Yitzhak Hagag
Co-founder
Hagag Development Europe

05 July 2021

Hagag Development Europe is a developer of premium residential and office real estate, with a focus on the rehabilitation of historical buildings.

Can you briefly describe your vision for Hagag in Romania and what is maintaining your active interest in the CEE market? 

My past experience and penchant for niche real estate developments drove my attention towards this continuously growing market in Europe: Bucharest. As a result, in 2015, Hagag Development Europe entered the Romanian market, soon developing projects with unique architectural presence and premium facilities and services. We have taken on the role of honorary patron of Bucharest’s heritage buildings, and we are working on setting new standards for high-end real estate developments. Major part of our investments are concentrated in the ultra-central area of the capital city, on Calea Victoriei and Piata Universitatii (H Victoriei 139, H Victoriei 109, H È˜tirbei Palace and H Tudor Arghezi 21), and we have made it our mission to transform and revitalize these beautiful and emblematic boulevards of the city. Nonetheless, we are paying as much attention to our greenfield projects that are currently being developed in two of the city’s prime locations: Pipera and Primaverii.

Indeed Bucharest has enormous untapped potential for urban revitalization, does the cost benefit equation make it worthwhile to revamp the city’s historical buildings, many of which have fallen into disrepair?

Absolutely yes, not just from an economical perspective. Preserving these buildings’ unique personalities will help raise the city’s touristic value. What I would like to add here is that even though the majority of our projects serve the premium and upper-premium segments, we also developing affordable-luxury resi-schemes. Currently, we’re working on phase I of H Pipera Lake (1st 5 buildings), an ambitious residential complex with 17 building, over 1,350 units, more than 1,600 parking spaces, promenade area by the lake shore and generous green spaces. We are talking mass market, but still premium. 

What were some of the main challenges you faced as a developer-investor on the Romanian markets and what are your recommendations for overcoming them?

All in all, Romania has been seeing a decrease in previously significant drawbacks such as bureaucracy, corruption, legislative instability and poor infrastructure. As a still emerging market of course there is some risk here, which we mitigate by choosing high level, well located properties that do not depreciate over time, regardless of future crises. There is the infamous infrastructure issue, however I am noticing authorities making some progress here.

One very specific challenge in the realm of taxation was the one year delay of the 5% VAT limit for units up to EUR 140,000. I believe that, aside from making the decision making process easier for the buyers, this measure would boost the sector’s performance. This is a necessary change that will stimulate new unit transactions in the context of currency developments, rise in construction prices and personnel costs and would mean finally adapting to the current socio-economic reality. 

In Israel you have worked specifically on “urban renewal” projects, in what ways are you looking to bring this concept on the Romanian market?

Whether in Israel or in Romania, urban renewal has the same meaning and purpose: reviving the area by repurposing the past. The difference in my opinion is the scenario and the reason why, not the final goal.

In Israel the troubling combination of a shortage of building plots and a rapidly increasing population is what lifts this segment. By the end of 2020, 20% of all new residential projects in Israel were either the demolition of old structures followed by new construction in its place, or the addition of new floors on top of existing buildings. When talking about Bucharest, the scenario is way different: Romania’s capital-city displays amazing architecture with an abundance of historical buildings. These buildings can shine so bright and can offer so much, but are basically thrown into oblivion by local authorities and investors alike. Of course, we would like to see the public sector more involved in the matter and we encourage local authorities to engage in as many refurbishing-schemes as possible. 

What were the main competitive advantages that made you choose Romania over other CEE countries back in 2015, and has it proved to be a winning bet so far despite its shortcomings?

We actually make a very careful assessment when choosing to enter the local market, and even in light of the recent health crisis it was clearly the right call. The country offers competitive taxation and a highly educated and skilled workforce. Before officially accessing the market in 2015, we conducted a rigorous prospection and extensive research on the assets available here and what best caught our attention was this very own market segment we are currently focusing on: developing and growing downtown Bucharest – urban renewal through the reconversion of old building with historical value. On top of this, thanks to its location it is considered to be an access gate to more than 500 MLN consumers, and is also fast becoming Europe’s largest “back office”, as many international companies, various active in the IT industry, have been relocating and opening subsidiaries here for more than 10 years now.

The residential and, respectively, office segments had a very different journey throughout the pandemic – how did it affect your respective business lines?

When talking about premium developments, the discussion is more complex, as this type of units are rarely impacted by market fluctuations and economic crisis. We achieved very satisfactory results last year for all our residential projects, both premium and upper-premium, as well as mass-market. Altogether, the residential segment as a whole proved to be a very resilient structure, as sales for new units alone in Bucharest and Ilfov county went up 17% in Q3 and approximately 35% in Q4, compared to similar periods of 2019, according to recent reports. 

The office and retail segments were, of course, a different story. The gross office transactions volume in Bucharest during Q4 2020 visibly decreased by almost 50% compared to Q4 2019. In our case, we have temporarily frozen some ongoing discussions with potential tenants for H Victoriei 109. However, there is light at the end of the tunnel - our H Tudor Arghezi 21 is already fully leased and we expect the office segment to gradually improve during 2021 as the vaccination campaign unfolds and companies will be recalling their employees at the office. 

What are your plans for the upcoming two to three years?

We have very bold plans. Year-on-year we are allocating a significant budget with the purpose of vastly expanding and consolidatimg our operations and portfolio. As we speak, we are looking into purchasing several new assets that will help us materialize our long-term vision for Romania.

Do you have a final message about Romania’s real estate market at present?

Romania offers many investment opportunities, not only in Bucharest, but also in secondary emerging markets like Brasov, Cluj, Timisoara or Iasi. Residential continues on an upward trend - albeit at a slower pace for now, industrial-logistic is shining above the pandemic and office and retail are rapidly getting back on track. Even with all the recent projects and developments, the demand for real estate properties outstrips the supply. Facts combined, Romania continues to be a good prospect for future foreign direct investments in the sector. 

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