The expansion into residential real estate in Romania by JSE-listed property group MAS is gaining momentum, with at least eight different large-scale projects under way.
The group, which has a joint venture with Romanian developer Prime Kapital to build residential property, says it has more than enough developable stock to achieve its annual sales revenue target of €200m (about R3.3bn) by 2026, but there is potential for expansion.
The venture, which houses the residential business, is split 60/40 between Prime Kapital and MAS. It also develops shopping centres and offices to hold in its rental earning portfolio and more mixed-use developments are in the offing. Only residential properties are developed for sale.
MAS, which has a large South African shareholding, is one of the few counters on the bourse along with Nepi Rockcastle to offer local investors exposure to the Romanian residential market.
MAS says prospects are looking positive for residential developments as demand for modern dwellings continue to surge on the back of a strong economy and a desire for better quality living.
Apartment blocks were built as precast concrete, with no insulation, no double glaze, no central heating
— Brendon Hubbard, portfolio manager at ClucasGray
Romania still has a legacy of dilapidated communist-era apartment blocks that can be cold in winter and stifling in summer, lack green spaces and don't include parking.
This has spurred demand for more modern apartments as Romanians reaped the benefits of economic growth that was running at 5%-6% per annum in the years before the pandemic. Since the pandemic, growth has slowed to about 4%.
Newly appointed MAS CEO Irina Grigore, who has been deputy CEO since August 2021, says the generally inadequate standard of residential property in Romania provides an opportunity for MAS and Prime Kapital to meet demand for better accommodation.
Maggie Kitshoff, who is responsible for residential and office development at Prime Kapital, sees major scope for future developments amid demand in the mid-market segment that should persist for “many decades to come.
MAS investor relations spokesperson Leon Allison says MAS’s medium-term target is for residential property to grow its contribution to group profit from almost zero now to about 20% over the next four years.
The average price of units is around €100,000.
Among the most recent developments is MAS and Prime Kapital’s Silk District development launched in August last year in Iasi, with 1,491 units to be developed.
Other projects include Roman Residential, which will have 2,140 apartments on a 9ha former industrial site in south-eastern Brasov, southern Transylvania’s major city. In Timisoara, a 5.6ha site will have 1,252 units, and in Bucharest, 746 units are being developed at Avalon Estate.
Grigore said in the case of some projects, such as the Silk District development, sales targets were consistently being overachieved each month.
Brendon Hubbard, portfolio manager at ClucasGray, said MAS and Prime Kapital are in an ideal position to benefit from the demand for residential property in Romania.
He said the company’s objective of doubling its dividend in the next four years looks achievable with residential property development a key component.
“What happened in Eastern Europe [during World War 2] is the Nazi steamroller went one way and the Soviet steamroller came back the other way and everything was flattened. When they rebuilt, everything was rebuilt under communism.
“Apartment blocks were built as precast concrete, with no insulation, no double glaze, no central heating. Under communism, the average area per person was 17m²,” Hubbard said.
“Fast forward to today where you have full employment and Romanians are earning euro-based salaries that are rapidly rising. You have access to euro debt for mortgages. You have this classic story of big demand and poor supply. Consumers want contemporary living.”
Meanwhile, MAS is continuing to expand its retail portfolio in Romania, announcing this week that it had agreed to acquire, subject to shareholder approval, 100% of six retail centres developed by Prime Kapital in the joint venture for €319.7m.
These include the Prahova Value Centre, Dambovita Mall, Sepsi Value Centre, Barlad Value Centre, Zalau Value Centre and DN1 Value Centre.
MAS is also proposing extending the exclusivity period in the joint venture by five years to 2030, from 2025.
