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Page 1 BR Business Review Focus on the real estate market 21.11.2012 Page 2 QUESTION to be ANSWERED.. Adapting to a new reality – how will future projects differ from the ones built during the construction boom and how attractive is it to invest in Romania at present? Building investment markets, securing fundamentals and financing. 2 Page 3 TABLE of CONTENTS I. Major projects in the pipeline (Bucharest/main cities) II. Latest projects announced III. List of active developers IV. Macroeconomic indicators V. What does the equation miss? VI. Actual needs/demand VII. Securing financing VIII. Building investment markets 3 Page 4 Major Projects in the pipeline (Bucharest/Major cities) -SkyTower -Floreasca Park -Green Gate -Hermes Business Campus -AFI Business Park II -Promenada Mall -Vulcan Retail Park -Cora Alexandriei -Kaufland Mihai Bravu -Auchan Giulesti -Vitan Mall & Romania Mall; extensions -Carrefour Galleria Mall Brasov -City Business Centre Timisoara 5 4 Page 5 Latest projects announced -Green Court -The Mark (S Immo) -Nusco Tower II -Skoda Tower Aurel Vlaicu; provisional name -Anchor Group Office Building II; provisional name -Tricotaje Office Building Cluj-Napoca; provisional name -Frigocom Residential (98 apt) -Edenia Residential III (126 apt) -Optima Residential II (86 apt) 5 Page 6 List active developers - NEPI; office/retail - Portland Trust; office - IMMOFINANZ/ ADAMA; residential - AFI; retail/office - ALINSO; industrial - HELIOS Phoenix; industrial - RAIFFEISEN EVOLUTION; office/retail - WDP DEVELOPMENT RO SRL; industrial - ANCHOR GROUP SA; retail/office 6 Page 7 Macroeconomic indicators Romania Real GDP (annual percentage change) Consumer Prices (annual averages percentage change) Consumer Prices (end of period) Account Balance (percent of GDP) Unemployment rate Average 1994-2003 2004 2005 2006 2007 2008 2009 2010 2011 2012f 2013f 2017f 2.1 8.5 4.2 7.9 6.3 7.3 -6.6 -1.6 2.5 0.9 2.5 3.5 53.2 - 11.9 - 9.0 - 6.6 - 4.8 - 7.8 - 5.6 - 6.1 - 5.8 3.1 2.9 3.6 3.2 3.2 2.6 - - -8.4 - -8.6 - 10.4 - 13.4 - 11.6 - -4.2 - -4.5 - -4.4 7.4 -3.7 7.2 -3.8 7.0 -4.4 - Source: IMF report – October 2012 7 Page 8 What does the equation miss? Reverse thinking, creating investment markets, based on: - Actual needs/demand - Financing criteria 8 Page 9 Actual needs/demand Changing character of the market -Focus cities (ex: Ploiesti is the only secondary with 2 malls under construction) -Focus particular segments -Agriculture grows popular - IMF supports drop of VAT to 9% (for basic food products) - Romanians have to support this consumption patterns -Retail -vacancy drops; seasonality (Christmas) -1 shop every 2 days: Mega Image, Kaufland, Cora, Auchan, Hornbach - Textile business (efforts to be preserved) -Focus large scale projects -Photovoltaic park in Mehedinti (12MW, serves 5,000 domestic users) -Nuclear stations 3 & 4 to start construction in Cernavoda; state guarantees asked -Siret/Baragan canal (real estate developments, transport, flood preservation) has caught the eye of private investors -Distress market start to appear (willing buyer/willing seller) -Market in Euro (real estate, cars, bills for telephony) 9 Page 10 Securing Financing -41 banks in Romania -17% bad loans average - up to 25% for large Banks -Banks facing: -BNR push to take more provisions/losses (reflects financing) -Carrying costs on portfolios: financing, expenses, administrative expenses, cleansing cost, loss of value -Battling Fraud -Companies enter into insolvency fraudulently - Bodies of the state supportive (courts in favor of end buyers etc) - Internal (employees) -Banks willing to: -Stimulate consumption patterns -Automatic branches network -Preferential terms for loans for good payers (Bancpost/RBS) -Grant financing 10 Page 11 Building investment markets Chain reaction: Economy -> Banks -> Investments in real estate in a STABLE environment -Less elaboration and more focus on what needs to be done to improve the economic environment -Ensure a predictable economic/investment environment -Develop sector based strategies -Adapt rules that are universally applied -Majority of the loans in RON, decreasing trend, BUT: -Effort to maintain reference interest rate 5,25% (adjustment of reference indices establishing the cost of loans) -Effort to join the Eurozone in 2015 -Legislative elections not anticipated to drive much change -Absorb European Funding (crucial for Banks), positive influence on: -Exchange rate -Smooth reimbursement of loans 11