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The rise in price of building materials creates a deadlock in the real estate market

Rising prices for building materials are pushing many real estate developers into a non-profit area. The most affected by this evolution are developers who have sold apartments in advance and now have difficulty keeping costs under control. If the construction materials market does not stabilize and prices continue to rise, we can expect a wave of bankruptcies and the abandonment of many projects.

Blockages caused by the accelerated increases registered in the prices of construction materials started to appear on the construction sites of Romania. The problem stems from the fact that developers usually sold the apartments in advance and now fail to control production costs. The rapid rise in these costs has pushed many developers out of profit areas and led to a halt in work in hopes of a future recovery in the construction materials market.

Rising costs cause the profitability of the started projects to decline and real estate developers risk going into insolvency and, subsequently, bankruptcy.

The problem is also interesting if we look at it from the perspective of customers who bought these apartments in advance, possibly through real estate loans. Often, these owners of apartments under construction are tenants and in parallel pay installments for loans. Their purchasing decisions are made on the basis of estimates related to the evolution of their careers and the period of time in which they can make a double financial effort.

Unfortunately, many real estate projects are blocked today, which makes the duration of the financial effort difficult to estimate. The longer the completion of projects is postponed, the more financial pressure the owners of these apartments will face and will push many of them into default.

What will follow in this phase? Several extremely interesting behaviors will appear on the market:

– A series of criminal complaints and lawsuits that will pursue the prosecution of real estate developers; Of course, the procedural route is a long one and it presupposes that the Limited Liability Company, through which the real estate developer operated, exists until the final sentence is enunciated;

– Negotiations with banks for rescheduling loans; If they can no longer afford the monthly cost of rent and bank rates, many owners will try to reschedule their loan in order to reduce the monthly pressure;

– Giving up the proprieties; Depending on the severity of the financial situation and the size of the financial effort, some owners will choose to give up the luxury of owning a piece of construction site;

– A reverse migratory trend, through which corporates from big cities will temporarily move to their parents’ homes to get rid of rent payments. Given that some owners work remotely and have the opportunity to retire to their parents’ homes, we can expect this reverse trend generated by the desire to save the monthly rent.

The situation is much worse than it seems. Prolonged blockage can speed up the bursting of the housing bubble and a prolonged crisis. The interest of potential customers for the purchase of housing under construction will decrease and attract a significant reduction in demand and activity in this market. These developments will be accompanied by a slight increase in demand for old housing.

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