Three development stages of the capital's real estate market. The fourth is coming. 28.06.2022

Residential real estate market in Moldova is entering a new stage of development. Like any industry, it is of course influenced by external circumstances, but the real estate market has its own specific way of development. 

Let's start with the fact that, in the second half of 90s and in 2000s Moldova started building new houses. New means different from the Soviet construction; not only in facade, but also in areas. Developers met the demand for large, spacious housing, primarily in the center of the capital. The demand was created by the new economic realities, the beginning of business development, and the emergence of a new class of customers who by their mentality wanted to live in the center, but in a spacious apartment with an area of 90-120 sq. m. with guaranteed parking or an underground garage. And indeed, the prices for such housing were, to put it bluntly, not for the middle class.

The trend for large spaces and the conditional center of the capital ended after the global economic crisis of 2008, which reached Moldova only in 2010. 

The market felt the saturation with large spaces and a sharp decline in demand. Large apartments became difficult to sell. You could say that for a few years the market stalled. 

It took time for understanding and for developers to start redrawing apartment projects within the framework of design possibilities, making two or even three small-sized apartments out of five-room apartments. The focus, so to speak, on the average buyer with relatively modest opportunities has moved construction projects to all areas of the city, where land is cheaper, and therefore the cost of housing is lower. 

Around the middle of the 2010s, small apartments have been on sale, expanding the range of housing for the average buyer. By this time, the banking system, under the recommendations of the National Bank, gradually began to issue medium- and long-term loans - then still expensive, but there was nevertheless a demand for them. And since the spring of 2018, when the government launched the Prima Casa (First Home) program, the market revival has been invisible only to the blind. Even families who thought they'd be living in rented apartments for the rest of their lives began to look at new, relatively affordable mortgage options. 

The real estate developer market has also shifted dramatically. In addition to a certain movement among local investors, foreign investors gradually began to enter our market. Entrepreneurs, primarily from Ukraine, invested in the construction of housing in Chisinau in one way or another. Moreover, they often practiced "barter" investment, for example, in exchange for building materials they received ready-made housing.

Developers in the pursuit of profit did not consider anything. Due to the lack of an urban master plan in Chisinau (“thanks” to all general mayors), infill construction was carried out in the capital. Houses were built on former playgrounds, former stadiums and former squares. Any possible sites, with an infrastructure around (kindergartens, schools, clinics, and stores), were selected for new construction. With an urban master plan, no developer would be allowed to build a high-rise building where there is no appropriate capacity for a polyclinic, educational institutions, roads, parking lots, etc. Therefore, the developers did not strain hard to create at least some new infrastructure, cramming a 20-story building between five-story "Khrushchev" buildings, squeezing profit out of each brick. Because of this, every year it becomes more and more difficult to live and breathe in the city.

But most of the new buildings of recent years are still the same small-sized apartments designed for the mass market, where a 3-room apartment can have only 60 sq. m. Multi-storey luxury housing is almost never built. Those who could live in it prefer the private sector. And prices of individual houses within the city boundaries are growing every year and during the crisis they almost never went down. 

Speaking about the evolution of Moldovan real estate market, we must go back to 2005-2008. Then, even before the mortgages became mass, there were attempts to create satellite suburbs. These are not holiday villages - these are ready-made suburban "neighborhoods" built according to one or three standard projects with a unified design. Such settlements have infrastructure, up to health clinics and private security. This solution, based on international experience, was offered just to the category of buyers who would like to move from the choking city center, from their large apartments and motley neighbors, to a quiet suburb with modern, new infrastructure, where neighbors are "selected" by social status as well. The truth is that, the global crisis, which did not bypass Moldova, made adjustments to these plans, such towns have not been built, and one of the commercial banks, actively promoting this project, even lost its license. 

But let us return to our time. The pandemic marked a new stage in the development of the real estate market. Prices first stabilized, then went up. The quarantine revealed for many the need to change the housing conditions, and the pent-up demand and the pumping of the population with money and benefits in Europe led to an increase in demand and prices. The same trend affected Moldova as well, even against the background of a "market freeze" in the first year of the pandemic, developers actively continued to build. 

Construction of new housing in the past three years, in general, looked fairly flat, even despite the pandemic. A 12.8% increase in construction volume in 2019, the 11.8% increase in 2020 was replaced by a drop of only 0.3% in 2021, which is effectively the same as the previous year.

In 2021, pent-up demand due to the pandemic "blew up" the real estate market, which led to a sharp increase in prices. By the end of the year the average cost per square meter reached 1000 euros. Thus, for 5-7 years the cost per square meter has grown almost twice! Moreover, if previously the secondary housing was inferior in price to the new housing, last year the prices leveled off. The biggest demand is still for those same small apartments in which the space is visually expanded by the absence of additional partitions. Some buyers are solving their housing problems, but there are many who see the market as an investment component. 

The current 2022 year is generally atypical. And while January is traditionally a slow month (buyers and sellers tend to close most transactions by the end of the year) February did not allow much swing. And with the outbreak of hostilities in the neighboring country, the situation has changed dramatically. Obviously, the influx of refugees made the demand for housing huge, especially the rent went up. And... the supply of apartments for sale has practically disappeared. You can make pretty good money on rent now, and when the situation normalizes, you can think about selling. The market has frozen. Realtors say that there are rare, often forced sale transactions; at the end of 2021 there was observed no activity at all. 

Developers are also experiencing a shock. The cost of construction materials for objective reasons has doubled. Those, who had time to raise the walls may well finish the project, and those, who are stuck at the level of the foundation pit, in all likelihood, are stuck for a long time. The pace of construction has declined, and offers for sale are scarce. One-bedroom apartments, which are rarely available, are sold like hotcakes. Prices for them are already up to 1100 euros per square meter. Further price increases are inevitable; the only question is at what level they will stop. And the secondary market, once it has caught up with the price of new buildings, will not lag behind.

But this situation will also normalize at some point. It is very difficult to breathe in the city, not only physically, but also because of the lack of infrastructure. Houses are being actively built in the suburbs, in which five years ago it was impossible to drag the buyer. And few developers are preparing large apartments for sale. The days of large apartments in new buildings are in the 20-year past. 

In the coming years we should expect a new reset of the capital real estate market. There have been already announced projects for the construction of VIP-settlements, which were not able to be realized in 2006-2008. And such settlements, with good infrastructure, will be in high demand. With modern construction methods and technologies, the cost of a 2-3 storied cottages will not be much higher than the cost of apartments in a new building within the city. 

When such settlements are commissioned, there will be a division of society as it happened many years ago in Western Europe and the United States. It will even come to the point where it will be possible to buy a house in such a settlement only with the consent of the neighbors. That is human nature and experience, which sooner or later will be adopted in Moldova.

Houses in such settlements will be significantly more expensive than apartments, but also significantly cheaper than individual houses within the city. Their price will include the construction of infrastructure, which is not found in infill high-rise buildings. If one of the developers who will survive the crisis implements such a project, the others will rush to buy up land around Chisinau, and the VIP-settlements will grow like mushrooms after the rain. 

This, by the way, could be a tool for investment. Real estate is one of the few tools to saving money, which is why the demand for housing in Chisinau remains high. In addition to apartments, houses, and cottages in Moldova, many investors began to look closely at Romania, in particular at Iasi. The prices for real estate in our country are almost equal, and Iasi is already the European Union in the immediate vicinity. Developers realized this earlier: several Moldovan companies are already building new buildings in this city. Among the buyers are not only Romanians, but also Moldovan investors.

Rebooting of the market is not far off. But at the same time we would like to hope that the mayor's office will finally approve the general urban master plan in the capital and the infill construction, as an element of developing capitalism, as merchandise markets and ugly trading kiosks will become a thing of the past. //28.06.2022 - InfoMarket.