The sale price of housing units included in residential projects whose construction will begin in 2009 could plunge 60 percent, to some €1,000 per square meter, considering that development costs plummeted by an annual 70 percent, due to the depreciation of land and construction costs, according to an analysis carried out by the CB Richard Ellis-Eurisko real estate consultancy company for Business Standard.

The final price of a housing unit includes several development costs, such as the price of land depending on the home's constructed surface, construction costs, and soft costs, which include expenses for architects, approvals, financing (interest), marketing, and sales, plus the developer's profit margin, an average 25 percent. This profit margin is usually divided throughout the project's construction period, which usually lasts some two years.

The price of land per constructed square meter is some €100-150 today, down 133 percent year-on-year. The explanation is that, besides the 50 percent decline in the price of land, the Land Use Coefficient, which is considered when land plots are sold and acquired, has also dropped, to 2.5-3 from 3.5-4.

"People interested in acquiring land at present are looking for plots with a construction price per square meter of €120 at most. The price of land halved in semi-downtown areas. The problem is that those interested in acquisitions are targeting good plots of land, which were sold for €1,400-1,500 per square meter in previous years, and which they now want to buy for less money," said Ionut Ciocan, Head of the Land Department of DTZ Echinox.

"I believe the construction price could be €500 per square meter, a price of €600-650 was possible even last year; but the value per square meter was higher because there were no construction companies available. My opinion is that a project in uptown areas could be cost €400-450 per square meter," said Cristian Erbasu, Manager of the Erbasu group.

Cristian Tudor, Manager of the Comnord-Procema group, said that developers cannot presently demand a construction price below €600 per sqm, even if certain declines were registered on the construction material segment, because the investor must bear some indirect costs. "The value of land is an important part of the final price, so that those who will acquire plots of land in the near future to finalize work in the coming two-three years will be able to afford to cut the end price, unlike those who acquired land in previous years at double values, who will only be able to afford to cut prices per square meter by €50-100, because they have loans to pay back," Tudor explained.

The soft costs halved to €80, mainly due to the drop in the degree of indebtedness that developers may have when accessing financing. Thus, if real estate investors could obtain financing for some 75 percent of the project in 2008, this percentage has now dropped to some 50 percent. "The interest is some €45 in total soft costs, as it is lower because the degree of indebtedness is lower," said Ionut Bordei, Head of the Residential Department of CBRE-Eurisko.

Source: Standard.ro