Hi all

This is the latest update we have from Romania. Good news for those of you invested there.

Deborah,

please clarify Euribor 3M for me.

A quick search shows a current rate of 4.47%.

Add on the 3.96% and we have a rate of 8.43%

Is this really the rate that investors (like me) will be paying after the fixed rate period?

yes, this the correct rate.

Please keep in mind that taking into consideration also the following facts:

- Romanian banks have a different type of "cost of funding" therefore you can not easily compare
a Romanian mortgage offer with what you might find in the UK. I understand that from an investor's
point of view the rates should be as low as possible, but the current financial climate is not favourable
in many countries (and not only in Romania)

- also, 95% of Romanian banks do not offer non-resident mortgages therefore we are happy to have a
bank that does want to finance non-residents!

- the variable rate we quoted is on average between 3%-5% cheaper than what other Romanian banks are
offering at the moment (!)

- Therefore a EURIBOR 3M + 3,9% is extremely reasonable during these times where cost of funding
has affected the marjority of Romanian banks ...

furthermore

- approvals in principal are given in 3-5 working days (!) based on documentation provided in PDF
and without translations into Romania (same procedure as we had before)

- a 24 month interest only period is optional (no offer like this is available on the Romanian market)

- no monthly or yearly hidden comission (like Volksbank)


I hope everyone understands that the rates we quoted are very favourable during these times when most Romanian banks have pulled the non-resident option or have even halted mortgage funding completely (as this is the case with Volksbank and Credit Europe Bank), but we have been able to get a new mortageg option being available to PS clients.

Stefan,

Are 90% LTV finance products definitely available at the moment, to non residents with suitable credit status ?

What is needed to kickstart the process of accessing one of these products ?

Have you changed your telephone contact no.s recently ? I have had difficulty getting hold of you.

Neale

I do not believe there are currently 90% LTV mortgages available in Romania!

I have been trying to get a mortgage in Romania for a while now. I can only describe this process as painful, one of disappointment and frustration. This has nothing to do with my financial situation and all to do with the current situation in Romania.

Yes, up to about 6 weeks ago there were several mortgage options available with a good LTV. All mortgages in Romania were suspended at the beginning of October to implement the new financial regulations. For a month or so there were no mortgages available in Romania.

I had financially approved mortgages available at 2 Romanian banks. These mortgages were however suspended at the beginning of October, because the banks have not finally signed-off of the mortgages before the suspension date. I had a financially approved mortgage (85% LTV) at Volksbank, but was told that the legal documents arrived 1-2 days too late.

On a more positive note, I expect banks to start offering mortgages again as they roll-out the new regulations. I however think it is unlikely that these mortgages will be at a high LTV.

I am only aware of one bank that offer mortgages to non-residents (since last week. through Stefan). This bank however offers a maximum of 60% LTV mortgages. I have been in contact with several banks who offered mortgages to non-residents in the past. The current situation at these banks is:

-Volksbank tells me every week that they will start offering mortgages the following week. This date keeps moving out. An e-mail from them 2 days ago stated that mortgages for non-residents have been suspended for the rest of the year. Volksbank also have system problems at the moment (problems implementing the new regulations in the system). Although nobody is sure what mortgages will eventually emerge, Volksbank told me that it is likely that mortgages (for new build flats) will be restricted to 60% LTV.
-Bancpost was a key bank at offering mortgages for non-residents. Recent dealings with this bank have become painful. The valuations are very inconsistent, etc. They do not currently offer mortgages to non-residents.
-I have been in direct contact with the credit manager at Credit Europe bank. They can only offer mortgages if a Romanian resident with a good income co-sign the mortgage application (effectively saying that they do not offer mortgages to non-residents)

Investors that needs to complete now is in a very difficult position. I have to complete on my unit on 18 November. The developer told me that he will extend the time I have to complete on the unit by 3 months (if I increase my deposit from 25% to 42%). If not, I will loose my deposit.

Property in Romania will do well over the medium to long-term (If you keep the property for at least 5 years).

I however do believe that the property market in Romania is in for a rough ride in the short-term. Several sources in Romania told me that there is a severe slowdown (especially in the last 3-4 weeks). Developers that sold many units/month are currently selling one/month. I receive several e-mail offers of properties at 2006 prices. I see Bucharest flats that has been sold for 180 000 euro’s in 2007 now coming unto the market for 135 000 euro’s. I assume many of them are from other investors who are trying to minimise their losses. I have also heard of other investors who lost their deposits in the last month. I think investors that bought in 2007 or 2008 may end up with negative equity. I also think prices will fall further in the short term. Key reasons for this:
- The account deficit of Romania makes it vulnerable to the credit crunch.
- The high percentage of loans in non-Romanian currency (EURO & CHF). The Romanian currency has significantly weakened against the euro and the CHF. Yes, it is great that salaries are increasing in RON’s, property prices are increasing in RON’s, etc. If one look at the picture in euro terms, this does not look quite so rosy.
- Many investors are fleeing Romania at the moment, impacting price growth.
- Severe restrictions on mortgages. – Even Romanian residents are struggling to get mortgages.

The monthly rental yields and cash flow does not look good. This is due to:
-The high cost of mortgages (high initial cost and high interest rates)
-People earning salaries in Ron, but have to pay rent in Euro.
-Severe competition in developments where many investor flats become available at the same time.

Some developments are also suffering from poor quality as developers cut cost.

So what are the options going forward?

-Cash rich investors can pay up and keep the property for them medium to long-term (ride out the storm). I still believe the Romanian market will to well over the medium to long-term.

Other investors face a difficult choice:

-Losing your deposit. Yes, I find myself thinking the unthinkable. Do I really want to commit another 30 000 euro’s to flat which will likely have negative equity in the next 6 months as well as a negative monthly cashflow. The cost to buy and own property is incredibly high (my mortgage cost + legal cost + notary fees + transferring the land + furniture, etc. works out at 12 000 euro’s).

I see incredible deals are starting to come onto the market in several countries. Maybe I will be better off buying another flat with strong recovery potential at 50 000 below market value, instead of pushing this money into this Romanian flat. This way I can hopefully recover the losses.

-Or pay an arm & a leg to keep the flat in Romania

I am unsure which option to go for!!

I do accept that my experience may not be the same for other investors and that there may be marked differences depending on:
- When you bought a flat. People that bought during or before 2006 are in a better position.
- Where you bought. Prices are falling rapidly in Bucharest. I do not expect price falls to be as significant in 2nd & 3rd tier cities (but I still expect price falls across Romania)
- The specific development and specific deal with the developer
- The specific circumstances and investment strategy of the investor

Apologies for this negative assessment, but I have never experienced this much frustration in any property purchase before.

I'm hoping that the completion date for by Brasov unit will be put back 3 months to March 09, and hope that by then some other banks come back with mortgage products.

The frustrating thing about it all is that under normal circumstances I thought I'd made the correct judgement to invest...right time, right development, right location etc. But like everyone else (including governments, large corporations and banks), didnt foresee that banks would run out of money.

If all 20 investors in my small development were to default, I imagine the developer will be in serious trouble. And it would be sweet justice if he were to then default on those same banks that wont give us mortgages.

These are certainly unusual circumstances at the moment.

I wonder if the answer to obtaining high LTV finance, lies in being a bit creative.

Perhaps creating a Rumanian company or obtaining Rumanian resident status which I hear is very quick & easy in practice.

Can anyone from Property Secrets or Easy Credit advise their clients on this ?

Neale

Whilst it doesnt address non-residents there's a useful article at http: / /www .zf .ro /zf -english /new -lending -norms -loans -cut -in -half -many -people -no -longer -qualify -3506297/ which addresses how the new lending norms affect Romanians. Its all down to 'affordability' - a concept I debated at length earler in the year. There's some useful links on th right hand side of the page which you may also want to browse.

All the best,

Charles

If you create a Romanian company (for the sole reason to own the property) you can not get an individual mortgage on your own name to buy this property. By law a company can not guarantee with its assets for an individual (mortgage).

Therefore:

- a property owned by a company can be financed with a company loan
- a property individually owned, can be financed with an individual mortgage

Company mortgages are extremely hard to get (if not impossible) and are considered bridge loans with high interest rates. We (as Easy Credit) do not offer these type of loans.

Individual mortgages can still be obtained, according to the new conditions we have set out (60% LTV ; which could represent 75% loan to purchase). All depends on the final valuation of the property after completion to determine the exact mortgage amount based on the value.

A Romanian residence permit is not of great importance, al though it might look a little bit more favourable when applying for a Romanian mortgage. Only in case land is involved (held in exclusivety being: parking spaces or a garden), you might want to get the residence permit as this allows you in principal to hold the property title on your personal name (for EU citizens).The advantage is that if land is also held in your personal name the value of the land will be taken into calculation as well to determine the total value of the property.

Stefan

The Purchase Agreement for the Jucu Project was drawn up for individuals to purchase as a company . I don't remember being offered a choice as tp whether to purchase as an individual This obviously has serious implications for obtaining mortages. I intended to flip and didn't go the mortgage route but would obviously now be greatly worried with Easycredit's latest comment. Unfortunately PS do not allow enough time to research these matters before the deposit becomes due. An example of handing over deposits and fees to PS without being entirely sure of the product one is purchasing. I'm assuming that Jinga produced Contracts in 'bulk' so that individuals involved purchased as a company.

I'm also left without a choice now as being able to flip is unlikely and releasing funds through a mortgage is also highly improbable.