The greedy, play-it-by-ear innovative spirit of some local developers has pushed the real estate market into an unnatural state of affairs, however things will return to normal within two years and we will no longer see someone who is willing to pay 1 million euros for a flat that is worth 500,000, believes Marinel Burduja, first vice-president of Raiffeisen Bank.
The official in charge of the corporate business of the third-largest bank on the market, Burduja, 55, says the fast rise in prices on the real estate market was fuelled by foreign funds with "highly speculative operations", which have now stopped.
"I don't see a real real estate crisis in the next three to five years, but a return to the norm is absolutely necessary and will occur in two to three years. Normal means prices calming down, with both reasonable prices and deals conducted at a fair price. When someone owns land and has 5 or 6 million euros in their pockets, they don't really mind paying 1 million euros for a flat that is worth 500,000 euros, yet these situations will come to an end. We will no longer see flats in downtown Bucharest costing more than 10,000 euros per square metre like on La Croisette."
Burduja says that many of the farmland acquisitions were made precisely for speculative purposes, by foreigners, and not for agricultural investments.
"Transactions with land are an infinite stream of income for notaries, lawyers, the land registry and local authorities. There is a 1 to 4 difference between the price a peasant gets for one hectare of land and the end price paid when lots are put together."
Real estate accounts for about 20% of the corporate portfolio of Raiffeisen. The bank's assets went up to 4.4 billion euros last year, after corporate loans amounted to 1.7 billion euros, an increase of 33% on 2006. Part of the funding was granted from Vienna.
"Vienna has limited means because the country's exposure limit may be reached. Parent banks have become generally stricter about accepting risks. Our minimal mandatory reserves render us unable to fight the funding granted by foreign banks directly from abroad." As the former vice-president of Bancorex, senior vice-president of Creditanstalt Investment Bank, vice-president of ABN Amro Bank Romania and of Banca Agricola, Burduja believes there are some banks on the market that are too exposed to certain areas.
"Loans that are completely unbankable are welcomed with open arms on the balance sheets of some banks, with predictable results."
Burduja warns that, given the current financial circumstances, banks have come to operate "under extremely adverse conditions that give more reasons to worry than in the past years."
"Prices for financial resources have increased a great deal, and banks are now more careful about costs and place a much stronger emphasis on risk processing when granting loans.
In the case of Raiffeisen, which already applies Basel II, risk costs are capital when granting a loan." He says that the cost of a loan in euros for companies has increased by 1.5% compared with last year on average: "It's already very high."
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