National currency’s meltdown spawns doom on local real estate industry

Ilinca Paun, Head of Residential Department at Colliers International says leu’s downslide will affect individuals with pay packages in national currency and have to pay installments for housing loans contracted in national currency, but this effect will be cushioned by NBR’s lending conditions that have limited the indebtedness level to 40% of income.

“A 8-10% raise of installment geared by a depreciation of leu leads to a lift of indebtedness level to 40%, without causing major problems. Individuals who contracted loans last year, and the installment is 60-70% of income will surely face difficulties and will cut daily expenses in order to be able to pay installment,” Ilinca Paun explained.

Ionut Bordei, Head of Residential Department of CBRE/Eurisko said leu’s decline will not affect developers or constructors.

“Prices of real estates are in euro. Same are the construction costs. The only ones that might be affected will be buyers with pay packages in lei. Individuals with incomes in euros will not reel from national currency’s drop,” Bordei added.

According to him, leu’s depreciation will lead to a boost of interests at loans in lei, which will affect at certain extent those who contracted loans in lei, whereas this is a fact that can not be generalized, as the currency exchange rate has its ups and downs, and people can win or lose in very short intervals.

Andrei Panculescu, director at Westhill Romania says domestic real estate industry is not very tightly linked to evolution of leu against euro, considering that rents in office, residential, retail and industrial segment are set in euro, and sale prices and loans for developers are most of them expressed in euro.

“The only field that will be affected is the residential one. Romanians will have to pay higher installments for loans contracted in euro– most of them cash in euros from their work which are six months or one-year indexed,” Westhill representative stated for Wall-Street.

In retail segment, the sways of foreign currency exchange rate will not affect rents’ level in commercial centers, as in most of the cases, in all newly-built commercial centers the rent is expressed in euro, which can be paid in lei.

“Retailers will be the most affected by currency sways, as their incomes are in lei and they will pay more,” Andrei Panculescu added.

As for sales and leases, Colliers representative says vendors are privileged by this upside of single European currency, as prices on the residential market are expressed in euro.

“Long-term effects are unpredictable and depend on what sellers will do afterwards with the money, and on the further evolution of euro. In case of rents, the currency exchange gap will raise the rent in lei, and those who pay a rent that covers 50-60% of their income will be affected, namely the over-indebted individuals,” Ilinca Paun concluded.