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Analiza pieței imobiliare (Anual)

HOUSING

Situation at the secondary market

The first half of the year under review was marked with evident stagnation at the housing market. The market players were practicing mainly the ‘wait-and-see’ approach; there appeared certain forecasts of a decline in prices due to the negative impact of the lengthy summer drought on the economy and the uncertain situation in the wine industry. However the real estate market has demonstrated again during the second half of the year 2007 that it is much more dependent on cash inflows from the Moldovan citizens working in other countries (such inflows grew 40% in 2007) than on the actual situation in Moldova’s economy. A certain growth in demand and the increasing market activity were registered during the second half of the year.

 

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As result, housing prices grew 10-20% depending on the apartment type and area. However, speaking of real estate prices in Chisinau (the capital city of Moldova), it should be remembered that all market transactions were settled in EUR beginning in 2007, and therefore all analytical data regarding real estate prices during the preceding years is not valid any longer as US dollar was the transaction currency in those years.
The highest price growth rate for the period was registered for small-sized apartments, such as studios and 1 bedroom apartment. The average price for studios with a modern layout was EUR 25-30 thousand, i.e. on the average EUR 800 per square meter of the total area; the price for 1-bedroom apartments was about EUR 35-40 thousand, i.e. EUR 750 per square meter; the price for 2-bedroom apartments made EUR 45-50 thousand, i.e. EUR 700 per square meter.

 

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Studios and small sized apartments with a separate sanitary block and a shared kitchen account for above 20% of the total sales; 1-bedroom apartments for above 60% and 2-bedroom apartments for 10%.

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Prices charged for privatized rooms in hostels and small sized apartments with a shared kitchen are high due to limited offer. Thus, a small sized apartment without certain amenities and with a shared kitchen is priced at about EUR 15 thousand; the price of a room without a sanitary block in a hostel amounts to EUR 8-12 thousand. The above housing types are in high demand with university students, people moving to Chisinau from rural areas, and young families.

Situation at the primary market

The offer is growing at the primary market of housing in Chisinau; however, new housing is selling slower than the developers want it to. The 2007 GDP grew 27.1% in construction segment; it is the highest growth rate registered in the Moldovan economy. One square meter of housing is priced at EUR 500-1300 at the primary market. The recent years registered the trend to decrease the area of individual apartments in housing under construction. Although the building companies say that price per square meter is much higher at the secondary market in comparison to the primary market prices, people are buying an apartment as such rather than a certain number of square meters of housing. As result, prices for apartments in new houses are normally much higher than the result of a plain arithmetic calculation - even if we do not take into account the costs of final finishing, refurbishments and minor adjustments. Customer preferences are split approximately evenly between the primary and the secondary market. The primary market attracts the customer with the possibility of hire-purchase (which is more affordable for most of the customers) combined with new engineering lines and modern layouts. However, the number of claims is growing in respect of the construction quality and delays in commissioning. The legal environment does not ensure adequate protection for the Investor (the term normally used in real estate purchase contracts to denote the acquiring party). Should any situation arise which is not expressly covered in the contract, the customer has no one to support him in his dispute/conflict with the construction company. Although no obvious fraud cases were registered at the housing construction market, the fact does not guarantee their absence in the future. A law similar to the Russian law on shareholdings in construction is not even under development in Moldova. The legal framework became more severe to the construction companies this year. A ban was imposed first on the use of foam plastic as heat insulation material in housing construction in view of multiple cases of incompliance with the statutory technology requirements; then it was banned to transfer new apartments to their owners as “white-finished semis” (i.e. connected to all engineering lines, with double-glazed windows, an installed autonomous heating system and almost complete finishing). Furthermore, it was banned to perform construction and design works in parallel, and the VAT rate applicable to construction companies was equaled to the standard VAT rate beginning in 2008. The above changes - combined with the steadily growing labor costs and construction material and energy prices – will result in higher construction costs, but the construction companies would have a problem to sell housing at higher prices.

General conclusions regarding the dynamics of the housing market in Chisinau in whole
(i.e. the primary as well as the secondary market) during 2007:

1.Although 2007 was a difficult year for the Moldovan economy, the housing market was stable. Housing remains the only secure investment target available and affordable to Moldovan citizens working abroad.

2. There are no reasons to decrease prices. The steadily growing inflow of funds in Moldova influences directly the housing demand levels, and the inflation rates are rather high.

The housing price growth forecasted for 2008 is 15-20%.

Land

There is a deficit of land in the capital city. It is true for land for construction of family houses as well as for sites which can be used for commercial development projects. The price of 100 square meters of land for housing construction with location in Valea Morilor park zone (formerly called the Komsomol Lake recreation area) or between Neaga street and Belinsky street is at least EUR 30 thousand. The above two are the most prestigious locations for family houses. Prices for land under family houses in some other areas are as follows: Sculeni zone – EUR 10 thousand; Buiucani zone – EUR 10-15 thousand; Schinoasa zone – EUR 5-10 thousand; the agricultural university zone – EUR 6-8 thousand; Lower Botanica zone – EUR 10 thousand for 100 square meters. 100 square meters of land would be priced at EUR 50 to 100 thousand in the historical downtown zone, and locations in certain streets close to the city’s main street – Stefan cel Mare Boulevard – can fetch up to EUR 150 thousand for 100 square meters.

The high prices of land in the city resulted in the growing demand for land in suburban areas and summerhouse cooperatives. Thus, 100 square meters of land in settlements and summerhouse cooperatives close to Chisinau would be priced at EUR 2-3 thousand provided all engineering lines are in place.

Prices for land which can be used for a commercial development project are in the range of EUR 50 thousand for 100 hundred meters. Customers are prepared to pay a premium of 15-20% on a small site of 100 to 300 square meters, which can be used for the construction of a community infrastructure facility. Land for industrial construction projects, which is located in the area of Muncesti, Uzinelor or Petricani streets, would be priced at EUR 10-15 thousand for 100 square meters. Large areas of agricultural land located close to Chisinau have been already acquired by diverse companies; however, the current very bureaucratic and costly procedures, which should be performed to have the land status changed in the national land register, prevent its use for industrial construction projects. The simplified procedures would give an additional impetus for the development of the city.

General conclusions regarding the land market in Chisinau (covering land for construction of family houses as well as land for commercial construction projects) in 2007:

Land prices grew generally by at least 50% during the last year. Their growth will continue in the coming year due to the limited offer of land for development, and the existing high demand. The trend will be reversed only after the urban territory of Chisinau is formally expanded and the procedures are simplified for changing the status of agricultural land to that of land allowed for use under industrial construction projects.

Lease

The current volumes of real estate lease are not so high, as the volumes of property sale and purchase transactions. Quite often the owner of real estate (and in particular housing) prefers to pay the maintenance costs rather than let the property – notwithstanding the high demand for apartments on the part of potential tenants. The rental income from an average apartment is equivalent to the interest income at 5% p.a. Many apartment owners consider this income yield very low in view of multiple complications and problems, frequently associated with having tenants (such as delays in payments of rent, damage to furniture and household equipment, complaints and claims from neighbors, etc.).

The average monthly rent payable for a studio is EUR 100; 1-bedroom apartment – EUR 150; 2-bedroom apartment - EUR 200. The figures were similar one year ago albeit payable in USD rather than EUR. Thus we can conclude that the rent has actually grown by 40-45%.

The tax burden on landlords has been increased beginning in 2008. The tax payable on lease of real estate is 5% of the contract value where premises are let to an individual and 15% where the tenant is an entity. The rent contract must be registered with the local fiscal office where the tax payer is registered.

Rent payable on office premises is EUR 10-20 per square meter in a month depending on the location of premises and available amenities, furniture and equipment.

Rent of commercial areas is EUR 15-30 per square meter in a month. However it can be as high as EUR 50 in major shopping malls or in shops with a very good location in key streets and avenues, such as Stefan cel Mare boulevard, Moscow Avenue, or Dacia avenue.

Production premises can be leased for EUR 1-3 per square meter depending on the available engineering lines and road approaches; rent payable on warehouses is EUR 3-5 per square meter in a month.

General conclusions regarding leasehold property in Chisinau in 2007:

The repayment period of investments in property, which is subsequently leased to tenants, is about 20 years for housing, 8-10 years for industrial premises and warehouses, and 5 years for commercial areas.

The long repayment period of investments in housing is due to the fact that apartments are purchased for the money earned by the Moldovan citizens working abroad whereas the tenants are individuals working in Moldova, whose incomes are relatively low, and therefore they are unable to pay higher rent. The forecasted rent growth will be 15-20%.

Commercial Property:

 

The average growth of prices for commercial property was 20% during 2007. The average market value of 1 square meter of industrial premises and warehouses grew by 20% and reached EUR 200-220 depending on the available engineering lines. Office premises grew by 15% in value and their prices are currently round EUR 1000 per square meter. The high demand for commercial areas has resulted in growth of their market value which makes on the average up to EUR 1500 per square meter. The value of commercial areas is respectively higher in major shopping malls and shops with a good location in key streets and avenues, such as Dacia Avenue (reaching EUR 2-3 thousand). The value of commercial property in Moscow Avenue is even higher (up to EUR 3,500). The demand is currently higher than offer in the office premises and commercial area segments of the commercial real estate markets. Small office premises and commercial areas are in high demand - as well as major areas large enough for a supermarket. In many cases the construction of new large buildings is impossible due to the lack of available sites, so the reconstruction of the existing excessive industrial premises is a hot topic. As such premises have mostly very high ceilings and large spans between load-bearing columns, it is possible to reconstruct them quickly and cost-efficiently for multiple uses (a valid example is the two “Fourchette” Supermarkets in Sculeni and Riscani districts, which were opened in 2007).

General conclusions regarding commercial real estate in Chisinau in 2007:

The general price growth rates are higher for commercial areas and office premises than for industrial premises. In Moldova, major investment flows are directed currently mainly to commerce and personal service segments rather than industrial production. In view of growing land and real estate prices, new production facilities, if any, will be located mainly in province rather than in the capital city.

General conclusions

When we speak of the situation at the real estate market, we should remember that all the processes which take place there are determined by the demand and offer. The demand will grow because cash inflow in Moldova grows at a higher rate than offer of commodities and services. Offer is limited at the secondary market, and the growing construction costs will inevitably lead to decreased construction volumes at the primary market. In view of the above, our forecast is 15-20% growth in prices during 2008.

 

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