the nonresidential buildings department of the Realty Agency “Lara”, has told Info-Prim Neo that the there is practically no market of plots designed for construction and this trend will continue the next months. The transactions with real estate will be stopped both by the financial crisis and by a possible depreciation of the leu. The land now does not sell because the building companies that made significant acquisitions earlier do not have money for this. Two companies continue work at present. The other companies do not have financial resources to purchase land for construction. Some of them even stopped the construction works. The population also does not hurry to make acquisitions. They expect a decrease in prices and this fall will inevitably occur. Everything depends on the developments on the world markets and on the evolution of the leu’s exchange rate against the foreign currency. If the national currency loses half of its value for example, the prices of plots for construction can fall by about 40%, Ghenadie Gurdis considers. [Strangled by the strong leu] The authorities make effort to prevent the depreciation of the leu, though a gradual depreciation of the national currency was to be initiated in August 2008, says Veaceslav Ionita, expert of the Institute for Development and Social Initiative “Viitorul”. The expert says the authorities keep the leu strong for political purposes. If the depreciation of the leu can save the country’s economy, it can also make the population poor and the people would not be interested to vote. The National Bank of Moldova spent 100 million lei from its reserves to prevent the depreciation of the leu during the first 20 days of February. Ionita says that the authorities should start depreciating the leu in a controlled way. “If the national currency’s value was reduced by 20-30% to 12-13 lei per dollar, the situation in the construction sector would improve a little, the prices of real estate in euros would decrease and the economic entities could sell the built apartments at least at the cost price. The economic entities working in constructions are now strangled by the strong leu,” Veaceslav Ionita said. According to the expert, a depreciation of 20-30% would bring more money on the housing market, while a depreciation of 50-100% would stop the investments into this market. “If the national currency depreciates by about 50-100%, no investment will be made in real estate at least during half a year,” Ionita said. The foreign exchange reserves of the National Bank of Moldova in February 2009 decreased by over 20% from July-August 2008, totaling about $14.5 million, the expert said. On the other hand, the central bank denies that the national currency would depreciate significantly against the foreign currencies. In a communiqué, the bank says that economic analysts’ statements about the possible deprecation of the Moldovan lei are “groundless and cause only panic and agitation.” The fluctuations of the leu’s exchange rate, which are influenced by a number of factors, including the net flow of foreign currency through the licensed banks of Moldova, are monitored and do not yet show major changes that could cause a significant depreciation of the Moldovan leu against the US dollar, say officials of the National Bank. The central bank says it has sufficient exchange reserves to cover the imports of goods and services during more than 3 months so as to satisfy the temporary demand for foreign currency liquidity and will use all the available instruments to prevent the excessive fluctuations of the leu’s exchange rate against the dollar. The licensed banks of Moldova also have sufficient foreign currency liquidity. On February 20, 2009, the liquidity was by $54 million higher compared with the end of 2008 and enables to satisfy the demand for currency on the home market. [Shall we sell or buy?] Experts of “Lara” recommend the persons that own land and want to sell it to do it now because the prices are expected to fall. According to Ghenadie Gurdis, the head of the nonresidential buildings department, the money is merchandise when there is a financial crisis. The prices will not go up and the buyer is the one that dictates the purchase conditions. If the sellers think today that the prices of land designed for construction are low, tomorrow they will realize that the prices are very good. The average selling price of land for construction in Chisinau varies between 10,000-15,000 euros per are (1 hectare is equal to 100 ares), while in suburbs it is 3,000 euros per are. The crisis stopped the development of the private homes market as well. The people are interested in houses, but do not hurry to purchase them. The potential buyers wait for the prices to decrease, explains Vlad Musteata, real estate specialist at the Realty Agency “Lara”. The prices of private houses dropped by 10-15% from last autumn and vary between 100,000 and 700,000 euros in Chisinau. According to Musteata, the situation on the housing market in Moldova is directly connected with the developments on the world markets. The events happening in the world will repeat in Moldova with little delay. [Transactions will increase in number in autumn] The real estate owners and the experts expect that the market will revive. The first want the prices to go up. The population is convinced that the real estate, the houses and the land, in spring is more expensive than in autumn and this makes the experts believe that the number of transactions on the housing market will increase closer to autumn.