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Evolutions and stratagems on real estate market
Iurie Gotisan, May 16, 2007
The latest evolution of the real estate market and high prices of apartments and houses in Moldova make those willing to buy housing thinking. Prices of apartments (in particular in the capital) have grown very much in the last seven years. For example, a one-room flat (in blocks of 15–20 years old) was worth 8,000 dollars on average in 2001 and at least 56,000 dollars (36,000 euros) at present; that means prices have "climbed" at least 7-fold. Although the real estate market is now stagnating after a euphoric price rise in the last years, many experts fear that a 10–15 percent rise of housing prices is unavoidable by the end of this year. There is an impression that real estate prices are artificially increased, but analysts and authorities themselves acknowledge that the thought that they could be real should raise concern.
Reports on prices on real estate market reveal amounts demanded by sellers rather than final prices of transactions. Therefore, public notaries alone could provide real costs of transactions. For example, in Chisinau prices on sectors and housing categories should be strictly included in statistics of notaries. Although they collect high taxes for real estate deals, the declared sale-purchase amount is much lower than the real one and no law obliges them so far to release statistics on clear prices of apartments. The "called" price, that means the amount demanded by real estate agencies or individual seller who sells a residence alone, is the only indicator that the real estate market in Moldova is guiding on. Thus, there is finally an unreality regarding the real estate market.
In addition, people are more sceptical regarding the supply in new blocks (exaggerated prices, quality of constructions, frequent frauds, etc.). For example, there are offers of 35,000–40,000 euros for a two-room flat (depending on district). The individual initially signs a pre-contract for this amount, but the displayed price is actually informative. Finally, the individual will discover that he has to pay a higher price than the initial amount. For example, a solution to control prices of apartments would be to conduct all transactions worthier than 10,000 euros via bank transfers. This method would reduce the fiscal evasion. At present, no structure can estimate exactly the prices of houses or apartments. In this regard, a price table should be elaborated and these values could be used to calculate taxes on sale-purchase transactions. That means that taxes will be paid accordingly to the table, should the declared price be lower than the one from the table, and should the declared cost be higher than a potential evaluation, taxes will be paid on this value.
Notaries may provide real data on transactions, but a real database on real housing prices should be built for this purpose (like in many countries from the region, in particular, the official real estate index in Bulgaria, and a similar index introduced in Romania recently). Information about real estate market collected this way could be used by the National Bank, for example, as a departing basis for further analysis and evaluations on financial stability of the system. The database could be public, available to everybody and cover information about all real estate transactions in every locality, classified on the basis of property type, respectively apartments, houses, fields, etc., and districts of cities. This way, potential clients would know prices in the area concerned before going to a real estate agency, monitoring recent transactions in that region.
The number of transactions has recently declined, perhaps because of high prices, too. On the other hand, real estate analysts say that the main reason is the decreased attractiveness of flats in old blocks, rather than with high prices on primary market and stricter crediting conditions by banks. For example, the demand for mortgage loans of banks tempered in March 2008, compared with 2007. Although the supply meets more than half of the demand, it is expensive so far. In addition, a lack o financing blocks the demand. Many people who demand so-called mortgage credits of banks cannot get them because they do not earn enough. Also, there are psychological factors which influence the market such as deals by speculators, individuals interested to buy more residences in order to sell them for a further profit. Bu in spite of the decreased demand for credits, analysts assure that the real estate market is not blocked.
At the same time, a clear growth regarding the housing inauguration rate was achieved in the last years, a factor explaining the increasing demand for the housing purchase. On the other hand, high interest rates of commercial banks on housing loans could affect more this segment of market, which would be finally blocked. The increasing price demanded by sellers could be the reason of the blocking, as they are supported by real estate agencies which have a profit from sale-purchase deals, a price which potential buyers cannot afford.
Local banks should grant mortgage credits more actively, for an interest rate of maximum 10 percent and a bank maturity, it means a reimbursement term of minimum 25 years, giving the fact that banks have large financial resources which could intensify the new housing building pace. Subsidising some interest rate by state could be another advantageous option for those willing to buy housing, this being a widely spread method in all European countries. In addition, the European Bank for Reconstruction and Development has pretty cheap special credit lines in several local commercial banks, credits which would be absolutely necessary to finance housing building. But banks are some players interested in their profit rather than in the social aspect.