Recently, there are more and more negative opinions about the real estate market, many are wondering where it is going. Apartment prices have risen a lot, and a good part of citizens believe that the real estate companies are to blame and are directly involved in the increase in apartment prices. The vast majority wonder - "who else buys apartments in Chisinau?"
Well, in this article I will try to present official figures and coldly argue where the real estate market is heading and how we ended up with such a high price for apartments in Chisinau. I will do a retrospective of the economic events but also of the factors that have influenced apartment prices in the last 15 years.
The beginning of the world economic crisis - 2008
Until 2008, the real estate market in Chisinau was different from what we have now, starting with the type of new homes that were being built, the preferences of the Moldovans and ending with the buyer profile of that time.
It was the end of the heyday of the then ruling party, which coincided with the great global crisis of 2008. There were only a few construction companies building very large apartments, most of which were handed over to buyers in gray and not the highest build quality.
The apartments were built for the rich people of that time (politicians, businessmen, the diaspora who went abroad illegally in the 2000s) who could afford to purchase apartments with large areas at an exorbitant price of 850-900 euros per m2, while the average monthly salary per economy was only 124 euros.
For the simple citizen of that period, procuring a property in Chisinau was something of the realm of the fantastic. In 2007, it took 6.7 average wages per economy to purchase one square meter, or the total income for a period of 34.2 years to purchase a 60m2 apartment.
In that period, the internal migration from the districts to Chisinau was barely taking shape, the migration of citizens to work abroad was much more pronounced.
Fall of apartment prices - 2009
2009 can be called the year of uncertainty and shock in the real estate market - real estate transactions or drastically reduced, many construction sites were frozen, and buyers practically disappeared from the market. Apartment prices have dropped dramatically.
The period of stagnation on the real estate market - years 2010-2017
Then followed the period from 2010 to 2017, a time when large construction companies went bankrupt and other small construction companies appeared on the market.
This period can be considered a balanced one, with buyers adapting to new economic realities, as well as new construction companies.
Apartment prices have not fluctuated much, we have had a price increase over 7 years of around 100 euros per square meter. It can practically be called an annual inflation price adjustment.
Construction companies began to build apartments with much smaller areas, adapting to the new realities of the market. On the other side, buyers after a break for psychological adaptation, started to return to the market and buy apartments in Chisinau for living - many families migrated from the districts to a much better-paid job in Chisinau
A good part of Moldovans working abroad have started sending money home to repair or rebuild old houses in the districts. Another part of the Moldovans in the diaspora started investing in apartments for children studying in colleges or universities in the capital.
Mortgages began to be popularized among citizens as a tool for purchasing real estate, but due to the very strict conditions, they were not as accessible as they were in the immediate following period (we will talk about the First Home program).
Between 2010 and 2017, it took approximately 2.5 average salaries per economy to purchase one meter/2 or the total income for a period of 12.5 years to purchase a 60m2 apartment. An indicator of the affordability of prices for the purchase of an apartment is much better than in the previous period.
Before the storm or the mortgage revolution - 2018-2019
The years 2018-2019 can be called the years before the storm on the real estate market in Chisinau. During that period, a record number of transactions began to be recorded year after year.
The implementation of the state program Prima Casă boosted the increase in demand for apartments, and the prices of apartments directly and proportionally influenced this growth. In the same way, citizens could obtain a mortgage loan with a first rate of only 10% and a DAE (Annual Effective Interest) capped at 6% and later 8%.
The success of the Prima Casă program revolutionized the mortgage loan market, and the banks, seeing that the appetite of Moldovans had increased, simplified the conditions of simple mortgage loans. Thus, it ended up that approximately 30%-40% of all apartments sold during that period were made through a mortgage loan.
If in the period of 2010-2017 we had an increase in prices per year of 10-15 euros per square meter, in 2018-2019 the increase was approximately 50 euros per year. In the same way, the average salary in the economy started to increase from 10 euros per year to 50 euros per year, respectively for the aforementioned period.
Small construction companies after the crisis period of 2008 became large companies, and competition began to increase - building both cheap/mid-range and premium housing.
The internal migration to Chisinau of human and financial capital from the districts as well as from abroad became much more pronounced during that period. The diaspora understood that the money invested in the houses in the districts cannot really be recovered - they cannot be sold due to the increasingly massive exodus of people from the districts to Chisinau, reorienting themselves to investing in an apartment in the capital where there is more infrastructure socio-economic but also a much better paid job.
The COVID-19 and the BOOM effect on the real estate market in Chisinau 2020-2021
The year 2020 surprised us all with an absolutely unexpected black swan. It was quiet for 2 months in the real estate market when practically, due to technical reasons, no transactions could be made in the real estate market. Isolation and panic among people aside - on the other, notaries were not active and banks were not offering mortgages.
Those who said that apartment prices are very expensive expected a drop in prices on the real estate market, by 20%-30%.
Construction companies clashed with panicked investors who wanted to withdraw their money from projects under construction, and many construction sites that were supposed to start were delayed due to the uncertainty.
At the same time, COVID 19 found many Moldovans absolutely unprepared. They all found themselves in their cramped, old and outdated homes, without light, terrace and last but not least, without another room to organize an office to be able to work from home.
Moldovans understood that they had to make a change in their lives and went out in search of a much more comfortable home for themselves and their families.
Many have turned to detached houses, duplexes or townhouses to have their own backyard. Others to apartments with terraces, or simply opted for a larger apartment to improve their living conditions.
The demand deferred from the lockdown period started to grow rapidly, as did the prices of apartments in Chisinau. Prices started to rise by around 50-60 euros per square meter every six months.
The increase in the prices of construction materials, the accessibility of mortgage loans, the migration of human and financial capital, the change in the awareness among Moldovans to improve their living conditions, all of these contributed to the increase in demand on the real estate market - respectively the prices of apartments in Chisinau.
Although the prices of the apartments started to rise, during that period the incomes of the citizens also started to rise.
Citizens with average incomes needed approximately two average salaries per economy to purchase one meter/2 or the total income for a period of 9.9 years to procure a 60m2 apartment in 2021.
A new "black swan" - The war in Ukraine - 2022-present
The year 2022 started with a new challenge for the real estate market and beyond. The war in Ukraine generated a new panic and destabilized the sector of construction and sales of apartments and more.
In addition to the panic generated by the war, we faced a large flow of refugees from Ukraine who occupied the rental market in Chisinau. Rent prices doubling in record time in 2022.
The war also generated an increase in the prices of energy resources as well as an increase in the price of all consumer goods on the market in the Republic of Moldova.
Construction companies began to face a new challenge, the lack of construction materials to begin with and later their drastic increase in price. Thus, they had to make the apartments under construction more expensive.
The unprecedented inflation of over 30% has created an even bigger hole in the pockets of Moldovans. They put aside large long-term investments (real estate investments) and began to focus on current expenses that became increasingly large.
The real estate market saw a decrease in the number of transactions during this period by approximately 30%. Only people who are really motivated to sell or buy are left on the market. Many of the small investors who already saw themselves as big businessmen during the pandemic, once the war started, disappeared from the market.
Likewise, due to expensive loans, fewer and fewer Moldovans have resorted to the help of a mortgage loan to purchase a home. Thus, in 2023, of the total volume of sales, we have around 12% of real estate transactions carried out through a mortgage loan.
However, real estate prices continued to rise in 2023 due to unprecedented inflation, which only started to return to normal in the autumn of this year.
With all the challenges mentioned above, this year we have an increase in average incomes per economy, and the affordability of apartment prices is very attractive.
Citizens with average incomes need approximately 1.7 average wages per economy to purchase one meter/2 or the total income for a period of 8.7 years to purchase a 60m2 apartment in 2023.
CONCLUSION
Chisinau is a center of attraction for human and financial capital from the districts as well as from the diaspora. This is also where a good part of foreign investments will end up with the process of joining the European Union.
The real estate market in Chisinau is constantly changing. Construction companies will focus on building apartments that will provide a better quality of life for tenants if they want to stay in the market and face the increasing competition.
The buyer profile will change over time. Buyers will be much more demanding in choosing a home based on comfort and energy efficiency criteria and less on price. Many will turn to the suburbs with the development of Chisinau outwards and the improvement of the infrastructure (roads, engineering networks, etc.) as seen in the big European cities.
Although the impression of Moldovans is that apartment prices are excessively expensive, macroeconomic figures show us that in 2023 apartment prices in Chisinau are the most affordable compared to the last 15 years.
P.S. We failed to discuss the need for an urban plan with clear rules for all players in the market, about construction permits, about the renovation of Soviet buildings that have an outdated degree of exploitation, about the energy efficiency of the entire housing stock, as well as about other factors that will they have and will have a say about the real estate market and apartment prices in Chisinau.
Author:
Victor Cernomorcenco, Real Estate Specialist within the Acces Immobil company.
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