Increase in interest rates has reduced Romanians' appetite for mortgage loans, and the number of apartment transactions has decreased by almost 30% in the first five months of the year in Bucharest and major cities in Romania, according to Colliers consultants in their latest report.

Compared to the past four years, during which the housing loan balance increased by an average annual rate of 10-12%, the annual growth rate of housing loan stock is currently only 1.2%, with a notable slowdown starting in the second half of last year.

According to the IRCC (Reference Interest Rate for Housing Loans), the interest rate for housing loans is expected to remain relatively stable at 5.98% in the second quarter of 2023, decrease to 5.94% in the third quarter, and reach approximately 5.95% in the last three months of the year.

In this context, after two years of sustained and widespread growth, Colliers consultants emphasize that this year we will witness a reduced number of transactions with mixed price developments.

Nevertheless, the fundamentals of the residential market remain strong, and wage increases remain at a high level.

The average net salary in the economy increased by 15% in April 2023 compared to the same period last year, reaching 4,564 lei, a growth rate that exceeds the inflation rate during the same period.

Colliers consultants believe that a continuation of this trend will lead to improved housing affordability, which has been greatly affected in the past two years.

Furthermore, compared to the pre-pandemic period, the market has shown good dynamics, with the number of apartment transactions in 2023 increasing by approximately 20-30% in Bucharest and major cities.

The prospect of slowing inflation, both in Romania and across Europe, will have the effect of easing financial markets, ultimately leading to a decrease in the cost of borrowing for home purchases, noted Colliers consultants.

Since the beginning of this year, the 3-month ROBOR (Romanian Interbank Offer Rate) has decreased by 1 percentage point, from 7.56% to the current 6.55%.

However, the decrease in interest rates for loans linked to IRCC (both new loans and old loans that have been converted from ROBOR to IRCC) will take longer, considering the calculation methodology of this index.

In Bucharest, the adjustment of the supply of new homes due to reduced demand was highlighted in the first quarter of the year by a more pronounced decrease in the number of homes delivered. Only 4,666 homes were delivered in the first three months of 2023, a 16% decrease compared to the same period last year.

The evolution of the residential market is closely related to the overall economic development, and the positive prospects of the Romanian economy were highlighted in the most recent forecast by the European Commission this spring.

Despite the slowdown in economic growth in the European Union compared to the developments in 2022, Romania is the country with the highest projected economic growth in CEE and the third-highest in the EU, with 3.2% in 2023 and 3.5% in 2024.