Untitled

Report and Valuation for
NETANEL GROUP ROM SRL
Land plots
SOS VITAN BARZESTI NR. 9,
SECTOR 4, BUCURESTI
18 March 2008
Private and Confidential
DTZ Echinox
Floreasca II Business Center
40-44 Banu Antonache Street, 3rd Floor
Sector 1, Bucharest, Romania,
Report No.: CV.2008.0216
CONTENTS PAGE
1.0
Executive Summary
2.0
Terms of Instruction, Confidentiality & Disclosure
2.1
Our Appointment
2.2
Inspection
2.3
Compliance with Appraisal and Valuation Standards
2.4
Status of Valuer & Conflicts of Interest
2.5
Basis of Valuation
2.6
Confidentiality & Disclosure
3.0
The Subject Property
3.1
Location and Situation
3.2
Description
3.3
Environmental Matters and Deleterious Materials
3.4
Planning
3.5
Highest and Best Use
3.6
Local Property Taxes
3.7
Tenure
3.8
Tenancy
3.9
Market Commentary
3.9.1. Market Overview
3.9.2. Specific Market
4.0
Specific Comments & Valuation Approach
5.0
Valuation
5.1 Reconciliation of Values
5.2 Certificate of Value
APPENDICES
I. Location Map
II. Plans
III. Site Photographs
IV. Ownership Documentation
V. Valuation Calculations
VI. Definition of Market Value, Qualifications & Terms of Engagement
SC NETANEL GROUP ROM SRL
Land plots – Sos Vitan – Barzesti, nr. 9, sector 4, Bucuresti
18 March 2008
1.0
Executive Summary
Address of subject property
Sos. Vitan – Barzesti, nr. 9, sector 4, Bucuresti
Cadastre number / Cadastral Book
9005/7 in CF 54977– plot 1
9005/8 in CF 54978 – plot 2
Owner
SC NATANEL GROUP ROM SRL
Inspection date
21 January 2008
Effective valuation date
31 December 2007
Property rights appraised
Fee Simple Estate
Total land area
500 sq m – plot 1
14,375 sq m – plot 2
14,875 sq m – total land plot
Total improvements footprint
Total improvements built area
Final estimate of market value
11,900,000 Euro
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SC NETANEL GROUP ROM SRL
Land plots – Sos Vitan – Barzesti, nr. 9, sector 4, Bucuresti
18 March 2008
2.0
TERMS OF INSTRUCTION, CONFIDENTIALITY AND DISCLOSURE
PROPERTY:
2.1
LAND PLOTS – SOS VITAN BARZESTI NR 9, SECTOR 4,
BUCURESTI
OUR APPOINTMENT
It is our understanding that our report and valuation is required for accounting
purposes. We agree this valuation will be included in the annual report of Netanel
Group Ltd.
In accordance with your instructions, we have valued the freehold interest in the
above property, as at 31 December 2007, for the stated purpose.
The present valuation report has been requested by Mrs. Yael Perry, Director within
Netanel Group Ltd.
2.2
INSPECTION
The property was inspected by DTZ Echinox representative on 21 January 2008.
2.3
COMPLIANCE WITH APPRAISAL AND VALUATION STANDARDS
We have not fully complied with the RICS Appraisal and Valuation Standards,
5th Edition, (the ‘Red Book’) for the following reasons:
1) Regarding the title of the property, we have relied only on the information
provided by the Client
2) Regarding the planning status of the property, we have relied only on the
information provided by the Client
3) Regarding the environmental status of the property, we have relied only on the
information provided by the Client
In all other respects we have tried to value the property in accordance with the
appropriate sections of the Practice Statements (‘PS’) contained within the Red Book
and adopted the definition of Market Value (Appendix VI).
2.4
STATUS OF VALUER AND CONFLICTS OF INTEREST
We confirm that we have undertaken the valuation acting as an External Valuer,
qualified for the purpose of the valuation.
We further confirm that we have had no previous recent involvement with the
property or parties to the transaction and do not therefore consider that any conflict
arises in preparing the advice requested.
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SC NETANEL GROUP ROM SRL
Land plots – Sos Vitan – Barzesti, nr. 9, sector 4, Bucuresti
18 March 2008
2.5
BASIS OF VALUATION
We have undertaken our valuation on the basis of Market Value. We have set out the
definition of this basis of valuation in Appendix VI.
Our valuation is subject to our standard Valuation Terms, Conditions and
Assumptions, which are included in Appendix VI. In the event that any of our
assumptions prove to be incorrect then our valuation should be reviewed.
2.6
CONFIDENTIALITY AND DISCLOSURE
The contents of this Report and Appendices are confidential to the party to whom they
are addressed, for the specific purpose to which they refer and are for their use only.
Consequently, and in accordance with current practice, no responsibility is accepted to
any other party in respect of the whole or any part of their contents. We agree this
valuation will be included in the annual report of Netanel Group Ltd.
2.7
THE TEAM
The team is headed by Bogdan Sergentu, a certified valuer with 7 years experience in
valuation field, member of ANEVAR (National Association of the Romanian Valuers).
He is supported by Alina Constantin, a certified valuer with 2 years experience in
valuation field, member of ANEVAR (National Association of the Romanian Valuers).
Yours faithfully,
Bogdan Sergentu (ANEVAR member)
Head of Valuation Department
Alina Constantin (ANEVAR member)
Valuer
For and on behalf of
DTZ ECHINOX CONSULTING SRL
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SC NETANEL GROUP ROM SRL
Land plots – Sos Vitan – Barzesti, nr. 9, sector 4, Bucuresti
18 March 2008
3.0
THE SUBJECT PROPERTY
• ADDRESS : SOS VITAN BARZESTI NR. 9, SECTOR 4, BUCURESTI
• CADASTRAL NUMBER / CADASTRAL BOOK:
- 9005/7 IN CF 53922/8 – PLOT 1
- 9005/8 IN CF 53922/9 – PLOT 2
3.1
LOCATION AND SITUATION
The subject property is located in the South - East part of Bucharest city, between
Vitan and Berceni district, on the East side of Sos. Vitan – Barzesti, circa 1 km South
of Vitan bridge.
The subject property is circa 400 m set back from Sos Vitan - Barzesti, the access
being made through an unpaved road that leads from Vulturului street to East, towards
the subject site. Vultului street is an asphalted street that runs from Sos. Vitan Barzesti to North.
The neighbourhood is mixed. Along Sos Vitan – Brazesti there are commercial units
(Rin Grand Hotel, Praktiker, Autovit), Sf. Ioan Hospital, National Institute of
Metrology and National Institute of the Forensic Medicine. Along the adjacent streets
there are old houses, new villas and undeveloped plots of land. On the North side of
the subject property there are Vitan – Barzesti greenhouses.
The public transportation is served by two bus lines which have stations on Sos. Vitan
– Barzesti
3.2
DESCRIPTION
3.2.1 The site
The subject property represents two adjoining land plots. They formed together a
semicircle shaped site with a frontage to an unpaved road of circa 17 m and a site area
of 14,875 sq m.
The access is made through an unpaved road that leads from Vulturului street to East,
towards the subject site. The only utility present on the site is electricity.
3.2.2 Improvement(s)
There are no improvements on the site.
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SC NETANEL GROUP ROM SRL
Land plots – Sos Vitan – Barzesti, nr. 9, sector 4, Bucuresti
18 March 2008
3.2.3 Schedule of areas
plot
address
cadastral no cadastral book size (sq m)
1 Sos Vitan Barzesti no 9, sector 4, Bucuresti 9005/7
53922/8
500
2 Sos Vitan Barzesti no 9, sector 4, Bucuresti 9005/8
53922/9
14,375
TOTAL
14,875
For plans - see Appendix II
3.2.4 Condition
Not applicable, as there are no improvements on the site.
3.3
ENVIRONMENTAL MATTERS AND DELETERIOUS MATERIALS
We have based our valuation on the conclusion of the following documents provided
by the Client: analysis bulletins (“bulletin de analiza”) no 356, 357, 358, 359, 358,
360, 361, 362, 363, 364, 365, 366, 367, 368, 369, 370, 371, 372, 373, 374, 375, 376,
377, 378, 379, 380, 381, 382, 383, 384, 385, 386, 387, 388, 389, 390, 391, 392, 393,
394, 395, 396, 397, 398, 399, 400, 401, 402, 403 and we have assumed that there are
no deleterious materials or site contamination.
3.4
INVESTIGATIONS RELATED TO SUBSOIL
We have based our valuation on the Utility Survey issued for the land plot located in
Bucuresti, intr. Vulturilor, nr. 6, sector 4 of 19,500 sq m which includes the subject
property and on the public networks map of the subject area, and we have assumed
that there are no underground water pipes and sewerage present on the site.
3.5
PLANNING
According General Urbanism Plan of Bucharest the property is located in M3 area,
with the following indicators: “POT” = 60%, “CUT” = 2.5
See Appendix IV
3.6
HIGHEST AND BEST USE
The features of the property and the location indicate that the highest and the best use
is residential.
3.7
LOCAL PROPERTY TAXES
We have not taken into account the impact of property taxes on any sale transaction.
3.8
TENURE
According to the legal documentation that we have been provided by the Client, the
subject property is owned by SC NATANEL GROUP ROM SRL, which bought the
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SC NETANEL GROUP ROM SRL
Land plots – Sos Vitan – Barzesti, nr. 9, sector 4, Bucuresti
18 March 2008
plots from LAZAR NICOLAE and LAZAR ELENA at the price of 1,710,625 Euro
(See Appendix IV)
3.9
TENANCY
We have not been provided with any lease contracts regarding the subject property.
(See Appendix IV)
3.10
MARKET COMMENTARY
3.10.1 Market Overview
The country has been reforming and restructuring its economy and administration
during the past few years with the view to join the EU in 2007. As a part of this
process, the government has been working on building institutions as well as design
and implement public policies that would fundamentally transform Romania’s economy
and society.
Despite robust economic growth over the past five years, important challenges remain.
Additional structural reforms are crucial for building a competitive market economy
capable of withstanding the pressures of EU integration. Moreover, poverty persists in
the country, with over 15 percent of the population living below the poverty line. Twothirds of Romania's poor live in rural areas despite the country's substantial potential in
agriculture, forestry, and fishery.
Romania's transition, which started in 1990, was more difficult than that of the other
CEE countries in many respects. By the late 1980s, Romania’s economy was on the
verge of collapse after 40 years of rigid central planning that emphasized self-reliance,
an excessive focus on heavy industry, and large, inefficient infrastructure projects.
Since 2000, the government has implemented macroeconomic policies which are
supportive of growth. A disciplined fiscal policy, which complemented a tight
monetary policy and was augmented by strong advances in structural reforms, led to
improved financial discipline in the enterprise sector and has placed public finances and
the financial system on much firmer footing.
These improvements resulted in robust GDP growth for five consecutive years. In
addition, inflation and interest rates declined steadily, the fiscal deficit was brought
under control, foreign exchange reserves increased to historic highs, and external debt
was held to comfortable levels. Export growth remained vigorous, fuelled by private
investment and the initial competitive depreciation of the lei currency. The
competitiveness of the enterprise sector was boosted by productivity gains.
Romania joined the European Union (EU) on January 1 2007 despite serious
misgivings among many old member states about the country’s institutional and
administrative preparedness. Romania has one of the fastest-growing economies in the
EU, buoyed by brisk household credit growth. Real GDP growth reached 7% in 2006,
after having grown by an average of 6% in 2004-05.
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SC NETANEL GROUP ROM SRL
Land plots – Sos Vitan – Barzesti, nr. 9, sector 4, Bucuresti
18 March 2008
Private consumption surged by nearly 12% last year, on a par with Russia and among
the strongest growth rates in Europe. While there are some signs of overheating average private sector credit growth increased by 35% annually in 2003-06 - bank
credit as a percentage of GDP is still significantly lower than in the advanced central
European markets. Romania was the third-largest recipient of foreign direct investment
in Central and East Europe last year, receiving nearly $10bn. The economy is set to
benefit from further inflows in the next two years, with roughly one-third of the €32bn
in EU structural and cohesion funds in 2007-13 due to be disbursed in the next two
years.
Partly as a result of voracious private consumption, Romania’s current account deficit
has ballooned, rising from 6% in 2003 to 12% in 2006 - one of the highest in the
region. The National Bank of Romania (NBR) is attempting to redress the country’s
external imbalances by cooling the economy through interest rate hikes. This has
helped reduce Romania’s inflation rate to 5% at the end of 2006.
Romania’s main challenge - particularly in view of concerns about corruption - is to lay
the institutional, legal and administrative groundwork for ongoing capital flows to be
deployed efficiently in order to boost the country’s growth rate and improve
competitiveness.
Romania is now a visible and attractive destination for international investors as a result
of better sovereign ratings and improved access to international capital markets.
Table 1. Macroeconomic overview of Romania
2003
2004
2005
2006
Population (million)
21.7
21.7
21.7
21.6
Unemployment Rate (%)
7.4
6.3
5.9
5.4
Nominal GDP (US$ bn) in current
prices
59.5
75.5
98.6
98.3
GDP Growth (% y-o-y)
5.2
8.4
4.1
7.8
GDP per capita (US$)
2742
3479
4563
-
Industrial Production Index (IPI, %) 3.1
5.3
2
5.4
CPI (%)
15.3
11.9
9
6.6
4.11
3.96
3.62
-
17 618
22 155
-5.8
26.7
25 022
32 310
-4
24.2
27 625
37 253
-8.7
24.9
30 300
46 200
-9
30
Foreign Exchange Rate (Local
Currency/€)
Exports (US$ m)
Imports (US$ m)
Current Account (% of GDP)
Foreign Debt (% of GDP)
Source: www.securities.com
As Romania strives to alleviate poverty and to meet its EU integration commitments, it
faces a number of challenges, such as the following:
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Land plots – Sos Vitan – Barzesti, nr. 9, sector 4, Bucuresti
18 March 2008
• Accelerating structural reforms, including completing the privatization agenda,
improving the business climate by eliminating administrative barriers, and
implementing a transparent, predictable and efficient tax system. These reforms are
aimed at enhancing revenue collection in order to co-finance the absorption of the EU
Structural and Cohesion Funds.
• Reforming public institutions and improving governance. This can be achieved
through supportive legal and regulatory framework and development of a merit-based
civil service.
• Reforming the legislative process and the judiciary. It is essential to streamline
existing legislation and develop an effective system to pass new laws. The judicial
process also needs to be improved through greater speed and efficiency in the courts.
• Reforming the pension system. The system faces significant challenges deriving from
the aging of the population, the demographic structure, and poor revenue collection
performance. Further reforms are needed to ensure medium and long term financial
sustainability and higher pensions.
• Developing rural areas and reducing poverty. The agricultural sector reforms are
essential to reduce the country’s high levels of poverty. Although Romania has fertile
agricultural land, vast tracts of forest and a rich network of rivers, its rural areas suffer
from inadequate infrastructure and inefficient production. Access to education and
social services in these areas must be also improved.
• Reforming the energy sector. The restructuring should continue mainly in the
generation sector. The privatization of electricity generation companies has been
delayed, affecting the sector efficiency and the competitiveness of the power sector
within the European market.
Recent trends
The drought and extremely hot days during this summer that have affected more than
40% of Romania had clear impact on the agriculture and the economy as a whole.
Recent floods will challenge the government in achieving a 5.7% real GDP growth by
the end of the year. The economic growth registered in the second quarter this year
slowed down compared to the first quarter, when the National Statistics office
measured a 6% GDP growth. The 5.6% GDP growth of the second quarter of this year
is the lowest in the last 18 months, respectively since the last quarter of 2005 when the
floods affected the economy. Even so, the previous high deficit of the budget is
expected to improve, reaching 2.8% of GDP for the whole year and 2.5% for 2008.
The engine of the growth of the economy is this year fuelled by growing incomes, the
construction market and more flexible loaning products for the population, as well as a
better policy of the government in tax collection. The stock of loans increased by 40%
in national currency while in euros it is 62% y/y – the highest rate in recent years.
The central bank has concerns about growing incomes and has repeatedly urged the
government to help the disinflation and the macroeconomic stability in general by
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Land plots – Sos Vitan – Barzesti, nr. 9, sector 4, Bucuresti
18 March 2008
enforcing tighter budget policy. Currently, the inflation rate is at 3.8%, under the
estimations of the National Bank. This has lead to a 0.5% decrease of the interest rate
down to 7.0%.
Chart 1. Key economic indicators in Romania
Source: DTZ Research; www.securities.com
There is pressure from the EU to increasing the VAT rate (currently at 19%) or the flat
tax (now at 16%) in order to support the social measures like increasing the pension
budget – one measure typically for a year prior to elections. This would affect the
spending power and increasing consumption coming from the population.
The unemployment rate fell to 4 percent in June, its lowest level since 1991. Romania
is struggling to plug a growing shortage of workers, mainly in the construction sector,
as more than one in 10 Romanians have left the country since the fall of communism in
1989, seeking better wages abroad.
Economists estimate thousands of workers will be needed, particularly after EU cash
starts coming Romania's way, boosting the number of infrastructure projects.
3.10.2 Specific Market
Following the powerful economic boost in the past few years, the land market has
experienced a significant development in all sectors: residential, office, industrial and
retail.
Following the recent developments in the market, the land values suffered a high
increase. The asking price is mainly determined by the planning permit that could be
or have already been granted for the subject site and thus, the possible built area has
an important contribution in the price.
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SC NETANEL GROUP ROM SRL
Land plots – Sos Vitan – Barzesti, nr. 9, sector 4, Bucuresti
18 March 2008
The pricing of land plots is relatively erratic and increases in asking prices can be
seen on a monthly basis. In many cases, once an interest is logged with the seller, it is
not uncommon to experience an increase in the asking price based on the interest
shown.
There is strong interest in land plots from international investors who are seeking to
land bank or acquire land for development. This is coupled with a large number of
Romanian investors buying large plots of land for similar reasons.
Due to the undeveloped land registration system in Romania, the legal title of many
sites can be unclear and may require clarification. The restitution process is underway
and for certain sites the ownership is in a stage of transition to be transferred to the
former owner from the state.
4.0
SPECIFIC COMMENTS AND VALUATION APPROACH
In order to estimate the Market Value for the subject property we have used the
Market Comparison Approach.
The Market Comparison Approach
The subject property is of a type that is transacted in the market and there are several
sales transactions providing comparable evidence, as the market is very much based
on transactions in the market place between a willing buyer and a willing seller.
We have carried out a grid analysis of the available comparable properties and this is
attached as Appendix V. We have been able to establish brief details of most of these
transactions, which we have analyzed for the sales comparison on an overall price per
sq m basis.
Location, size, position, access, date of sale, frontage/shape and utilities were the
analyzed factors. All the comparable properties are strong in terms of location.
Having regard to the above comparable data, we have adjusted the values according to
the following criteria:
• Dimension of the plot (sq m)
• Transaction type (asking/transaction)
• Date of Sale
• Location
• Access
• Frontage/shape
• Utilities
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SC NETANEL GROUP ROM SRL
Land plots – Sos Vitan – Barzesti, nr. 9, sector 4, Bucuresti
18 March 2008
5.0
VALUATION
5.1
Reconciliation of Values
The property is of a type that is transacted in the market and there are several sales
transactions providing comparable evidence. We have used the Sales Comparison
Approach, which we believe to be the most accurate method for valuing such a
property on the Romanian market.
5.2
Certificate of Value
We are of the opinion that the Market Value of the freehold interest in the above
Property, as at 31 December 2007, subject to the assumptions and comments in this
Report and the Appendices is in the order of:
€ 11,900,000
(Eleven Million and Nine Hundred Euros)
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