Prima Casa 2016: lower ceilings, lower interest rates, higher restrictions

The future of the Prima Casa program has become a certainty after the Ministry of Finance announced the guarantee ceiling and interest rate. Good news for the government program’s clients, after initial possibilities of stopping the program entirely—a move labeled suicidal not just for the real estate market, but for the economy in general.

Since the start of the financial crisis until now, Prima Casa has been the safety net not just for the real estate market, but for the entire local economy. Over the years, the program has taken various forms, becoming increasingly permissive for clients. Now the time for a new modification has arrived, and Ministry of Finance officials announced a 1.5 billion lei ceiling for 2016 and an interest rate of ROBOR plus 2%, compared to 2.5% previously.

„Prima Casa is a successful program for previous years, but it is no longer appropriate under the same conditions. We analyzed the possibilities and considered different scenarios including current economic data. Factors such as the accelerated growth of credit outside the Prima Casa program, as well as very good liquidity in banks, which no longer need as much state support, could have tilted against continuing the program,” explained Finance Minister Anca Paliu Dragu 

Eliminating the Prima Casa program could have been completely inappropriate and even dangerous

But such a scenario, where Prima Casa would have been completely out of the equation, could have proven completely inappropriate and even dangerous for the real estate market and the entire economy. Such a move could undo all the steps taken toward stability so far. The first consequence of eliminating the government program would have reflected on prices.

„In the real estate market, everything starts from the bottom up: if the cheap product has a stationary price, then the more expensive products slow down their collapse. This is how Prima Casa led to a state of equilibrium. But if the bottom products fall, they pull all the others down with them. That’s what happened, that’s what always happens. If we add to the problem the banks that suddenly have many homes in their portfolio, which they want to sell quickly at auctions at a modest price, then a negative impact will be felt on the market,” explained for IMOPEDIA.ro Ruxandra Cleciu, manager of Neocasa.

The already large stock of homes confiscated and resold by banks could have increased sharply

This effect would be even harsher as it would accumulate with new changes in the real estate market, such as debt cancellation for those who hand over the keys to the bank for homes they can no longer pay installments for. But specialists in the field believe that the Prima Casa program will continue to exist in the future, as it does in many parts of the world:

„Programs like Prima Casa don’t just exist in Romania; I think in almost all countries there is, in one form or another, some kind of support from the state or local communities; this aspect is not to be completely eliminated. But here it has become a mass thing, for which there is too little supply. We, as a community, can put pressure on banks to offer loans for real estate developments. If you don’t have credit, you can’t build. It’s a vicious circle,” concludes Ruxandra Cleciu.