Project Monitoring Services: A „must” for Real Estate Sector in Romania

Over the last years most of the real estate developers in Romania are financing their construction projects through bank loans, regardless the sector: residential, office, commercial, retail, hospitality and industrial.

Over 64 billion lei loans granted for the commercial real estate sector in Romania in 2018-2019.

According to The Financial Stability Report, issued by The National Bank of Romania in June 2019, between 2018-2019 there were granted bank loans in total amount of 64,9 billion lei  for the commercial real estate sector (office buildings, retail, shopping mall, hotels), meaning 58% of the financial institutions’ total corporate portfolio. This is a high increase from 15,3 billion bank loans for real estate companies granted in 2016 (15% of total loan volume obtained by companies).

21,4 billion (33%) of this amount were loans for construction and real estate companies (55% for commercial buildings and 28% for land and buildings) and the rest of 67% were real estate guarantees loans.

Although the lending standards registered a moderate tightening in the last 2 years, the   demand for loans from companies has maintained its high level, with a modest decrease in the case of large companies. For the next period, it is estimated an increase in loans requested by small and middle size companies, while the demand from big companies is expected to remain at the same level as this year.

The high rate of granted loans in 2018-2019 is generated by lowering of the rate of bad loans in the construction and real estate sector, from 35,92% registered in June 2015, to 5,52% in March 2019, this being the reason why most of the financial institutions are offering loans for construction projects.

Amid the increase of the number of loans for construction projects, the lenders are looking for accurate ways to reduce bad loans rate, by increasing the credit risks disaggregation in the field of real estate transactions. In this context, the Project Monitoring Services have become a “must” for real estate sector in Romania, by providing the lenders with assurance and control over the investment.

What is Project Monitoring?

Project Monitoring is the process of protecting the client’s interests (lender) from the risks associated with their interest in a development that is not under their direct control, by supervision and reporting activities in order to certify that the investment is sustainable and the funding is properly used.

A Project Monitor does not assume the responsibilities of the project manager or project’s developer, but acts as an investigator and advisor to the client (lender/financial institution), being “the eyes and ears” of the client during the development process.

Who needs Project Monitoring?

The Project Monitoring services are needed and requested by a range of different client types, such as: funding institutions which can acquire the project as an investment upon completion, tenants or purchasers who will lease or purchase the project upon completion, banks and development finance companies, grant funders or private finance initiative funders.

What does a Project Monitor do?

The Project Monitor will supervise the progress of the construction project in a way that is both independent and impartial, adopting a proactive approach, anticipating potential issues which may affect the project delivery.

The Project Monitor verifies whether the Developer has obtained all the authorizations and approvals required by the state’s legislation for the development of the Project, that these authorizations and approvals are opposable to third parties, that they have been obtained based on the Technical Project and that the provisions of the construction contract are in compliance with them.

The Project Monitor also analyses and certifies if the specifications included in the design documentation cover all the elements and activities necessary for the completion of the Project. During construction, his role lies in valuing all the works completed by a certain date and confirming that they are compliant with the specifications of the Technical Report and with the Construction Authorization, outlining and commenting on any inconsistencies.

Vitalis Consulting offers specialized Project Monitoring Services for over 50 construction projects

Given the increase in granted loans for real estate developers over the last two years and in order to meet the specific needs of the Romanian financial institutions, Vitalis Consulting’ Project Monitoring services have been permanently improved and developed to a full-range of specialized solutions.

Between 2018-2019 Vitalis team was appointed as a Project Monitor within over 50 construction projects from various real estate sectors such as: office buildings, residential compounds, hotels, logistics and industrial parks, retail projects and shopping centres, both in Bucharest and regional cities, collaborating with most of the major financial institutions in Romania.