Price explosions for newly built apartments
Petre Niculae, Founder of Pedro Construct, spoke with Property Forum about the new residential project whose development started this year, the challenges in the construction market and the company’s strategy of integrating innovative technologies in the design, construction, and development phases.
How did Pedro Construct perform during 2022 on the project’s portfolio and what are the prospects for 2023?
Last year was dedicated primarily to acquisitions and the launch of our Jolie Village residential development, but also to the continuation of the construction of the Nusco City project, with the completion of phase 1B as we are the builder of the project.
We can say that we are still looking for land, but we are very selective in the choices we make. We are only looking for land that is very well located, preferably on the street, on major avenues and that has a valid urban zone plan (PUZ), and then it is very easy for us to build on it.
We are particularly interested in the northern part of the capital and District 6, where Pedro Construct has made a name for itself by building many homes. We are very appreciated in this area, thanks to the quality of these constructions and the yield offered for our properties, with constant increases in their value, even for many years after their delivery.
What are the main challenges for the local construction market in 2023?
The local construction market is facing many challenges, with the biggest being the difficulty of obtaining building permits, followed by rising costs. While in the case of 20–30-year mortgages, the impact of rising interest rates is temporary as these interest increases may only affect 2-3 years of the contract term, in the case of the developer, as the financing of development is only for 2-3 years, interest alone may impact the final cost of construction in this case by around 10-15%.
Added to these costs are increases in construction materials costs, energy, and labour prices, leading to a total increase of up to 50-70%. Under these circumstances, it is not surprising that many developers are postponing the construction of new projects, as long as the current selling price in many cases in the Capital barely covers the construction costs, bringing profitability to zero.
These cost increases and project postponements, combined with the difficulty of obtaining new permits due to the cancellation of PUZs, we believe will lead to the lowest level of deliveries of newly built apartments in the next 2-3 years. This is very dangerous for the construction market, and our prediction is that price explosions for newly built apartments will follow, and prices may even double.
What is your vision for the new development company ARQA?
We have been here for three generations and will be around for at least three more generations. Our projects and years of experience show us the trust our clients have placed in us and in everything we do. ARQA is the project of the future, through which Pedro Construct, commits to offer through its developments, new standards and values to the real estate market.
The company will strengthen ARQA’s positioning by attracting more professionals to the team, in new areas such as research and innovation, alongside design.
What representative projects has Pedro Construct delivered in its almost three decades of activity in Romania?
Among the most famous residential complexes in Bucharest are Nusco City, Cloud 9, Exigent One, 19 Residence, 21 Residence or Zen Living Apartments, and on the list of office buildings we find Politehnica Business Tower.
What factors were behind the decision to invest in the Jolie Village residential complex?
Jolie Village, the project we are developing on Erou Iancu Nicolae Street, comprises around 140 apartments and is being developed on a plot of 8,000 sqm. From our point of view, Erou Iancu Nicolae is both the most attractive living area in the capital for families with an above-average income and one of the points on the map that generates a significant yield for rented apartments.
There are several factors that make the Jolie Village project one of the most attractive in the country. First of all, we include in this list of extraordinary benefits the most prestigious schools in Romania, which are located near Jolie Village: The American School, British School, Cambridge, Mark Twain, London School, Olga Godyn or Lycée Français. On the other hand, we know how important nature is for every family and the proximity to such places. We are located here in a green area, surrounded by the Băneasa Forest and we have the Casa Albă Park and the Zoo in the immediate vicinity. Another important asset is the short distance to shopping centres, supermarkets, gyms, family restaurants and a wide range of options.
How will you finance the development of the housing complex in the north of the capital?
The Jolie Village investment is approximately €10 million equity and a €12 million financing of Libra Bank.
Are you also considering potential real estate investments in strong regional cities?
In the next few years, we have major investments planned in Bucharest, but we are also looking at expanding into large cities in the west of the country, such as Timișoara, Oradea and Arad.
What is the outlook for the residential market this year in terms of demand given the high interest rates and the persistent high inflation?
We think the winners will be those developers who can afford to wait and not sell at these prices, those who have the courage and resources not to stop building and not to delay investment. End customers who decide to buy now, despite high interest rates, will also be winners, according to the famous quote by Warren Buffet “be greedy when others are afraid and be afraid when others are greedy!”.
How can Romania attract new investors in the commercial real estate market and the residential segment?
I believe that public institutions together with developers should join forces and organise real estate exhibition events in the countries where the main foreign investors come from.
At the moment, Romania has the advantage of offering among the best returns in Europe, both in terms of price growth and rental yield. The price level in Romania is the lowest in the EU and allows even the smallest investors to buy apartments at prices lower than a parking space in large European cities.
How many employees does Pedro Construct currently have? In what kind of positions are you constantly looking to recruit specialists?
It is difficult for us to give a figure for the number of people involved in Pedro Construct developments, as we have many subcontractors, both domestic and foreign. In terms of the specialists we want to attract, we are looking for young people, graduates of technical & IT faculties and we are looking at innovation, research, and the mass implementation of smart and energy-efficiency systems. We are also integrating artificial intelligence and robotics into the design, construction, and development phases.
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