It is now a fact that the Romanian housing market has been severely affected by the financial crisis. Faced with housing transactions falling off over the past five months by more than 36% compared to the same period last year, the Romanian Government decided to not waste any more time and, on June 3 2009, adopted Emergency Ordinance 60 to set the general rules for the enforcement of the First Home programme. We were assured that methodological norms to detail the said rules will follow shortly.
The First Home programme is certainly designed to provide support to potential housing consumers. At the same time though, it is intended to be a governmental helping hand to developers, and an incentive for banks to soften their overly restrictive interest rates.
Amongst the advantages of the programme, beneficiaries are allowed to acquire loans from banks partly guaranteed by the Romanian state through the National Credit Guarantee Fund for Small and Medium Enterprises. Press releases indicate that the threshold for the state guarantee will be set to 60,000 per transaction with an overall threshold of 1 billion for the entire programme. Furthermore, First Home's acquisitions will be subject to a reduced VAT rate of 5% (compared to the standard 19%) for houses not exceeding 90,000. Public notaries also intend to support First Home by charging 30% lower fees for the notarisation of the sale-purchase and mortgage contracts related to the programme.
The government's expressed intention is to restrict First Home to banks that will accept minimum down payments from their clients of 5%, no additional fees for accelerated repayment of loans and lower interest rates (the first indicative offers of interest rates range from 5.5% to 14% for euro-denominated loans and 13% to 23% for loans in Romanian currency).
As a means of protection, first ranking mortgages will be created in favor of the Romanian state (represented by the Ministry of Finance) over the houses acquired through First Home.
To prevent speculative acquisitions (which the market faced so much in recent years), the law sets forth three restrictions. First of all, the programme is accessible only to persons that do not already own a dwelling, either exclusively or jointly (together with spouses or other persons). Secondly, First Home is available only to individuals (and not to legal entities). Apparently, the reason for this prohibition is to prevent people forming several companies and acquiring dwellings using the respective companies. But we cannot fail to notice that this provision prevents individuals from other EU member states from purchasing houses through the First Home programme, as they are prohibited from acquiring the land underneath until 2012 (and their only option was acquisition through a local company). Thirdly, the law prohibits First Home's beneficiaries from selling the houses for the next five years. Although not expressly provided by the law, we believe that breach of this prohibition will result in having the sale-purchase contract rendered null and void. As an additional restriction, First Home is not available to individuals with mortgage loans in progress.