This interview was first published in Property Forum's annual listing of "The 50 most influential people on Romania's real estate market”.

How has the Mușat & Asociații client portfolio evolved on the real estate and financing side in 2023 and what is your outlook for this year?

Mușat & Asociații enjoys a diversified client portfolio and we have complex projects in all sectors of these market segments, which are constantly growing. We assist both developers, investors and financial institutions.

Although 2024 is expected to be a year of difficult change given the lack of political and fiscal predictability, I continue to believe that the real estate sector remains a solid choice for players interested in long-term opportunities.

What were the most complex projects you have been involved in over the past year?

Our team has successfully completed both land acquisition and securitization projects for future developments, as well as business transfers or financings with a predominant real estate component.

Over the past year we have been involved in a number of projects, some started previously, others being brand new. For example, we assisted our long-standing client, Adesgo SA, the largest seamless underwear manufacturer in Romania, in connection with the sale of its seamless underwear manufacturing and marketing business to Tefron Europe.

Tefron is part of an Israeli group, developer and manufacturer of seamless garments that recently entered the Romanian market. At the same time, we assisted Tecadra Hotels with the affiliation of the hotel in northern Bucharest to the Accor group.

In the area of acquisitions, our team advised Naxxar Renewable Energy on the sale of 60% of Naxxar Wind Farm Four to the Polish group Polenergia.

How has the framework for financing commercial real estate projects evolved over the past year in terms of costs?

Financing conditions are tightening in what the requirements for real estate projects are concerned. Banks and credit institutions are looking closely at both the borrower and the guarantor, but also there is an in-depth scrutiny of the project itself.

We have noticed an increased interest from banks in real estate projects that are in line with ESG accreditation parameters, which comes naturally against the background of the implementation and development of this concept on the Romanian market.

We hope for a relaxation of financing conditions, perhaps influenced by the downward trend in inflation.

How will a possible reduction in key interest rates influence financing activity in the commercial and residential sector?

Analysts are talking about an interest rate cut, expected from Q2 2024, which could naturally boost activity in the real estate sector, especially in the commercial and residential sector.

The office market, on the other hand, remains stagnant, given the changes the pandemic has brought to the labour market. A fall in interest rates implies a reduction in the cost of mortgages and will also have an impact on house prices, which will become more affordable.

How have developers adapted to the VAT increase to 9% for home purchases?

The short-term effect of the VAT increase has been an increase in the number of transactions, with those intending to buy a house speeding up the process to benefit from the reduced VAT.

On the long term, however, developers expect an artificial price increase in the local housing market due to rising costs, which will have a direct impact on demand. Our clients, property developers, have devised a number of incentives for buyers to still boost sales, despite the increase in the VAT rate.

This includes purchase price payment facilities and also negotiations with suppliers and subcontractors for optimization of the construction and administration costs to keep prices under control.

Have real estate investors reoriented to other cities given the cumbersome permitting process for new projects in Bucharest?

We noticed in practice that secondary and even tertiary cities are coming back to the attention of real estate investors due to the lack of predictability and the urban planning gridlock currently recorded in Bucharest.

Not only do we observe an increased confidence from investors in the potential of the local real estate market, but also the representatives of local authorities in regional cities are open to collaborate with large real estate investors, especially in the industrial-logistics and retail sectors.

How competitive is Romania's legal and fiscal framework for new real estate investments?

So far, Romania maintains its strategic position in the Central and Eastern European countries and is expected to see a stabilisation of the real estate market and an increase in investment volume.

All countries in the region are already seeing significant investments from companies that are relocating operations from Western countries. Romania has reached a high level of gross investment in 2023 due to its geographical position and specific economic advantages, in particular due to the attractive ratio between labour costs and productivity.

What role do ESG criteria play in real estate companies' negotiations for financing?

ESG regulations and standards impacting on green finance and procurement are constantly developing and intensifying. Thus, real estate companies that integrate sustainable practices and responsible individualised strategies into their investment decision-making (especially energy efficiency and environmental standards) have easier access to bank financing and on more favourable terms. These include lower costs of capital, lower interest margins and longer maturities.

What trends do you see in real estate project financing?

Banks' interest in real estate financing is focused on the industrial sector, followed by the retail and residential sectors. ESG components are taking into consideration as most contracts have sustainability clauses.