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Real estate market in a deadlock
Iurie Gotisan, September 12, 2005
Since 2001 the prices on real estate surged 3.5 times. For instance one bedroom apartment was worth an average $5,500 USD back in 2001, while now it goes for no less than 17,000 USD. Even if the real estate market has registered stagnation after a boom in the recent years, experts reckon a 15-20% price hike on real estate is inevitable by the end of the year.
It's hard to trace the trends on real estate market in Moldova. In Chisinau, for instance, prices on different types of estate in different districts should be available in the statistics released by the notaries. Albeit they levy huge fees on real estate transactions, notaries declare meager fees and no law has so far made them release clear data on the real estate price. The only reliable indicator in use is the "call" price, that is, the price the real estate agency or a seller asks for.
Sluggish period was registered on real estate transactions, and this largely due to skyrocketed prices. Albeit the current supply meets the demand by over 50%, the prices remain high. On top of that, the demand is low due to lack of funding. The prices shot up enormously, while great many of those who would opt for mortgage, cannot apply for it in banks as their income does not qualify. Moreover, there are some psychological factors that shape the market, namely speculators.
At the same time the last three years saw a boom in construction, which partly explains the surged demand for apartments. On the other hand, the high interest rates set by banks for mortgage stymie even further the stagnating market. What slows down the market is the high prices called by the sellers, encouraged by real-estate agencies earning heavy money on those transactions, prices that are far beyond what the potential buyers could afford.
A solution to revive the market is to boost construction of new apartment blocs. However, the move raises some problems as well, as the land prices are surging. Therefore, it is no longer profitable to build houses, as the costs exceed by far the prices dictated by the markets. On the other hand, the high prices on land make the construction of apartment blocks profitable.
Still, the real estate boom hit hard the poor and young families that cannot afford a house. Mortgage might be a solution, promoted by efficient housing policies, however this market is not yet fully-fledged in Moldova. For now, the only problem with the mortgages is the limited offer of new apartments, which are rather expensive.
On top of that, people are wary when in comes to blocks under construction. There are offers for apartments worth 25,000 Euro. You first sign a pre-contract for that amount, mind you the price is only a tentative one, when the construction is over you'll have to take more money out of your pockets than initially planned.
Local banks may want to be more active in providing mortgage credits at an interest rate no higher than 10% for at least 25 years. As the banks have huge amounts in their coffers, such a move might boost construction of new housing. Yet another solution is for the state to subsidize a part of the interest rate, quite luring for those wishing to buy housing. Such schemes are very popular in Europe. Furthermore, European Bank for Reconstruction and Development opened quiet cheap credit lines for several local commercial banks, funds that they might want to use for financing construction of new housing.