The issue of too high prices for Bucharest flats has gained importance since the beginning of this year, with US home prices proving to be overvalued due to the impact of the subprime market, which has generated an unprecedented financial crisis and brought the first price decreases in the case of Bucharest flats, on the old market segment.
"Three years ago, the cost of construction revolved around 500 euros/square metre, the land was 150 euros/ built square metre, while flat prices stood at 1,100-1,200 euros/ square metre, meaning a 70-80% profitability per project," says Andrei Sandu, general manager and sole shareholder of Media City real estate agency.
As regards the luxury housing market, the cost of land can go to and even top 650-700 euros/built square metre, while construction costs can go above 1,500 euros/square metre, while sales prices can reach 4,000 euros/square metre according to the data presented by real estate consultants.
In the case of new flats, the Bucharest Real Estate Index (BREI), compiled by Colliers International, shows prices have stalled since May at 1,909 euros/square metres amid the falling pace of sales.
A classical formula of consultants says medium flats can be built at a price of 650-750 euros/square metre, with the cost of land per built square metre standing at around 250-300 euros. Thus, at a sale price of 1,300-1,400 euros/built square metre, developers can derive a profit per project of around 30-40%, while the total development period can get to three years.
Until this year, developers that had bought the land with their own money could get complete construction financing from banks.
This year, amid soaring financing costs and tighter conditions for the granting of real estate investment loans, developers have started having difficulties in getting large financing.
The falling number of deals has also hurt real estate consultancies.
Most consultants and developers consider there is still substantial housing demand in Bucharest. Still, the thought that the respective housing unit could be 5 or 10% cheaper makes many potential buyers wait some more.
Surveys over price trend in the case of old flats have different results, but most of them have a common conclusion: prices have dropped due to the rising supply and will continue to go down.
Therefore, decisions to wait could be justified, but there are serious doubts with regard to the trend of new flat prices.
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