Australian developer South Pacific has launched the sale of 10 upmarket homes near Bucharest’s Pipera Park on a market that’s become considerably tougher since it took over the project in 2007.
Dubbed Brooklands, the houses in northern Bucharest are a mix of standalone and semi-detached buildings that South Pacific bought from the original developer after construction had already seen the completion of the shells.
CEO Andrew Prelea says the project was not a distressed sale, but rather a victim of a breakdown in relations between the partners in the original development company. With the exterior design already set, Prelea says his team settled for making changes to the interior layout and added its usual fittings. These include wooden floors, Italian kitchens and deep wool carpets.
Targeted at the Romanian executive class or foreigners living in town, the houses range in price from €450,000 to €650,000. Along with the nearby park, Brooklands hopes to capitalize on the proximity of the American and British international schools.
Prelea says when South Pacific began initial marketing for the project last spring, its website received high hit levels from people with genuine interest in buying property. But by the last quarter, he says, consumers had become spooked and it was impossible to even set up appointments with potential customers. He’s seen a glimmer of hope recently, however, and says that people are beginning to agree to meetings again.
It makes sense, he suggests, taking the broad view. “Romania is one million homes short, and its 300,000 short just in Bucharest. People have to live somewhere,” he says. Besides the psychological issue of uncertainty in today’s market, the lack of access to mortgages has been a practical hurdle for many Romanians. This has pushed developers into coming up with creative solutions for their customers.
South Pacific has been working to create specialized mortgage products with the banks for their projects. But it’s also implemented a rent-to-own scheme that fixes the price of a home or flat for two years and allows the client to move in. This gives the client time to secure a mortgage, for starters, but for those concerned that property prices could drop, it gives them the option of backing out. Prelea says his company’s priority at the moment is simply to get the buildings occupied; by the time the homes at Brooklands were ready for residents to move in, only one had been sold.
Brooklands will not be a typical project for the developer in the future. “We’re moving back into the affordable sector,” he says. “Most developers, ourselves included, didn’t address this [area] enough in the past few years. That was the fundamental error: that everyone thought access to funds for local Romanians would be abundant and that the foreign investor market would be sustainable long-term. Unfortunately that wasn’t the case.” In practice, this means that a high percentage of the units the developer now churns out will be in the sub-€100,000 range.
Prelea, who says his company handed over a 50 percent stake to a private equity firm last year in return for capital, admits that like everyone else, South Pacific is sailing through a rough patch. “It’s not easy, it’s not blue sky. We’re planning for a slow, steady recovery once it reaches bottom, whenever that turns out to be. But we can’t stop the machine, we can only slow it down.”
He recently set up an in-house sales team and has brought over people from Australia to train the new staff. “We’re a manufacturing company of homes rather than a one-off developer. That’s what differentiates us from a lot of other developers. We don’t try to make a large margin on any one development; it’s about continuity of work.”