Dwelling immovable market shows slowdown signs. Info-Prim Neo economic commentary

Despite the full swing in the constructions sector, the number of houses put in commission starts to grow at a slower pace. Seemingly the question is about some sort of stagnation or crisis on the sector overdemanded some two years ago, as the large companies switch to building business centers and offices, industrial spaces, and topnotch residential blocks. After an annual growth of over 20% on average during the five years, in 2007 and in the first quarter of 2008, a slowdown has been recorded on the segment of houses put in commission. If last year, a drop of 16% was recorded, in the first quarter of this year the pace went down by 26.3%. "The market will grow by 20-30% the coming years" or "the apartment prices will go on rising”. How often have we heard such kind of forecasts? How do we know if and to what degree they influence the real development of the real estate market? The construction companies consider an oversaturation of the market has not yet been reached and that the residential immovable market will go on rising. However the market shows signs of tiredness. The realty companies and agencies start loosing the bet before some obvious realities: - the demand is dropping, as the orientation towards building luxury immovable narrows this demand much; - the quota of the population's investment in immovable drops ; - the dwelling realty transactions drop in number. In 2006, the Real Estate Agency “Lara”, having the highest market share in Chisinau, found that, for the first time in the last ten years, the offer overcome the demand, while in summer months it did so by 3-4 times. The situation repeated in 2007, too, though less obviously and only during certain periods. After 2003, when a maximum level of 90.6% in “houses put in commission” was reached, the weight of the residential realty built on people's money started to drop reaching 65.4% in 2007. The place of the largest beneficiary started to be conquered by joint ventures (weighting 8% from the total in 2007) and the foreign ones (4.2%). The people's investments do not impress, either, as although ascending the last four years, according to official statistics, the 16.5% growth in 2006, and especially the 4.1% growth in 2007, it was bumpered by the costs rising even speedier. As the inflation did. In 2007, for the first time after five years of growth, the total area of the residential put in commission dropped with over 100,000 sqr. m, from 507,200 to 418,600. The same trend was recorded in the first quarter of 2008, when they put in commission a total area of 84,700 sqr. m what is by 73.7% less than in January-March 2007. The number apartment sales is also severely falling, from 23,009 in 2005, to 16, 150 in 2007, according to data issued by the Cadaster Agency. [What is the explanation of builders and realtors ?] Some experts opine that, after noticing the drop in the demand for residential immovable, some companies “emigrated” towards other market segments, especially, to building business centers and offices, industrial spaces etc., which are more profitable. Other specialists say a number of new projects started in 2006-2007 which are to end by 2010-2011, and as a result no conclusions from the 2007-2008 situation can be drawn. “Don't panic, new houses are being built rapidly. If in 2005, 42 living blocks with a total number of apartments of 2,689 were being built, then in 2006 - their number went up to 61 and 3,568 apartments respectfully, while in 2007 they were building 65 living blocks with a total of 4,267 flats, according to data of the former Territory Development Agency,” specialists say. [What do experts say ?] The constructions sector is in the stage of significant change of the previous trends and in several years its profile could change crucially, believes economists from the IDIS Viitorul Institute. If during the previous years, Chisinau represented 3/4 of the building market, in 2007 it went down to under 2/3. A cycle in the municipal house constructing sector has ended: the blocks started back in 2004-2005 because of the demand boom were finished and put in commission in 2006 and 2007. As a result the offer jumped, although last year they put in commission by 16% less dwelling space, for Chisinau this drop has been even more accentuated. This slightly declining trend, in the opinion of IDIS Viitorul, will last some 2-3 years more. The construction companies start a new cycle investing a lot in buying new lots for future blocks, while the ones under construction could be tergiversated because of the changes in a governmental decision entitling that the living blocks can be put in comission only after being finished. The drop in the demand for new flats in Chisinau is also explained by: - the prices have reached a level comparable with the countries where a large number of “demand generators” work, consequently it is more convenient to buy an apartment or a house in Italy or Portugal than in Chisinau; - following the US mortgage crisis, the expectations generated by the rapid appreciation of the real estate diminished, respectively a large amount of “investment” flows quenched on this market (the ones buying apartments at the initial building stage with the purpose to re-sell them later); - the mortgage goes on being expensive and, consequently, inaccessible even for the medium-income people. [Is it a trend or a “temporary” weakness of the residential immovable market?] There are a number of factors able to trigger the reversal of the trend of 2007 and the first quarter of this year: - a huge unsatisfied demand, generated by low buying power, only 5 per cent of the Moldovans can afford taking mortgage. It's an expecting demand: either the ones not having a house and eager to buy one will gain this money and will buy a dwelling, or they have the money, but expect the price to go down; - launching more residential projects, to end the coming years, although they are oriented towards the ones with large and above-the-average incomes; - developing cheaper mortgage to attract foreign sources; - finally launching the construction of social dwellings; - extending the realty leasing. In some regard, it is difficult to agree with the managers of realty companies: that the dwelling immovable reached a state of saturation. The census of 2004 showed 108,100 people did not have own dwellings. And to satisfy all the eager to improve their dwelling conditions, according to specialists, annually they should put in commission 25,000 – 30,000 apartments in Chisinau only. In fact they build 8-10 times less.