Chequered success of first time buyer finance scheme

First-time buyers, banks and real estate agents benefitted from the Government-backed guarantee scheme ‘Prima Casa’, but developers and construction firms have not won significant gains Report by Andreea Ceasar

April 2011 - From the Print Edition

Debate rages over whether Romania’s three-year state-backed programme to prop up the collapsed real estate and construction markets has achieved its ambitions.
The Prima Casa (First Home) programme is a classic piece of social democratic state interventionism to help boost a ravaged business sector, but with a social focus - subsidising first-time buyers.
Under the scheme - now in its third year - Romania’s first-time buyers can take out a credit from a private bank to purchase a residence at an attractive interest rate, backed up by guarantees from the state.
For pre-1989 flats this can cover the costs of up to 60,000 Euro per dwelling, and up to 75,000 Euro for citizens who want to construct their own homes.
“The social programme aim was achieved - that is offering a home to young people,” said Prime Minister Emil Boc.
However real estate developers were not so enthused.
“The Prima Casa programme aimed to relaunch the construction market, but the total number of homes built with this type of credit is under ten per cent,” says Dan Ioan Popp, CEO of real estate developer Impact. “Moreover, the number of homes which citizens have built themselves using contracts through this programme is less than a hundred. The programme did not have the right effect.”
At the moment Impact owns 250 units in different projects all over the country, of which 60 per cent can be sold through Prima Casa.
“Ten per cent of our clients are indirect beneficiaries of the programme as they have sold or would sell their homes to people through Prima Casa,” says Popp. “The recovery trend of the market is due to the slightly increase of economy [not due to Prima Casa].”
New developers were not the main beneficiaries of the scheme as the majority of Prima Casa customers - 80 per cent - chose to buy pre-1989 apartments, according to real estate agency Euroest.
Many developers transformed their projects to appeal to the Prima Casa scheme or created a specific project to appeal to first-time buyers.
“Of 300 homes sold in 2010 from our two projects, we sold 60 per cent through Prima Casa,” says Romeo Cazanescu, general manager of Conarg real estate, that still owns 350 apartments in Rasarit de Soare project and Quadra 2 project in Bucharest.
Even though initially Quadra 2 was launched in 2008 as a project with 850 flats, Conarg remodelled the project to match the market demand.
For real estate agencies, the programme managed to keep them active during a challenging period. In 2010 and the beginning of 2011 up to 80 per cent of the units sold by real estate marketing and sales agency Be Igloo were through Prima Casa.
“Especially in these moments, when people manifest a clear desire to buy new homes, I believe that Prima Casa is very important for the future development of this sector and the government should consider increasing the budget allocated to this programme,” says Nimrod Zvik, managing partner of Be Igloo.
Now developers are a little more positive about the market. “During 2009-2010 consumer confidence was at the same point as 1992 and there has now come a point where people needed to buy homes due to pent up demand,” says Andrew Prelea, CEO of developer South Pacific Group. “Moreover, the price falls have slowed and reached what is to be considered the bottom of the market.”
Demand has slightly increased, according to Asher Lax, sales and marketing manager of residential developer Adama. “But there are still high interest in low prices no matter the quality of the product or the notoriety of the developer,” he adds.

Third time lucky?

The third Prima Casa programme is worth 200 million Euro - substantially less than the average of 700 million Euro for the first two years. This is mainly because it consists of the ‘leftover’ cash from the two initial schemes.
The three main banking players - accounting for more then a half of the total amount available - BCR - Erste, BRD Groupe Societe Generale and Raiffeisen Bank - stated that hundreds of applications could be approved for Prima Casa 3.
“Prima Casa will work as long as there exists money from the Government,” says Dragos Dragoteanu, president of the real estate agency Euroest. “The banks don’t risk anything and those who apply for this programme are the beneficiary of the best bank interest.”
Prime Minister Emil Boc says he is now analysing with the banks to share the risks for a future edition of Prima Casa which could double the number of beneficiaries.
Such a scheme would ask the banks to share the risks and the total credits could reach a value of three billion Euro. ■