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Some notes for a Round Table discussion (rather than a full presentation) at the 4th Romania Country Risk 2007 organised by Coface Romania.
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Romanian mortgages
www.creditlink.ro | [email protected]
ROMANIAN REAL ESTATE MARKET – OVERHEATING?
SELECTED NOTES
MARTIN STOBBS
4th Romania Country Risk 2007
3 October 2007
Romanian mortgages
www.creditlink.ro | [email protected]
ABOUT CREDITLINK
• Romania’s leading mortgage broker • Founded 2005• 13 lenders in portfolio• Martin Stobbs – 11 years in Romania (finance)• 90% loans for consumers but increasingly finance and
investment advice for real estate investors, both Romanian and foreign
• www.creditimobiliar.ro (since 2003)• www.rez.ro (since 2007)
Romanian mortgages
www.creditlink.ro | [email protected]
CEE Capital city price ranges – new residential
more mature market
Romanian mortgages
www.creditlink.ro | [email protected]
DRIVERS FOR INCREASED REAL ESTATE DEMAND/ MORTGAGE GROWTH
• Norme relaxate – lending norms for credits ‘relaxed’• Salary growth • Low levels of new construction until now - first large
residential developments being delivered 6/2007-6/2008 (Quadra Place, Central Park etc)
• 114 000 new homes in larger projects already announced (www.rez.ro) - delivery 2007 onwards
• Catalytic effect of real estate transactions• 2 million Romanians working in EU – 1% of these
buying an apartment in Romania means 20000 sales• Competition & aggressive lending between Romanian
banks, market entry of other EU banks?
Romanian mortgages
www.creditlink.ro | [email protected]
IMPROVED MORTGAGE PRODUCTS
• ‘Norme relaxate’ introduced Summer 2007• LTV typically 75% (now up to 100%)• Monthly installment/income 35% (now up to
70%) • All mortgage loans are full documentation - long
process• No streamlined procedures (self cert. etc)
Romanian mortgages
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How much can I borrow?Mortgage loan capacity evolution
2005 (EUR)
2007EUR loan
+grace period
2007 CHF loan
+grace period
Ave net salary RON (approx) 740 1 000 1 000
3 x average net salary (RON) 2 220 3 000 3 000
Max borrowing (EURO) for 3 x average salary 35 500 95 000 130 000
Multiple 57 105 140A couple earning combined income equal to 3 x average salary ie 150% of average each
Romanian mortgages
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Salary indices – construction and average
Source: Eurostat via demography.matters.blog
Romanian mortgages
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Salary indices – why increasing?
• Wage price inflation?• More employees being paid “white”?• Greater proportion of salary being paid “white”?• partially been driven by demand for access to
credit – requirement to have declarable income in order to borrow
Romanian mortgages
www.creditlink.ro | [email protected]
Dwellings completed each year
5 000
10 000
15 000
20 000
25 000
30 000
35 000
40 000
45 000
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
BASELINE – 98% individual homes – self financedBUT NOW:AN ADDITIONAL 15 000 – 20 000 per year of homes in new developments on top of baseline
Romanian mortgages
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Estimated new home construction?
10 000
20 000
30 000
40 000
50 000
60 000
70 000
80 000
90 000
2007 2008 2009 2010
Not announced
Estimated omitted
Non-buc projects
Buc projects
Baseline - single homes
Romanian mortgages
www.creditlink.ro | [email protected]
Dwellings under construction, by stage, June 2006, June 2007
Romanian mortgages
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VOLATILITY OF MORTGAGE REPAYMENTS (1)
EURO100 000 mortgage loan tracker rate in EUROMonthly payment equivalent in RON(starting at RON/EURO 3.3 and initial interest rate of 7%)
Initial EURIBOR+100Bps RON/EURO 3.5 COMBINED
2 195 2 421 2 329 2 568
INCREASE OF 10.3% 6.1% 17.0%
Romanian mortgages
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VOLATILITY OF MORTGAGE REPAYMENTS (2)EXTREME CASE
EURO100 000 mortgage loan tracker rate in EUROMonthly payment equivalent in RON(starting at RON/EURO 3.3 and initial interest rate of 7%)
Initial EURIBOR+200Bps RON/EURO 3.8 COMBINED
2 195 2 655 2 528 3 058
INCREASE OF 20.9% 15.2% 39.3%*
* Repayment/net income ratio in range 40-70%Note: 139% of 40% is 56%, 139% of 70% is 97%
Romanian mortgages
www.creditlink.ro | [email protected]
REAL ESTATE - OVERHEATING?…
• Heating? Yes, Overheating? Hmmm…• Will it get ‘hotter’? yes• Hard landing or soft landing? • Where is the value? in the DETAIL…MICRO not
MACRO analysis for investment decisions• Look at fundamentals – location, price/quality,
location• For your mortgage - set aside a medium term
‘fluctuation’ reserve
