Romanian Real Estate Market Overview
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20 20 Romanian real estate market overview 10 Contents Trends for2021 As we head into 2021, we set out our 01 Macroeconomic analysis thoughts on ten issues that have the UniCredit Bank Research Study potential to profoundly influence our 02 Romanian investment market world and the role of real estate within it. Avison Young 03 Real estate tax implications PwC 04 Bucharest office market Avison Young 05 The Romanian art market in 2020 Artmark 06 Romanian industrial market Avison Young 07 Romanian residential market Avison Young 08 About us Avison Young Real estate market overview Real Avison Young Avison 20 20 20 Romanian real estate market overview 20 4 5 01 Looking for normality UniCredit Bank Research INDICATOR ‘18 ‘19 ‘20E ‘21F ‘22F GDP (€ bn) 204.5 223.3 212.5 225.8 242.6 Population (million) 19.5 19.4 19.3 19.2 19.2 GDP per capita (€) 10,470 11,504 10,998 11,736 12,645 REAL ECONOMY, CHANGE (%) GDP 4.5 4.2 -5.5 3.7 5.0 Exports 5.3 4.0 -11.5 4.9 7.9 Imports 8.6 6.5 -6.5 5.2 6.6 Monthly wage, nominal (EUR) 965 1,069 1,114 1,161 1,209 Real wage, change (%) 29.7 8.9 3.4 3.4 3.6 Unemployment rate (%) 4.2 3.9 5.1 5.6 5.3 FISCAL ACCOUNTS (% OF GDP) Budget balance -2.9 -4.3 -9.8 -7.0 -4.0 Public debt 34.7 35.3 46.8 49.4 49.9 EXTERNAL ACCOUNTS Net FDI (% of GDP) 2.4 2.2 1.0 1.3 1.3 INFLATION/MONETARY/FX CPI (period average) 4.6 3.8 2.7 2.8 2.6 Real estate market overview Real Central bank reference rate (end of period) 2.50 2.50 1.50 1.00 1.00 3M money market rate (December average) 3.05 3.12 2.04 1.29 1.24 USDRON (period average) 3.94 4.24 4.24 3.96 3.87 EURRON (period average) 4.65 4.75 4.84 4.93 5.03 Avison Young Avison Macroeconomic Data Source: Eurostat, NSI, NBR, Ministry of Public Finance, UniCredit Research The information contained in this report represents UniCredit Group’s view upon Romania, as it was 20 included in the CEE Quarterly report, distributed in January 2021, and is subject to the disclaimer therein, 20 analysis including https://www.unicreditresearch.eu/index.php?id=disclaimer. 6 More restrictions likely if ICU usage remains high ICU bed usage (% of available ICU beds) RO BG CZ HU SI 01 Outlook 90 70 50 We expect the Romanian economy to return to pre-COVID levels by 1H22, with GDP growth 30 at around 3.7% in 2021 and 5.0% in 2022 after 10 a decline of around 5.5% in 2020. Private Pandemic consumption will recover from 2Q21 onwards if Aug’ 20 Sep’ 20 Oct’ 20 Dec’ 20 unemployment peaks in 1Q21. Investment will containment & be dominated by infrastructure spending, helped by higher inflows from the EU that are likely to economic Public debt could peak close to 50% of GDP in 2022 cover the C/A deficit. We expect a decrease of recovery are % of GDP the budget deficit to around 7% of GDP in 2021 0 55 and 4% of GDP in 2022, with public debt peaking top priority 50 below 50% of GDP in 2022 and the country -2 45 preserving its investment grade. EUR-RON could 40 shift to a 4.90-5.00 range in 2021. -4 35 30 -6 25 20 Top priorities -8 15 The top priorities of the new government to peak above 6% in 2021, with a second 10 are the containment of the pandemic and wave of layoffs likely in 1Q21. This could Source: -10 5 Oxford University, economic recovery. More testing and better delay the recovery in consumption to 2Q21. 2019 2020E 2021F 2022F Governments, contact-tracing are needed to lower the Nevertheless, pent-up consumer demand Ministry of Finance, Budget balance Primary balance Public debt (rs) NSI, UniCredit Research pressure on intensive care units (ICU) and remains strong, as shown by borrowing allow for the easing of restrictions. Vaccines intentions measured by banks. Thus, private are unlikely to provide a fast way out due consumption could recover to pre-crisis to lack of capacities and personnel, and levels by 4Q21. High leverage could limit Investment mistrust among the population. To support the scope for further guaranteed lending Another priority of the government is 2020 to around 7% of GDP in 2021, with Real estate market overview Real immunization, official communication to SMEs, which reached 1.7% of GDP, investment. Judging by 2020 performance, a a further reduction to around 4% of GDP must improve. with long-delayed grants likely to have a rise in infrastructure spending co-financed in 2022. Risks are skewed to lower, rather In 2021, direct and indirect anti-crisis bigger impact. In contrast, companies with with EU funds is very likely. Delayed EU than higher budget deficits in 2021-22 if the support could fall to 3.1% of GDP from turnover of more than RON 20mn could transfers from the 2014-20 EU budget and economy recovers faster. As a result, public Avison Young Avison around 5.7% of GDP in 2020. Despite benefit from the government’s guarantee grants from the NGEU, expected to arrive debt could peak just below 50% of GDP in furlough and part-time support being scheme of almost 0.4% of GDP. from 2H21 onwards, will spur economic 2022, falling thereafter and remaining below maintained, we expect unemployment growth while being neutral for the budget the BBB median. Thus, we expect the rating 20 deficit. The government’s shortfall is likely agencies to keep Romania’s sovereign rating 20 to shrink from around 9.8% of GDP in at investment grade. 8 Inflation Infrastructure In 2021, the biggest inflationary risk will come from the liberalization of the electricity market. In EUR-RON to spending to March, retail prices could increase by around 15% for legacy contracts, if consumers do not switch. move to 4.90- benefit from An increase of at least 10% could push inflation higher inflows temporarily outside the target range. 5.00 range from the EU FDI stock in Romania lagging and falling recently FDI stock (’000 €/capita) Economic growth 35 We expect economic growth at 3.7% GDP growth in 2021 and 5.0% in 2022 after a contraction of 5.5% in 2020, with a 25 Romania return to pre-COVID GDP levels by 3.7% 5.0% Czechia 1H22. A quicker recovery may be 15 delayed by weakness in exports and 2021 2022 Hungary manufacturing, the negative fiscal impulse in 2021, and little contribution 5 from credit growth, despite easier Jun’ 08 Jun’ 10 Jun’ 12 Jun’ 14 Jun’ 16 Jun’ 18 Jun’ 20 financial conditions. This is especially Monetary policy true for corporate investment loans, Short-term interest rates could fall as capex is likely to lag behind the below 1.50% if the NBR cuts the policy Public investment could rise amid higher EU funds economic recovery. The outperformer rate to 1% and the spread between Public investment could be mortgage loans, as housing ROBOR rates and the policy rate % of GDP prices have adjusted little during the narrows from around 0.35pp currently. 8 COVID-19 crisis, affordability ratios Tighter fiscal policy and inflation inside have remained high, and the Noua the target range could support loose 6 Casă guarantee program supports a monetary conditions in 2021-22. As Capital expenditure wide range of new buyers by having a happens every year, the NBR could 4 very high ceiling at EUR 140,000. let the market shift the EUR-RON EU funded projects range higher around the February 2 policy rate meeting to reduce some of Real estate market overview Real the currency’s overvaluation. A new 0 range of EUR-RON 4.90-5.00 could 2019 2020E 2021F 2022F be defended at both ends to ensure Source: Eurostat, NSI, Ministry of Finance, UniCredit Research ROBOR exchange rate stability. We see no Avison Young Avison threat to FX reserves, as EU transfers rates could and loans, and FDI are able to cover Dan Bucșa Anca Maria Negrescu Florin Andrei the C/A deficit, while net ROMANI Chief CEE Economist Senior Economist Senior Economist UniCredit Bank AG, London UniCredit Bank UniCredit Bank fall below 1.5% issuance will remain positive. 20 +44 207 826 7954 +40 (0)21 200 1377 +40 (0)21 200 1355 20 [email protected] [email protected] [email protected] 10 11 02 Real estate market overview Real estate market overview Real Avison Young Avison Real estate Young Avison 20 20 20 investment market 20 12 13 2020 Key highlights Romanian investment market Largest office investment deal ever recoded Total €307 million investment volume AFI Group acquisition €826 million of NEPI’s office portfolio Most traded New entry on the type of property office investment market Office Fosun International buildings Most active location Average 7.25% for real estate transactions 7.75% investment deal size +0.25pps Bucharest Prospects €46 million 2020Prime office yields vs. 2019 (84% of investment volume) Prime industrial yields of compression 19% higher y-o-y 14 15 investment deals representing a share of only 4% of the investment value recorded in 2020. When analyzing the investment volume tracked over the last ten years, out of 7.7 billion euros recorded, transactions with office assets have a share of approx.