EUR 10.4 bln, the loss of the added value in the economy, estimated for 2022-2026

The first impact study on the blockage of the authorization of new constructions in Bucharest

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Bucharest’s contribution to the total national GDP decreased by 2.4 percentage points from 2019 to 2021, the estimated losses for tax revenues being 17.2 billion lei (3.45 billion euros) until 2026. Those are the main conclusions of the first impact study regarding the blockage of the authorization process in Bucharest, carried out by financial analyst Iancu Guda and presented today for the first time at the event organized by BUCHAREST REAL ESTATE CLUB, RESIDENTIAL CONFERENCE: The Future of Quality Living.

The administrative blockage and the uncertainty of the urban climate are also reflected in the direct contribution of the construction industries and real estate transactions to Bucharest’s GDP. Thus, if in 2019, it stood at 14.2%, in 2020 it reached 14%, while in 2021 it amounted to 13.3%.

At a national level, the construction and real estate transactions industries have been very dynamic in recent years, contributing the most to the economy’s recovery after the impact of the Covid-19 pandemic. These sectors register the highest increase in jobs in 2021 compared to 2019 (+80,703 new jobs), the highest increase in income (+90 billion lei), the highest increase in the balance of fixed assets (+44 billion lei), reflecting the largest investments compared to any other activity sector. Statistical data show that although there was an upward trend at the national level, Bucharest registered a considerable decrease.

Considering the polarization of this sector (95% of companies have revenues below 1 million euros, representing 29% of total revenues), the decrease in the number of building permits determines that 9 out of 10 companies active in the analyzed sectors, which operate in Bucharest, are exposed to the risk of insolvency. The main vulnerability of these companies is their small size, in the context of a very high level of debt (almost 80%).

The estimated loss for tax revenues is 17.2 billion lei (3.45 billion euros), while the total loss of added value in the economy is approximately 52 billion lei (10.4 billion euros) for 2022 -2026. “The opportunity costs are enormous, given that the potential tax revenues that can be lost could be directed towards the construction of 5 hospitals, 5 high schools and 10 primary schools with kindergartens, in each sector of Bucharest. Alternatively, with these funds, the entire outworn heating network of Bucharest can be restored“, said financial analyst Iancu Guda during the BREC conference.

The consequences of the lack of predictability and the administrative blockage can generate financial losses greater than the 10.4 billion euros estimated in the study, through the reluctance of international and local investors to place their capital in new investments on the Bucharest market. The value of these losses is impossible to quantify“, said Despina Ponomarenco, President of the Bucharest Real Estate Club.

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