Macro commentary by eToro analyst for Romania, Bogdan Maioreanu
The uncertainties brought about by the Ukraine conflict are adding to the price disruptions caused by the economic restart after the end of lockdowns, affecting building prices and putting the developers under pressure.
The conflict and the sanctions against Russia are having a small direct impact on the global real estate markets, with only 330 Million dollars in Russian capital invested annually in real estate, while Ukraine investments are mostly domestic. But the conflict’s true impact will be given by the macro elements it changes, including further rises in energy prices, driving construction materials prices up and making building more expensive.
Inflation and rising interest rates are adding to the problem in the real estate sector, which relies heavily on financing for both developers and consumers. In Romania, the ROBOR 3M interest rate grew from 1.5% last year in June to 4.5% now. There are prospects for it to grow more. A person having a 500.000 RON loan with a period of 30 years will pay 800 RON more per month now. Maintaining the same monthly installment as 9 months ago, today, the loan one will afford would be 150.000 RON smaller.
Higher construction prices, lower loan values and uncertainty may make the real estate market pause and assess the impact. Inflation is also shifting household expenses focus and all of the above may make demand take a hit, squeezing developers’s margins between higher costs and potential stagnating real estate markets.
The conflict in Ukraine is also impacting the construction industry and real estate developers by stimulating commodities prices increase. It is triggering a steep increase in the prices of iron rebars used in construction. Futures jumped from around 700 USD per metric ton at the end of February to more than 900 USD per metric ton now. Ukraine exports around 7.7 billion dollars of steel products, after cereals being the second largest exports. The Ukrainian conflict stopped the exports of these products adding pressure on construction material prices that are already up 51% in one year. There are also reports that trading companies are not very keen to import steel from Russia. Russia exported about 28 million tonnes in recent years, well behind number one China, which exported 52.63 million tonnes of steel products in 2021, official data show. Ukraine exports about 15 million tonnes of steel a year, ranking it eighth worldwide.
According to Reuters, this would appear bullish for prices of both iron ore and steel, given the likely tightening of supply, especially in Europe, which bought most of the supplies from Russia and Ukraine. But the full impact of sanctions is still to be assessed. While Russia will try to divert its exports to Asia, the Asian manufacturers will try to find a way to sell more to Europe. High energy prices are also pushing up prices of other energy intensive building materials like aluminum, cement, glass and some plastics. This is forcing construction companies either to absorb the costs or to pass them to beneficiaries. And this can determine further increase in construction square meters prices.
Markets are trying to assess how long the Ukraine conflict will take. But even if it ends very soon, the reconstruction of Ukraine’s infrastructure and buildings that will likely follow has the potential to put more pressure on construction materials availability and prices.
The uncertainty about what the future brings is increasing with the proximity from the conflict zone. Also, faced with a wave of cost increases, utilities and fuels, and the rise in interest rates that make loans more expensive, the investor sentiment becomes the most important factor related to the Real Estate market.
Bogdan Maioreanu, eToro analyst and markets commentator, has over 20 years of experience in financial services and investments and a strong background in journalism. He held different Corporate Banking management positions in both Raiffeisen Bank and OTP Bank, before moving to business consultancy roles working for IBM Romania among others. Bogdan is an Executive MBA from Asebuss and Washington University.
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