I am wondering what to do about my Citadella Unit in Romania which completes May-June next year.

Does anyone have the slightest idea whether they have gone up or down in value since the start?

What worries me is that I would be buying at a terrible exchange rate and it wouldn't take too much of a swing to wipe quite a chunk out of the investment after I pay up.

I am wondering if the prices are so bad at the moment that it makes sense to default on the final payment even though it's 25% +non-refundable finders fee. For example if the price is down 15% then the currency changes could easily wipe out the other 10% or more over the next year.

Getting a EURO mortgage seems impossible for me so that option is out.

What do people thing would be better, to default on the final payment or immediately sell?

I think many of us are having to contemplate this situation in Romania.

Having done some calculations on my Brasov unit, the costs of buying/selling make any significant reduction in asking price worse than defaulting.

So far I haven't been able to obtain a mortgage. And even if I were to get one at possibly as bad as 60% LTV, then this, with the 30% extra deposit + current exchange rate + kitchens+ fees + negative cashflow makes it look better to default.

Some possible good news is I saw an article saying due to credit crisis and effects on real estate prices the NBR National Bank of Romania might be reviewing the credit norms in January 2009.
This might be too little too late for many.

There's a contrarian or perhaps just marketing view here : http: / /www .nineoclock .ro /index .php?page=detalii &categorie=business &id=20081204 -513966

And in another English language publication an observation on National Bank policy: http: / /www .standard .ro /articol _71722 /bnr _is _3 _6 _months _behind _the _real _economy .html

The construction industry has been a big part of Romania's economic growth so it seems strange that the National Bank is now stiffling it. Liquidity is becoming a problem in this country. Whilst the National Bank is quite right to make rules that ensure people can afford what they borrow they should not kill the goose that laid the golden egg.

Talking with a Dutch investor today (who coincidentally had an association with establishing ING in Romania) we concluded that the sooner Romanian law allowed foreigners to own land as individuals the better and that lending rules must be relaxed when secured against land and property.

Defaulting and panic selling is not the answer. Property is a long term investment - we all know that and we know that prices can go up and down. There is the question of affordability by the local population...and there was over recent years too much speculation particularly in Bucharest from foreign investors but the fundamentals in this country over the medium and long term are better than in most.

So my advice is to minimise your costs and maximise your income...sheet down the sails and ride the storm. Predicted quick profits are out of the question...but if you are in a city location rental income remains good.

All the best,

Charles

Charles, who says you can't own land in Romania on your personal name being a (EU) citizen ?

Dave - I have invested in Citadella so in the same boat as you and wondering the same thing myself. If I complete I will pay cash down but I did always plan for this since I thought the mortgage rates in Romania are prohibitive once I took the monthly charges and admin fees into account.

I bought into Bucharest because there was meant to be such a low mortgage penetration in the market which suggested to me that a credit crunch should have very little impact, and also that once mortgages became more freely available I expected there would be significant uplift. I don't really understand how lack of mortgage availability should be affecting the market if it was not built up on mortgage availability in the first place. I guess this is more of short term froth coming off the Bucharest market.

My other concern about Bucharest has been the oversupply issue. PS have said regularly in the last year and a half that there is a huge ongoing undersupply situation. But then I hear recently that there is actually huge oversupply. I don't understand this. Have I missed something, or did PS look back on the supply side instead of looking forward towards projected supply?

Dave - I think the answer for Citadella depends on the quality of the location of Citadella as well as quality of build. If it is a good development then better to stick with it, but I am not 100% sure of the quality of Citadella. I will certainly visit before completion. Should have visited before signing contract

Clearly a lot of PS investors are looking for some in depth analysis from PS on what the outlook is for Romania properties purchased through PS.

As I understand it there are 5 and 7 year suspensions on the provision in the EU Treaty depending on the nature of the buyer/land...http: / /www .iflr .com /Article /1984021 /Romania -A -hot -market .html In any case its a complex question.

Charles

Charles,

We can secure landownership for EU citizens before 01.01.2012 (the "5 year term") (as the 7 year term applies to agricultural land). In the end it does depend a little bit on the landbook registry, but this is something a notary takes care off (without any aditional charges)

We as Easy Credit have successfully had clients from the UK/Irland/The Netherlands etc obtaining mortgages in the past whereas the exclusive ownership of land was registred in the landbook ("Cadastru") in favour if these particular clients. Furthermore the notaries, the land registry and the banks (who put the mortgage on the land and the subsequent dwelling) all agreed on our interpretation of a particular law aplicable in this case for EU citizens to own land prior to 01.01.2012.

Stefan

PS: we even managed ownership title over land held in exclusivity for a US client of ours (which shouldn't have been allowed, but was registred anyhow in the landbook .......................... without us or the client paying "spaga" (bribes) .... !)

Interesting! As far as I know Cluj notaries and lawyers dont share your view. That wouldnt be the first time that there is a different interpretation of the law according to region!

Perhaps you could let me know which 'particular law' you are refering to? Should we/PS run it past JBA or have they already been involved in some of the transactions to which you refer? I would certainly like the opportunity to run it past my lawyer and notary.

All the best

Charles