Realty market: rising prices and stagnant sales. Economic analysis by Info-Prim Neo

The real estate market became buoyant following two years during which the clients had seen rather than bought apartments. The large number of transactions on the realty market has led to a 10-15% rise in the prices of old apartments this year, especially in February-March. Some real estate agents and managers of construction companies say that after being anemic in 2007, the prices in general began to rise. “The market was relative lively in the first quarter of this year, with the prices rising by up to 15%,” says Petru Oleinic, the director of the realty company Nika-Imobil. Lara, one of the largest realty agencies in Chisinau, said the prices in February rose by about 1,000 euros per apartment. The prices of old apartments at the start of 2008 began to rise and this tendency will persist, say real estate agents. Leonid Cerescu, the director general of Monolit S.A., considers that the realty market reached a state of saturation. Those that could afford already bough an apartment, while those that could not are waiting: either they will win this money and will purchase dwelling or they expect the prices to decrease. The realty experts cannot say yet what factors pushed the prices up in the first quarter. “It is hard to explain this rise in a period that it not a typical sales season. Worried about the falling dollar, the people try to invest in real estate so as not to lose their savings or this is a consequence of the fact that the military men started to receive certificates for buying houses at the beginning of this year and a large number of real buyers appeared on the market simultaneously,” Petru Oleinic considers. The prices of new apartments grow at the same rate as the old ones. [Sales are decreasing] Even if the real estate agents and construction company managers are optimistic, the statistics show the opposite. Recently, the Ministry of Economy and Trade published information about the economic development. According to this information, the number of houses put in commission last year fell by 9.9%. Though 2007 could be an exception, the tendency on the sales segment became more prominent, at least in the past three years. The National Bureau of Statistics says that the number of apartments sold in the municipality of Chisinau in 2007 fell to the lowest level in the past five years, to 9,023. The tendency came from 2006, when the demand was lower than the supply and the apartment sales fell by 38% in the wake of a general decrease in the number of transactions with apartments. The general situation in Moldova is much the same. Last year, the Agency of Land Relations and Cadastre recorded 17,998 sale-purchase transactions, as opposed to 19,091 in 2006. [Why do prices go up?] Constructors and sales agents explain the rising prices of apartments by: - the increase in the price of building materials; - the more expensive workforce; - the rise in the price of land and, more recently, - the prohibition on unfinished constructions and the introduction of a value added tax of 20% on building works; - the shift to payments in euros in the second half of the last year. The prices of construction-assembly works in the past five years were higher than the inflation rate, while in some years even twofold higher. The plots of land to build on grew dearer tenfold in the past five years, two times quicker than the apartment prices. An are of land in the administrative area of the city, especially in the historical center and in the prestigious districts, costs 30,000-40,000 euros. The forecasts for 2008 are not comforting. The nominal salaries in the construction sector after 2002 rose 3.5 times on average. In reality yet, the salary is much higher. [New pressure on prices] A number of factors will exert pressure on the prices of new apartments in 2008. The Agency for Construction and Territorial Development made a decision banning the acceptance of non-qualitative works and unfinished constructions, especially of apartment blocks, following a large number of complaints about the quality of works from those that order apartments. “As a result, the cost price of the constructions will rise,” the real estate agents and construction company managers consider. Some of them say that the works could grow dearer by 10%, while others by 15%. Earlier, about 90% of the buildings were put in commission unfinished and the inhabitant was to complete the works. The introduction of such a restriction will lead to delays in putting the apartment buildings in commission. The zero VAT rate on construction works was canceled on January 1, 2008. “It is clear that when the VAT on building works is introduced, the prices will rise immediately by 20%,” said Vladimir Baldovici, the director general of the Agency for Construction and Territorial Development. The realty agency Lara anticipates that the cost price of apartments will increase by at least 10 – 12% following the application of VAT. [Forecasts: optimistic for sellers and pessimistic for buyers] The market will tend to grow, say real estate agents. Some of them anticipate that the price of a square meter of apartment will rise to 914 euros by yearend 2008, while others forecast a higher price, of about 1,000 euros. “The prices of old and new apartments will rise by 20-30%,” some experts say. Other experts say the prices will increase by at most 10%. The demand will grow and will exceed the supply. Marian Supostat, financial director of the construction company Glorinal, says the value of transactions in 2008 will rise by about 30% compared with 2007. “Last year, the apartments got dearer, as we expected, by about 20%. I think that this year the prices will rise at the same rate,” he said. Speaking about the prices, Petru Oleinic sad that the people do not buy square meters but houses and when they fid out that a square meter in new buildings costs 600 euros, while the apartment 70,000 euros, they give up the idea of buying a new apartment and purchase an old one for 30,000-40,000 euros. They do not realize that a square meter in old apartments costs 800 euros. The big apartments in the new blocks made many people go to the secondary market. The real estate market in Moldova remains yet very attractive and unsaturated and the competition will become stiffer.