The first article on the subject is at Logos Press.
The program didn’t create new buyers. It allowed existing buyers to purchase real estate earlier and more expensively. That’s the fundamental difference. The program increased the ability to pay for a limited number of buyers, but it did not increase the number of buyers. Prices adapted to the new ability to pay – and rose.
This is a classic accelerated demand mechanism. Future demand was partially realized ahead of time. Some of the buyers who would have purchased a home in 5-10 years have already done so today. In the long term, this creates not a sustainable growth of the market, but a temporary surge followed by a void.
The IMF has recommended that the terms of the program be aligned with the general principles of credit risk. This is a standard recommendation for countries where subsidized mortgages are starting to heat up the market instead of making housing affordable. To admit this publicly is to admit that the social program has become a mechanism to enslave young people at the peak of prices. That is why there is no public acknowledgement. There is “strategic silence” and talk about increasing supply.
The authorities have found themselves in the position of a classic twine. On the one hand – the IMF with recommendations and tranches. On the other side – the construction lobby and voters with existing mortgages. The decision is predictable: the program will not be closed with pomp. It will be rendered useless – through tougher requirements to borrowers, higher down payment, more complicated procedures. Formally, the program will exist. In fact – access to it will be closed. When the phrase “The National Bank has tightened the requirements for assessing the solvency of borrowers” appears in the news, this will be the bureaucratic code for the command “turn off the mortgage pump”.
Population size regulates demand
There is a deeper and more intractable factor behind the credit mechanism. The real estate market is the only commodity market whose demand is directly determined by population size and structure. It cannot be exported. Its value is determined solely by domestic demand.
The main demand for housing is formed by the age group of 25-45 years old: people who create families, who buy their first or second dwelling. It is this group that is shrinking fastest in Moldova. Each person who left the country is not only a lost buyer today. It is a lost demand for decades to come.
Remittances from migrants remain a significant factor. But their role is gradually changing: more and more of these funds are not used to buy real estate inside the country, but to integrate in the countries of residence. The diaspora ceases to see Chisinau as a place for investment – and begins to see it as a place that is a thing of the past.
The three sources of demand that have held the market together for the past twenty years – organic demographic growth, remittances and leverage – have either weakened or stopped growing. This is what explains the current freeze. Not regulatory barriers. Not the lack of land. The disappearance of the buyer.
There is also a more exotic hypothesis: that the demand deficit will try to compensate by importing the population, expecting that the solvency of this demand will be provided not by the domestic economy, but by external budgets – similar to the way migration flows of recent years have been integrated into the housing markets of individual EU countries through the mechanisms of state subsidies.
But even if this scenario is partially realized, it will inevitably face the following. There is an additional dimension to the crisis, which is hardly heard in the public discussion.
The rise in prices does not solve the problem of overloading the capital – it exacerbates it. People don’t come to Chisinau because the housing is cheap. They come because there are no jobs, no normal hospitals and no prospects in the districts. A high price will not make a person stay in a dying village. It will make him rent a room or get into bondage for thirty years.
When prices soar in the city, the middle class – teachers, doctors, specialists – are pushed out to the suburbs: Durlesti, Stavceni, Ialoveni. But they work in the center. As a result, thousands of cars storm the city entrances every morning. High prices have not “blown away” Chisinau. They have stretched it to a state of transportation collapse – and at the same time they have not solved a single problem for which people come here.
At the same time, the high price of a meter works as a drug for the developer. Why build a school or a park when you can put a 16-story “candle” on the same spot? Instead of developing new neighborhoods with infrastructure, developers are cramming thousands of new residents into the water and sewage networks that were laid under two- to five-story buildings half a century ago. When a 15-story building with 200 apartments takes the place of a private house, the load on the networks increases tenfold.
The prognosis here is unambiguous: sooner or later the authorities themselves will be forced to limit point development in the center – not for urban planning reasons, but because the infrastructure physically cannot withstand it. Technogenic paralysis is no longer a scenario of the future. For some neighborhoods, it has become the norm of the present.
The structural crisis of the Moldovan real estate market is not a crisis of supply. It is a crisis of demand, which held on three temporary supports: credit leverage, remittances and demographic inertia. All three pillars weakened simultaneously. Prices have fixed the inertia of growth. Transactions have fixed reality. The discrepancy between them is the diagnosis.
Why the proposed solutions cannot work
Almost all the proposals that are publicly discussed today as measures to “unblock” the market have one thing in common: they are aimed at restoring the previous level of activity without changing the fundamental conditions that provided this level of activity.
Before analyzing specific proposals, it is necessary to refer to the Moldovan historical experience. It gives a more accurate prediction than any theoretical model – because it has already happened.
During the period of concentration of economic power in the hands of a narrow circle of political and financial groups, systemic attempts were made to establish centralized control over sectors with high money turnover. Gambling, alcohol imports, and certain segments of trade were consistently placed under centralized regulation. Formally, this was explained by the need for transparency and the fight against the shadow economy. In fact, the result was the concentration of money flows in favor of a limited number of participants.
An attempt to apply the same logic to the real estate market faced a fundamentally different economic nature of this sector. Real estate is not a commodity with a quick turnover. It is an asset with a long life cycle, high value and deep connection with the banking system and private interests of thousands of owners. It cannot be centralized administratively without destroying the trust mechanisms on which transactions are based.
The market has not disappeared. It has adapted. Some transactions have moved to the informal segment. The number of intermediaries has not decreased – their nature has changed. Instead of institutional agencies, the number of informal intermediaries grew, whose function was no longer to support the transaction, but to adapt it to the complicated regulatory environment. Mediation ceased to be a risk mitigation tool and turned into a tool for circumventing administrative restrictions.
The real estate market was never integrated into the centralized economic structures of that period – unlike other sectors. It turned out to be too inertial, too distributed and too closely linked to the expectations of private owners, which did not lend themselves to centralized management.
This episode has direct relevance to the current discussion. The real estate market does not respond to administrative pressures the way other sectors do. It does not submit – it fragments and withdraws into less transparent forms. That is why all proposals based on the logic of administrative market management inevitably reproduce the same mistake – regardless of the political label under which they are proposed.
The central thesis of the current discussion – “there is not enough housing, that is why it is expensive” – is convenient for all participants precisely because it does not require talking about the main thing. The market is not about square meters. It is in the solvent buyer.
In Chisinau today there is already a significant amount of empty housing – apartments bought as an instrument of capital preservation and standing for years with dark windows. In parallel, the country is losing population. Every flight to Berlin or London is not only a person who has left. It is a lost buyer for decades to come, a lost tenant, a lost market participant.
The real estate market is not a market for building materials. It is determined not by the number of square meters built, but by the number of economic entities able and willing to buy these meters. Increasing supply in conditions of shrinking solvent demand does not restore equilibrium. It exacerbates the imbalance by adding new objects to the market, where there are not enough buyers.
The proposal to expand lending to the construction sector is based on the assumption that developers are holding back supply because of a lack of financing. This does not correspond to reality.
Developers are holding back prices not because they lack the funds to build, but because high margins allow them to hold prices when sales are low. Cheap loans will not change this logic – they will only allow developers to build more at the same margin. Reduced cost of financing does not automatically translate into lower prices for the end buyer, if the market position allows to keep this price.
Banks, in turn, do not lend to the construction sector not out of malice, but because the objective lack of transparency of the Moldovan construction business does not allow a correct assessment of credit risk. A mortgage borrower is an identifiable source of debt repayment for twenty years. A development project is a combination of risks of under-construction, change of ownership, and changes in the market. If the government forces banks to accept this risk, bypassing market logic, and demand does not recover due to demographic constraints, the developers’ bad debts will fall on the banking system. This is no longer a market risk. It is systemic.
Prima Casa was originally created as an instrument of social support. In fact, it has become a key mechanism for maintaining demand – and at the same time one of the main factors in driving up prices.
Any subsidized lending program has a dual effect. It expands access to housing for certain categories of the population – this is its declared goal. But at the same time it increases effective demand, which in conditions of limited supply leads primarily to an increase in the value of assets, not to an increase in their affordability. The instrument of increasing housing affordability over time begins to reduce it – because the growth of prices outpaces the growth of incomes of the very people whom the program is designed to help.
Expanding the provenance period from two to five years and introducing personal liability declarations is presented as a technical improvement that removes unnecessary barriers. In reality, it is a systemic weakening of anti-money laundering controls under pressure from the industry lobby.
In the short term, it will allow some of the transactions that are not compliant today to go through. But this is not a restoration of liquidity. It is the replacement of part of the real solvent demand with capital of non-transparent origin. Such a substitution further detaches prices from the real incomes of the population and further closes the market for the very buyer, for the sake of whom these measures are formally taken.
Behind each of these proposals is the same fundamental conflict.
From an economic point of view, the market must adapt to the new demographic and financial conditions. This means reducing the pace of construction in certain segments, adjusting prices and moving to a new equilibrium. This is an inevitable process and its duration depends on how early it is recognized.
From a political point of view, such a development is highly undesirable. It affects developers, the banking sector, the construction industry, local budgets and all those who have already purchased housing using credit. Recognizing a structural change in the market raises concerns among a wide audience – and requires political responsibility.
Under these circumstances, public authorities are opting for a strategy of gradual and limited adjustments accompanied by public declarations of stability. Administrative measures affect the speed of market adjustment – but not its direction.
The real estate market is a derivative of the number of people able to purchase housing on a sustainable financial basis. It cannot grow faster than this number grows. And no administrative decision will change this dependence.
That is why the key question today is not how to “unblock” the market. It is about what new model it will adapt to – and what price will be paid for delaying this recognition.
This is the subject of the last part of our publication
Dmitri Tereburke,
real estate and valuation expert
