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Brasov, Romania – Capital of Lifestyle?

There is something unique yet indefinable about Brasov. And that makes it a hard city to write about!

On the one hand Brasov is a clear tourist destination;
- spectacular Saxon (ie German-like) walled city that dates from the 14th Century
- nestled under Romanians tallest mountains it offers wonderful views up to the mountains from all locations in the walled city, old town and across the city and the plains (including light industrial development) and beyond
- the base for exploring Transylvania and Bran (Dracula’s) castle
- the base for the most developed (and still developing) ski resort in Romania

However, there is one dimension that makes Brasov almost unique. And that is its relationship with the booming monster (as locals call it) of Bucharest.

Continuing my car spotting rule of thumb, our Volvo (driven here from Spain) looked ordinary next to the cars parked on the streets of Brasov’s old town.

Aston Martins nestled with Porche’s and BMW and Audi’s looked oridinary.

How come?

Two reasons – firstly ‘there is money in them hills’ – ie Brasov is a wealthy and prosperous city on its own account.

But also – and crucially – it is the play ground for the wealthy Bucharest barons seeking to escape the horrid summer heat on the Romanian plain.

Bucharest reached 50 Celsius in late July (thankfully it has cooled and even rained at the beginning of August) but the heat and traffic and noise and pollution and density of this most intense capital city leads to a mass exodus to Brasov every weekend of anyone who can afford a car and the petrol.

In fact, the road north of Bucharest running past Otopeni International Airport – already busy and in the middle of major road improvements – becomes a parking lot on Friday evenings for those exiting to Brasov and again the same pattern is repeated on Sunday night for those returning from their ‘house in the mountains’.

And this is the aspect that I am struggling to find equal comparison with anywhere in Europe.

The wealthy in Bucharest (and there are more and more of them every day) talk about their ‘house in the mountains’. By which they mean a flat in Brasov – either in the walled city, old town, the hills around or a new development nearby.

It is worth noting that for most Bucharest entrepreneurs, Saturday is a work day – only it is more fun when it involves lunch in Brasov or a game of golf (on the much promised golf course).

This means that Brasov is less of a tourist resort – although this potential remains largely untapped – and more of a weekend business conference centre for the Bucharest barons.

This is, of course, to ignore Brasov’s natural trading position as the first city inside the German/Hungarian influenced Transylvanian mountains. And its substantial industrial past and the new future built on high levels of technological investment in sophisticated light industry and assembly.

For instance, Brasov is the world centre for manufacturing of car seat belts and pistons for opening the hatch of your hatch back. In addition, the city has a huge tractor factory – currently standing semi-idle – which is likely to benefit from a massive upgrade to a high tech assembly line.

Add to this the 3,500 high tech industrial jobs from the world’s largest ball bearing manufacturer and you have a pretty good idea of the industrial landscape and links to the car industry.

Brasov enjoys (or equally, suffers because of it) a good road link with Bucharest (except the appalling road exiting Bucharest – which is currently in the middle of major upgrade road works).

However, Brasov does not yet have an airport. And this will restrict its appeal to those able to arrive by car (and therefore the influence of the Bucharest Barons will remain the dominant feature for the next 3 years before the airport is built).

Nevertheless, for the super wealthy, Brasov does have a helipad and helicopter sales in Romania are rocketing as the roads clogs with internationally bound lorries and too many Audi Q7s.

So, what is Brasov?

Is Brasov an Oxford, which is comparable due to the historic centre and industrial history (and future) linked to the car? Or is it more of Grenoble, France – nestled under the Alpine mountains?

Well, neither of these comparisons captures the fact that it is the centre of the counties present (and future) tourism. So, looking around the world – perhaps it is like Simla – the summer capital of India in the days of the British Raj when the government used to exit Dehli in search of a cooler location.

Or like Segovia – north of Madrid (and its baking summer heat) and in the mountains too.

However, Brasov is a city in its own right. It is not just a retreat – it is also a natural trading centre and of course, a significant location for the car and related industries.

This makes comparisons exceptionally difficult, but nevertheless rewarding, because I am tempted to say the Brasov is unique.

Brasov benefits from an exceptional location and huge natural resources – I’m thinking of green trees, fresh air and mountains, the tourism of the Saxon towns of Transylvania and the nearby (15 mins drive) ski resort.

Now, the city is re-modelling itself. It is creating a modern CBD (Central Business District) and whilst is doesn’t yet contain acres of A class office space, there is, nevertheless, a CBD developing in the space between the walled town and the railway station.

I can’t help feeling that an airport will accelerate this development and the lack of the airport is given as the key reason that Nokia chose Cluj-Napoca over Brasov.

However, the late arrival of the airport will give Brasov a different opportunity. So, instead of the headlong charge for growth which we will see in Cluj-Napoca, Brasov will be a rapid but steadily developing location.

The lack of an airport (so reliance on roads and helicopters) will mean that Brasov can develop over a slightly longer time frame and at a slightly reduce pace.

This, please note, is not a criticism – it is as much an opportunity as a threat.

It means that the city has time to remodel itself to preserve its character. It means that it can retain and focus on its luxury appeal that will preserve its unique flavour in the years to come.

Please note, this doesn’t mean development will be slow – it will be exceptionally fast – it will just be a little slower than its comparable cities such as Cluj-Napoca.

So, my best guess is that Brasov’s position in Romania is not as the second biggest city outside Bucharest. That will go to Cluj-Napoca – but Brasov will be Romanian’s favourite city (along with its Saxon sister Sibiu) .

It will be the capital of lifestyle – not political influence nor industrial might.

And this will create a unique fusion.

I don’t believe that Brasov will become Romania’s creative centre – that will remain in Bucharest – where the underground grunginess of the city offers artists the same kind of environment as Berlin (only with the economic growth and massive expansion of the city that is normally a prerequisite for avant-garde artistic creation – think of New York in the 50’s as a better comparison than half empty Berlin).

However, many service companies will choose Brasov as their head office location. Business in this city will be easier – staff more loyal than the ranging free market self interest of the political and economic capital.

And, international firms too, will choose this location – in the heart of the country – but run more on German business principles than the more Balkan-like/ Turkish way of business in the Bucharest.

In some way, business will be easier in Brasov. Staff, and especially senior key staff, will want to live there.

And so, don’t expect Brasov to announce the next ‘Nokia’ factory – although it will have industrial successes. Don’t expect big FDI stories of large scale investment.

Instead, expect many many little investments – small enough to fall benefit the FDI reporting radar – but significant enough to make a huge impact on the city.

Brasov is the lifestyle city of Romania. It is also probably the safest city in which foreign service companies can invest and this will appeal to the small and medium sized enterprises that want to set up shop in booming Romanian but don’t have the financial or political muscle to make it in Bucharest.

Nevertheless, despite the lack of headlines, Brasov will quietly build on its unique position – both the geographic heart of Romania and its position as the lifestyle capital.

What does this mean for property investors?

Well, clearly, this is a recommendation!

It means that luxury top end/ unique properties will do exceptionally well, as will more normal / everyday new build property.

And yes, I see Brasov inside the 200% club that I’ve been writing about in this blog.

However, it won’t be the second biggest city of Romania – that will go to Cluj-Napoca based on current evidence (although I am yet to visit Constanta and haven’t considered Timisoara).

Yet, Brasov will be Romania’s Lifestyle capital – and this will matter in Romania – it will matter a huge amount – because it is living next to an booming monster (Bucharest) and the Bucharesti will want (and need) lifestyle.

Bear in mind, lifestyle is in short supply in Romania. And, given the intensifying growth and development of Bucharest, it is in demand. Huge demand.

Brasov is, therefore, unique – it is Romania’s Lifestyle capital and that will drive property values – of all sorts – but also the luxury developments further and faster than other cities.

It could well become Romania’s most expensive city too.

Watch this space!

Cheers
Neil

POSTED BY NEIL LEWIS ON THU 2ND AUGUST AT 06:38 GMT

TAGS: Timisoara, Sibiu Property, Saxon Villages, Romania Property, Cluj-Napoca Property, Bucharest Property, Bucharest Property, Brasov Property

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BRASOV, ROMANIA – CAPITAL OF LIFESTYLE?

Hi All Just spoke to Tavi Bota - our local property finder - and he suggests that Innsbruck might be a similar 'lifestyle' capital? Cheers Neil

POSTED BY NEIL LEWIS ON THU 2ND AUGUST AT 20:37

BRASOV IN THE 200% CLUB

Hello Neil, I am a Romanian living in the US but investing in Brasov where I will relocate next summer (2009). The properties (1 flat + 2 house plots) have gone up 400% since 2003 (flat) and 2004 (house plots). Romania is the place to invest in the real estate market. I have quite a few romanian friends here in America that plan to relocate back to Romania and I know a lot other that already did it. This will also contribute to the growth. Cheers, Catalin

POSTED BY CATALIN ON THU 2ND AUGUST AT 21:32

BRASOV

Hi Neil, Excellent article and gives a very accurate picture of Brasov's x factor appeal. I would like to add that I understand that the airport construction has indeed been approved and the main contractor appointed. There has been speculation about this for many years but our contacts in the planning dept of Brasov's "town council" have confirmed this. Brasov has an all year round appeal as well. It is cooler in the summer than Bucharest meaning that it is bearable and in the winter months it is stunning due to the Alpine nature of the surrounding area. Many entrepeneurs (?) are looking closely at the area between Brasov and Bran, especially around the town of Raznov where there are huge plans for touristic development....even the ill fated "Dracula themepark" has been mentioned for this area again. Not sure if this is a good thing or not as it would be a shame to spoil such a beautiful area, but on the strength of rumour there are log cabins and hotels popping up everywhere. Land acquisition would seem prudent at this time as the nearby poiana Brasov, whilst Beautiful and exclusive, prices are very very high. Hope this helps

POSTED BY ALAN RICHARDS ON FRI 3RD AUGUST AT 09:17

AIRPORT

Neil, Like your description. But just to point out that there will be an airport in Brasov shortly, expected within 2 years.

POSTED BY ANGELA GYULVESZY ON FRI 3RD AUGUST AT 15:16

AIRPORT AND GROWTH IN BRASOV

Hi All - yes, I we've had it confirmed that the airport is due in Brasov in about 2 years - which is pretty quick! Also, for those who don't know Brasov - it has a thriving heliport - because so many wealthy people in Bucharest want to spend the weekend in Brasov (and don't want to use the road - which can be a 4 hour crawl in traffic). Our latest info is that property is continuing to move up in price. The development we launched - in the Spring - has gone up by a rumoured 20 to 30%. It seems like this city is being discovered and bought up! Cheers Neil

POSTED BY NEIL LEWIS ON FRI 14TH SEPTEMBER AT 09:40

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Why are Romanian property prices high? Free markets, construction costs and Grannies

A lot of people – myself included – were initially surprised by the prices of property in Romanian and need reassurance that we are not buying inflated prices or deals that are designed to fleece the foreign investor!

Now, obviously, the price of property shows huge variation based on city (Bucharest vs Sibiu), location (city centre, prime locations, outer-centre and suburbs) and type/ quality, but nevertheless there is a general expectation that the property would be cheaper.

There are two main things to say about this.

Firstly, the Romanian property market is a thriving free market and therefore when anything is being sold it is being sold according to what people will pay for it. Currently, property in Romania is selling to the local people and selling fast and this will inevitably drive prices higher.

This is good news for property investors who have already bought into Bucharest, Brasov of other Romanian cities. However, investors still considering Romania may need to hurry to avoid further prices rises or quite soon will probably have missed the boat in some of the more obvious areas – such as the central areas of Bucharest.

It is worth nothing that a number of developers have noted that their buyers have quite ‘ordinary’ jobs - such as a bank teller or a semi-skilled worker from a Siemens factory.

In addition, a number of developers have pointed out (again, with some surprise) that large numbers of home buyers are using a mortgage to obtain the property.

This means that the ordinary white collar workers can ‘afford’ today’s prices – but many are concerned that they will not be able to afford ‘tomorrow’s’ prices – so they are jumping into the property market as quickly as they can and of course, driving up prices in the meantime.

Also, there is clear evidence that the labour market in Romania is showing similar signs to that in Spain. That is, that there is massive differentiation between subsistence farmers (perhaps on €50 euros per month) and bank tellers /supervisory workers who might earn €600+ per month. (Note we know of some building site workers currently be paid €1,000 per month – such is the need to finish a project).

(Clearly, managers and (especially engineers) are earning considerably more – but I am sticking mainly with ‘ordinary jobs’).

The second similarity that I am seeing between the Spanish and Romanian labour market is that both partners – husband and wife – go out to work. This effectively doubles the salary for the couple – so long as there is no cost of childcare – and here lies the Latin secret – that Brits and north Europeans will easily overlook – the grandparents!

The family – and grandparents – play a very important part in Romanian life. It is very common for grandchildren to be left with grandparents whilst the children (now adults of course) go out to work.

And by golly – they know how to work!

I was surprised by standard Spanish working hours – typically 9.30 to 7.30 and a number of successful managers working on Saturday’s too.

Equally, have spent most of my last two weekends working – all day Saturday and Sunday too if necessary – it is clear that the work ethic is alive and well in Romania just as it is in Spain.

Why? Well, firstly, people don’t have huge wages, so the only way to access the things they want is to work hard – and progress via pay rises, promotions and new jobs, and more immediately, they just work more hours and earn more money!

So, I believe that whilst Nokia may have made its decision to place its factory in Cluj-Napoca and INA Schaeffler in Brasov – both investing upwards of €100m each – based on low costs – this doesn’t prevent smart or hardworking (or both) Romanians from earning much, much more.

Lastly, this phenomenon of massive jobs growth and low productivity growth was a key feature of both the Spanish and the UK jobs market during the early and middle years of the property booms in those two markets. (It is only now that productivity has become the watch word in those two countries – mainly because everyone is already working all hours in the day and it is the only way to take this forward).

Secondly, the price of land and construction has risen massively and any fat margin that the developers may have had is now seriously at risk.

As a reminder, there are 3 components in any new build development
- land cost
- construction cost
- development margin (which covers the promotion, negotiation and the equity risk)

It is important to remember that the constructor quotes for a job and gets paid by the developer for following a schedule. In the world of corporate finance this is a very secure income with little risk and therefore historically the profit margin will be slim – as not much risk is being taken by the constructor.

The developer on the other hand carries the investment risk or equity risk. He stands to make (or possibly lose) large amounts of money and therefore, for it to be worth his while, he needs to have a project that shows a large margin – in Romania this can be upwards of 40%.

Clearly, in new emerging markets there are more risks that in established markets and I’d expect that with time the developer’s margin would reduce – but that this would be a 3 to 5 year cycle.

However, things aren’t happening like this in Romania at the moment.

To start with the cost of land has surged and secondly (and most importantly) the cost of construction has risen any where between 30 and 55%.

The construction costs have risen partly out of necessity (ie cement is 50% more expensive in Romania than in Austria and there is a world shortage of steel – which is also driving prices) plus the fact that higher quality developments need to important more non-Romanian materials to finish a project and these are currently very expensive (due to the lack of volume).

However, construction costs are also rising because labour costs have jumped and there simply are not enough construction teams to meet the surge in construction demand.

In fact, a number of developers in Romania are turning to Turkish construction firms because they have large teams (500+) who can be brought to bear on a project and ensure swift completion.

In addition, the construction firms are now spoilt for choice – they can pick and choose their projects such that they are able to pad their prices.

This leaves the developer with a dilemma – do I sell the land now and take a profit – or do I persist with development?

Most are deciding to persist with development and have come up with clever ideas on how to reduce the construction costs. Some developer have decided to become constructors and subcontract the different parts of the work others have been more imaginative and are building cement factories on their building sites (so that they don’t have to worry about Bucharest traffic and the unreliable deliver of cement nor the very high prices).

Either way, it is clear to me that whilst money is clearly being made in this market, no developer is ‘cleaning up’ nor ‘fleecing foreign investors’.

It is understandable that investors should have these concerns – especially as a lot of so called property investment groups invite developers to add 10 to15% to the price (this was reported to me by an experienced developer who was recently working in the Budapest, Hungary market) before selling it on to the UK investor.

It is also a valid concern since the black sea coast is not far from here – and again the agent commissions on many of these apartments are very high (15% typically- which is why agents are so keen to promote them!).

However, it remains that case that the developers I have met have decided to work through this difficult phase (rising costs and shrinking margins) and not sell their land because they want to build a property development company and brand and recognise that this will take 5 to 10 years.

This is excellent news for property investors, because it means that they can not afford to get it wrong for their early property buyers and that ‘overpricing’ of units is going to destroy their longer term plans.

I am not saying that there aren’t sharks - nor am I saying that property developers will knowingly undervalue their property – but I am saying that the long term view of that they have of their business means that they will not work with the wrong partners and they will price their property according to the market.

Hence, I am confident that the prices being paid by our property secrets investors are fair market price (or better where we have either negotiated a discount or are able to buy below market value in pre-phase 1 – where a developer will knowingly keep his prices slightly below the market for a small number of units in order to quickly prove the concept of his project).

I am also confident that the nature of the labour market – massive expansion of the number of jobs – and both partners working – plus the promotions and 10%+wage increases – will create the affordability to buy and own property now and in the future too.

Having said that – I also think we will see property prices quickly lift (ie within the next 12 months in Bucharest and 24 months in 2nd and 3rd tier cities) to reach the current affordability ceiling – at which point the annual growth will be more inline (but slightly about) wage growth.

Lastly, the Granny influence will have one last effect. Adult children will want to buy property near their parents - so that the Grannies and Grandpas can look after the children. Developers are also noting that this is a very strong influence in decisions to buy.

Some one once told me that the Spanish economy rested on the grandparents love for their grandchidren - I think it will be the same in Romania.

Cheers
Neil

ps. One last thing to note - old apartments have been rising in value by 25%+ each year for the past 3 or 4 years. Why? Simple - people moving to the cities to take up jobs that have been created by the massive economic expansion taking place in key Romanian cities. This is a trend that will drive up all property prices AND because the properties are owned without a mortgage a seller can easily take a loan for €20,000 to pay for the new property.

Currently, new build property is priced only slightly (10 to 15%) above existing property - and therefore, new build property is still in its 'take-off' stage.

Lastly, will a big expansion in supply dampen the demand and price growth? Unlikely, planning is still slow and therefore acts as a brake on development, but take Spain as an example - this country was able to build 600,000 units per year in 2004 and enjoy 25%+ per year growth.

Current projections show Bucharest with 15,000 units per year (this might be 30,000 across the country) and therefore currently just 5% of the Spanish peak in construction).

POSTED BY NEIL LEWIS ON WED 1ST AUGUST AT 05:11 GMT

TAGS: Spain Property, Spain Property, Romania Property, Cluj-Napoca Property, Bucharest Property, Brasov Property

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Cluj-Napoca, Romania – winning the battle to be number two – candidate for 200% club?

Cluj Napoca, Romania – a city of 314,000 inhabitants plus a further 65,000 students - expects to grow in the next year to 500,000 by a simple sleight of hand.

The sleight of hand is that it will extend its city boundaries to create a metropolitan area that takes in neighbouring villages on the edge of the city and so boost the population towards 500,000.

However, there is logic in the sleight of hand, and more significant is the claim that the city will at least double in size to 1m population in the next 10 years (although the more optimistic figure is a quadrupling of size to 2m).

One reason for the new metropolitan area is that EU funds are handed out on the basis of population numbers. Therefore, expand your city and get more money! It seems it is that simple. A second reason is that there is a real battle going on between the different cities in Romania to attract the big investment money and private companies. Being bigger makes you a more obvious choice.

And of course, an expanding city population – coupled with a desire for bigger living spaces and better accommodation – will turbo charge property prices and returns for property investors.

Equally, Cluj-Napoca is proving successful at drawing more than just EU funds and is winning a whole list of battles to become Romania’s second city – as below:

i) The city major is a senior figure in the ruling national government and is proving successful at tapping government funds for the city
ii) The city (well actually the village of Jucu - just outside the city – but soon to be incorporated in the metropolitan area) has just won the Nokia mobile phone manufacturing plant. This was in the face of stiff competition from an existing plant in Hungary and Brasov – also in Romania.
iii) The European highway will pass close by to Cluj-Napoca and so free the city centre and residential districts from national and international traffic and trucks
iv) Cluj-Napoca keeps large numbers of its young graduates – as they like the lifestyle plus they can find good jobs and excellent opportunities in the city. Equally, the city is smaller and easier to navigate that the capital Bucharest (A bit like choosing Manchester or Edinburgh in place of a London career).
v) The large student numbers are guaranteeing Cluj a steady workforce of young people every year (this is not the case in many cities)
vi) Significant numbers of highly influential ex-pat Cluj residents are returning to the city and importing Anglo-Saxon capitalism and professionalism
vii) The city is building two large shopping centres – as either end of the town and has plans for a third centre in the town centre with a fourth mall a future possibility.
viii) The population growth of the city has moved it from 5th largest to 2nd largest city in Romania based on latest figures

Being a winning city in Romania is vitally important – because there are significant migration flows of people in Romania – and understanding those flows (and predicting their patterns and direction) are key to finding a 200% growth candidate vs a non-performing asset.

Here is why….

Essentially, property prices rise when the demand is greater than the supply. The supply is relatively easy to measure – how many building permits were granted and units completed in the past years.

However, demand is much more tricky to predict. However, once a country has a maturing financial system (offering mortgages and credit at reason terms for property purchase) then the simplest rule of thumb is to measure or track migration.

Essentially, when new jobs are created, this draws in workers from outside. For instance in Cluj-Napoca the unemployment level is currently 1.9% and there are significant number of construction workers who have been brought into the city to meet the work demand. (These have come from nearby Romanian villages as well as from as far as Turkey (alledgedly 1,000 are working on the motorway – and are housed in a temporary camp near the site). Equally, to meet the battle of the malls (ie two shopping centres are both competing to be the first mall to open in Cluj-Napoca and win the publicity battle) one constructor has employed a large construction team from China.

On another building site we found Romanians working – but interestingly, they were not from Cluj-Napoca but from the nearby village (where there is no work).

Clearly, the Nokia plant will also employ a large number of low cost workers – but the managers and senior managers (perhaps 20% of the total force) will quickly see their incomes rise to similar levels as managers and senior managers in other Nokia plant.

And, it is likely that many of these new Cluj-Napoca workers will come from outside Cluj-Napoca – or will have been drawn to Cluj by the university and persuaded to stay by an interesting and well paid job.

In addition, Ikea has situated its construction factory next to the Nokia plant and many component suppliers have agreed to move to Cluj as well to supply these two massive assembly lines.

Now, whilst FDI concentrates on the ‘big’ industrial investments – and the evidence of them can be seen in large shinny grey sheds appearing in new business parks – the real growth of a city is driven by services and service industries.

It is well know that service industries deliver higher wage growth than manufacturing (likewise, the managers in the offices of Nokia will be treated as white collar workers – earning salaries far, far higher than those on the assembly line).

Cluj-Napoca is building for itself a strong presence of banking and accounting services. For instance, the Transylvanian Bank has 25 branches in Cluj and at least 4 processing/ business offices. This is the largest bank in the town.

Retail and retail services are also key to a cities future. And whilst it is obvious that the new retail centres will drive consumption (with lower prices and more choice – many Cluj residents still travel to Germany for better and cheaper clothes) they will also create jobs and the need for distribution and supply chain management.

And guess what? Right next to the Nokia business park there will be a large leisure and cinema complex built.

One serving the needs of the other – and so on and so forth.

In fact, whilst many will concentrate on the headline figure of 15,000 jobs coming to Cluj-Napoca as a result of the Nokia decision (direct employment at Nokia and its suppliers) the real significance lies in the development of services to meet the needs of these businesses and new inhabitants plus the substantial infrastructural developments.

My understanding is that in order to secure Nokia’s signature the local government had to agree to an extension to the airport runway (from 1.8 to 3.2 kms – so that it can now land intercontinental planes) and a 4 lane (each way) highway connecting the airport with the Nokia plant.

And, as you’d expect, business parks are going to jump out of the ground around the airport and such a substantial highway. There is no reason to believe that they will have anything to do with mobile phones or furniture – simply that the proposition of such fabulous infrastructure will be unbeatable in the western side of Romania.

The real growth in Cluj will happen naturally now, it just needed a few kick starts and the Nokia decision will be key to drawing in new businesses and new jobs in non related sectors.

Let me also mention what has happened to retail in the city..

The first multi-storey car park opened two weeks ago (a sad day of course, but clear signs of increased shopping power and cars – ie the ability to carry away a lot of goods in one go)
At least two more multi-storey car parks are on the way
2 years ago there were only 10 high street brands in Cluj (the rest were cheap Chinese stores or 2nd hand shops – see my article on what second hand calculators told me about the property investment market in Brno, Czech Republic
Now, there are 200 to 300 high street brands in Cluj and the 2nd hand stores and Chinese shops have nearly disappeared (rents per m2 have risen from 75 to 250) and the new shops are thriving and making money.
The new city centre pedestrian area – Boulevard Eroilor – will open in Sept 07
Any new supermarket launched in Cluj-Napoca was swamped the day it opened its doors

There is something highly energetic about this city – even on a 37c day in late July when the students had gone home and many were on holiday.

I must say, I’d hate to see the traffic on a busy day – but this is one bustling and thriving city that is going places.

My view is that Cluj-Napoca will win the battle of the biggest city in Western Romania – and has an even chance (with Constanta) of becoming the 2nd city in Romania.

Either way, Cluj will deliver substantial growth in the coming years for smart property investors who can see beyond the present and foresee the potential.

The key is that this is a true free market – many people are behaving like entrepreneurs and new businesses are cropping up left right and centre. This compares with the (almost) stagnant feeling that I get when I visited a city like Vienna – which is highly regulated and over controlled.

In fact, a number of Europeans (Brits included) and giving up on life at home and moving to Romania because they see massive opportunity and the freedom to innovate.

Cluj-Napoca increasingly has the means to attract and keep the smart minds and entrepreneurial skills that will drive the city forward. If you can stand the traffic there won’t be many better places to launch a new business.

And that also means that there is very real energy AND action behind Cluj-Napoca’s claim to double (if not quadruple) its population in the coming years.

This will massively drive property prices – especially for those developments that are well or centrally located – and offers great opportunity to smart property investors.

So yes, Cluj-Napoca makes onto my 200% growth list.

Cheers
Neil

Ps. Next stop – Sibiu – city of culture 2007 – a stunning story of a town undergoing a historical and practically miraculous recovery. (I have the feeling my list might be filling up quickly…)

POSTED BY NEIL LEWIS ON FRI 27TH JULY AT 21:13 GMT

TAGS: Romania Property, Property Price Growth, Property Investment, Cluj-Napoca Property, Cluj-Napoca Property

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Cluj-Napoca, Romania – winning the battle to be number two – candidate for 200% club?

i) The city major is a senior figure in the ruling national government and is proving successful at tapping government funds for the city
ii) The city (well actually the village of Jucu - just outside the city – but soon to be incorporated in the metropolitan area) has just won the Nokia mobile phone manufacturing plant. This was in the face of stiff competition from an existing plant in Hungary and Brasov – also in Romania.
iii) The European highway will pass close by to Cluj-Napoca and so free the city centre and residential districts from national and international traffic and trucks
iv) Cluj-Napoca keeps large numbers of its young graduates – as they like the lifestyle plus they can find good jobs and excellent opportunities in the city. Equally, the city is smaller and easier to navigate that the capital Bucharest (A bit like choosing Manchester or Edinburgh in place of a London career).
v) The large student numbers are guaranteeing Cluj a steady workforce of young people every year (this is not the case in many cities)
vi) Significant numbers of highly influential ex-pat Cluj residents are returning to the city and importing Anglo-Saxon capitalism and professionalism
vii) The city is building two large shopping centres – as either end of the town and has plans for a third centre in the town centre with a fourth mall a future possibility.
viii) The population growth of the city has moved it from 5th largest to 2nd largest city in Romania based on latest figures

The first multi-storey car park opened two weeks ago (a sad day of course, but clear signs of increased shopping power and cars – ie the ability to carry away a lot of goods in one go)
At least two more multi-storey car parks are on the way
2 years ago there were only 10 high street brands in Cluj (the rest were cheap Chinese stores or 2nd hand shops – see my article on what second hand calculators told me about the property investment market in Brno, Czech Republic
Now, there are 200 to 300 high street brands in Cluj and the 2nd hand stores and Chinese shops have nearly disappeared (rents per m2 have risen from 75 to 250) and the new shops are thriving and making money.
The new city centre pedestrian area – Boulevard Eroilor – will open in Sept 07
Any new supermarket launched in Cluj-Napoca was swamped the day it opened its doors

POSTED BY NEIL LEWIS ON FRI 27TH JULY AT 21:13 GMT

TAGS: Romania Property, Property Price Growth, Property Investment, Cluj-Napoca Property, Cluj-Napoca Property

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Wake up and Smell the Coffee – the Romanian property investment opportunity that is passing people by….

A number of property investors are still a little shy of investment property in Romania.

Property Secrets members will be familiar that we have regarded this country as offering some of the most exciting (and admittedly ‘raw’) investment opportunities available anywhere in the world – but within a low risk (EU, stable, democratic, reform lead, mortgage based, booming country).

However, many British (and Spanish too) investors get hung up on one question – that is…

How can Romanians afford to buy property when the average wage is around 350
Euros per month?

The answer is simple – most Romanians either earn a lot less – perhaps 50 to 150 Euros per month – and a large number of Romanians living in big cities earn a lot more (600 to 5,000 Euros per month).

The average comes out at 350 per month – which, by the way, only a few people earn!

Still, low manufacturing wages are a key reason for companies investing in plants in Romania.

But it is not the only reason! Also, the IT skills of Romanians are second in the world market to only those of Indian expats.

And Romania is now a key logistics centre and a booming consumer economy (2nd largest of the recent accession countries after Poland) which is generating considerable internal demand for supermarkets to superbrands!

The truth is that Romania is a country of ‘haves’ and ‘have nots’ in a way that is not familiar to West Europeans unless they have spent some time travelling in Asia or similar countries.

This ‘have’ and ‘have not’ structure extends to cars (Audi Q7s to those who hitch-hike daily or walk many miles per day) and property too (4 people crammed in a 30m2 studio flat built in the 1960s according to a crumbling North Korean style vs modern 1 bed-roomed flats with 60m2 space and a balcony).

– I bet if you are still reading this you might still be thinking – ‘hmm… not sure I believe that…’

Well, let me give you a comparison.

As anyone living in a Latin country will confirm, Coffee is a staple food! More so that hamburgers, I believe.

In Spain, Italy and any other Latin country Coffee is consumed the way the Brits drink tea – only, it is always drunk in a bar (and not made at home).

That means it is bought and consumed by people who work in fields along side people who clean the streets and others who work in smart suits and shinny new offices.

(Actually, this is exactly the make up of the average coffee drinker in the coffee bar next to our Spanish Property Secrets office in Valencia).

Therefore, like the Economist’s famous hamburger test – if I compare the cost of a Café Con Leche/ Cappuccino / Milky Coffee – then I can see the actual spending power of the local population?

To carry out this test, I have tasted and bought a Cappuccino equivalent in the trendiest bar in town (Yes, it’s a hard life!). These are my results so far

Valencia, Spain, main square– 2.20€ (not long ago it was 1€)
Budapest, Hungary, main square – 2.90€
Cluj-Napoca, Romania, main square – 1.50€

Now, what is important here is to remember that the average wage in Romanian (remember ‘average’ is just a calculation – it doesn’t mean anyone actually earns it) is just 350 Euros per month.

So, those investors who fret about average wages and the ability to buy and sell and rent property would want to know that an average wage would buy 230 cups of coffee per month – that is just over 7 cups per day.

It is quite common to drink 3 or 4 coffees per day. This would, therefore, be the equivalent of half of a monthly way – before tax!

Add the taxes and you can see that on average wages you can drink about 6 cups per day! This is not allowing for food or shelter or clothes or transport or anything else!

What this shows – I hope – is that the average wage is a crazy way to judge the spending power of Romanians – because the country is so sharply divided amongst the ‘real earners’ and the ‘subsistence earners’.

The important point here is that the coffee shops I visited in the centre of Cluj-Napoca weren’t just surviving but thriving! They were creating a young trendy fashionable environment in which you could sip your Cappuccino, Moca, Shake or Cocktail of any variety or type. (Please see the photo above - note, there are a number of people sipping Cappuccinos - these are your likely property buyers and renters)

Such conspicuous consumerism is a clear sign of a booming middle class – of aspiration – and of people who want to move from rotten old north Korean designed 60s block architecture to something modern, clean, bright, functioning and new.

I am not denying that many people living in rural areas (still a large amount of people) are living a peasant / subsistence way of life. Nor that some people living the in the cities – perhaps 30% living in very poor conditions.

Not at all.

I am simply saying that this ‘average’ view of Romania does not help you understand what is really happening in the new and booming cities. Nor does it help you make wise property investment decisions.

However, there is a very important point about Romanian cities…

The trick – and it is a very important trick – is to figure out which cities are booming and which are not.

Bucharest, the capital, clearly is going through a massive boom phase.

However, where else? Well, I believe that Cluj-Napoca (on the wealthy western border of Romania) is positioning itself to become the 2nd city of Romania (perhaps challenged by Constanta at the opposite end of the country and on the black sea).

This is a city that is drawing jobs away from neighbouring Hungary as well as pulling in building and factory workers from nearby towns such as Bistrita and Dej.

Cluj-Napoca is also pulling more than its ‘average’ share of funds from central government and has an ambitious plan to tap a large share of EU funds too.

Either way, the road transport – the major European highway from Budapest to Vienna – will pass by the edge of Cluj Napoca and its population is (ambitiously) forecast to grow from 500,000 in the metropolitan area to 2m in the next 10 years.

Hence, Cluj Napoca is the best candidate I’ve seen so far for our 200% club – and I think it has many of the features that Valencia, Spain had 5 years ago. (Valenica’s property prices have grown 200% in the past 5 years – and we are looking for more of the same…).

And… in 5 years time… a coffee on the main town square of Cluj-Napoca will cost much more than 1.5€. I reckon it will be well past 3€ and average property prices will be 250,000€ and not 80,000€.

For Property Investors it is time to wake up and smell the coffee – while there is still time and a cappuccino costs just 1.5€.

Cheers
Neil

Ps. Tomorrow I am off to the smaller Romanian city of Sibiu – European capital of culture for 2007 and another city that is drawing investment and inhabitants away from other cities as it builds its position as the capital of the local Saxon area (strong cultural ties with Germany and a lot of German spoken).

Pps. After Sibiu, I’m off to Brasov, Bucarest and Constanta – all of which will be strong candidates…. (how on earth am I going to put these cities in an ordered list?)

POSTED BY NEIL LEWIS ON THU 26TH JULY AT 21:15 GMT

TAGS: Valencia Property, Romania Property, Cluj-Napoca Property, Berlin Property

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WAKE UP AND SMELL THE COFFEE – THE ROMANIAN PROPERTY INVESTMENT OPPORTUNITY THAT IS PASSING PEOPLE

'And… in 5 years time… a coffee on the main town square of Cluj-Napoca will cost much more than 1.5€. I reckon it will be well past 3€ and average property prices will be 250,000€ and not 80,000€.' With respect, if PS were selling properties in Romania at 80,000 euros then I would be a lot happier about buying them. The fact is that the prices of your recent offers have been uncomfortably close to UK levels. I can't shake off the suspicion that developers are milking foreign investors for all they are worth. They saw what happened in Poland, and they know that investors want another slice of that.

POSTED BY MINSK ON FRI 27TH JULY AT 12:45

ROMANIAN PRICES

Hi Minsk Fair point. I think one always has to be careful not to be the last investor to arrive at the party. However, I think there is a difference between Cluj prices and Bucharest prices. I don't think many developers are basing prices on Poland - perhaps with the possible exception of some international developers in Bucarest. Many of the developers I have met on this trip are Romanian and have been asking us to guide them on what our investors want - which suggests that they don't actually know too much about what is happening outside their own market? It is true that margins on land are substantial - but it is hard to argue that a new build should be less than a panelak - and these do sell for quite big sums. Still - land has risen very rapidly to a more market based price - and I think those margins are going to get badly squeezed in the next two years as construction costs rocket. Hence, investors getting fixed price contracts now will come out right in 1 to 2 years time once the contractors have put their prices up. It is true tho, that in any market that is as bullish as this one, that you need to be careful to choose right. Cheers Neil ps. We are just seeing the beginning of the Romanians living abroad - aparently Romanians living and working in Spain bought an entire first phase of a major development by a Spanish developer working in Bucharest in just a few weeks! They might be wrong - or we might just miss out - that is 64 million dollar question. Cheers Neil

POSTED BY NEIL LEWIS ON FRI 27TH JULY AT 22:53

SIBIU CAPPUCCION PRICES! AND WHY ROMANIA ISN'T CHEAP

Hi All I've just paid 5.5 Lei - that's about 1.7 Euros - for a Cappuccino in Sibiu, Romania. I'm consistently paying over 40 Euros for lunch - that is a family of four - the cost of diesel is higher than in Spain - but the same (more or less) as Italy. I've been told that supermarkets (which traditionally offer big savings on local general stores) are swamped! That was my experience when I saw the Carrefour store on Saturday afternoon - in the middle of August! Also, many medium and highly wealthy Romanians go abroad to shop for clothes - there is something to this, I beleive. Either way, for a middle class way of life - Romania is not cheap. It is not particularly expensive either - but the key point is that it is not cheap. As we know, property in those cities is not cheap either. Not expensive - but not dirty / basement level cheap. And - crucially - there is a significant proportion of people who can afford it. Notably - in the past two days - I have seen 1 Maserati, 1 Aston Martin, 5 porche's, 7 Q7s, lots of BMWs of all sorts - and lots of Audis. It is a surprising country! More to follow... Cheers Neil

POSTED BY NEIL LEWIS ON SUN 29TH JULY AT 19:39

BRASOV AND 80,000EURO FLATS

Hi Neil and all, I have also travelled extensively in Romania this month, namely to Bucharest - Brasov - Iasi and hope to make it to Cluj soon to try a cappucino! I asked an estate agent in Brasov how much flats were and they said 80,000 - 110,000euros for 3 beds in areas with proximity to centre and double those prices in historical central areas.Seems similar to prices in Valencia about 4 years ago. Beautiful country and lots of development going on in cities and smaller towns.Iasi is a regional capital in north-west of Romania and even though this is quite poor region the city really impressed me and apartments can be bought there for as little as 40,000euros and its a beautiful place. Hotel prices have gone up a lot in last year, and albeit cheaper than Spain, not a total bargain by any means.Most double rooms are 50euro per night minimum in any relatively decent kind of hotel.Most quality food in supermarkets is imported and thus as expensive as in Spain. I have a sneaking suspicion that secondary market prices in 2nd tier cities are going to rise steadily in next few years.Doesn't buying a 3 bed apart in Brasov now for 90,000euro seem quite cheap? I have the same intuition for this market as I had with Wroclaw in Poland and Valencia in Spain 3 years ago. Liam

POSTED BY LIAMVALENCIA ON MON 13TH AUGUST AT 18:55

SECONDARY MARKET

Hi Liam, Thanks for your observations on the secondary market. I have also though that this might be a better way into the Romanian market, rather than off-plan. 90,000 euros does sound pretty cheap, If I've done my sums right then off-plan units are going for about twice the price of secondary market apartments per square metre. Confusion can arise because they are measured differently. Of course new developments are going to have more prestige, and it is a matter of estimating the premium associated with this.

POSTED BY MINSK ON TUE 14TH AUGUST AT 12:11

SECONDARY MARKET

Hi Minsk, I don't know much about prices yet, but as I do more research we'll be in contact. I can only go by what I've seen in local newspapers etc. I agree with you, I'm not interested in any more off-plan deals now. I should never have gone down that road so late in Poland either. Anyway even though i got a good deal in Poland at Christmas, due to problems of off-plan process and banks, I will probably get out of Poland. I think the big gains have been had in Warsaw for time being and I can't really be bothered waiting for peanuts. Don't think capital growth this year is gonna be anything like it was over last 5 years and especially last year. Even though high gearing and all that sounds great in theory, I think in practice it ain't so easy in these Eastern European markets. My latest thoughts are that if I can release enough equity in Spain I will just buy a used flat in cash or 75% in cash. At the end of the day its high risk but I feel its the only way to go. What I'm looking for is big capital growth over 3-4 year period and then get out. I have a feeling the growth on any kind of property in key locations in major cities in Romania is going to be really substantial over next 2 years.Any ideas or opinions about buying secondary market property in Romania would be appreciated. Liam

POSTED BY LIAMVALENCIA ON TUE 14TH AUGUST AT 15:46

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Property Investment Potential of Hungary - picking Gyor and Pecs?

I'm continuing my hunt for cities with the potential to deliver 200% growth in the next 5 years.

Yesterday, I covered the political challenge to make Budapest and Hungary a great property investment location. And as Robin Bowman added yesterday, the jury is still out on Hungary's economic improvements.

Today, asking the question - will any other cities in Hungary make make attractive property investment opportunities?

Hungary offers a logistical centre inside the EU and at the heart of Europe (Old and New).
It has higher costs than neighbours (and much higher / unreformed taxes) but offers better productivity.

It is Hungary's logistical advantage that has led to Asian electronics companies to base factories in this country. Essentially, many electronics products are 'big boxes'. This means that as the price of the product (toasters to TVs) falls, the distribution cost becomes a larger % of the overall cost. Hence, the best place to put your TV manufacturing plant - all things being equal - is in the best distribution point.

The country can be divided into 4 main parts

Budapest - the capital

The Danube Bend - West and North West of Budapest - hills of Buda and the way to Vienna. Following the Danube river (northern border with Slovakia). This region forms part of the car cluster - that includes Slovakia and Trnava.

East and South East of Budapest - the great planes - predominantly agriculture and the poorest region.

North (and North East) - hills and mountains to Slovakia and the old mining and industrial heart (with highest unemployment).
Population Distribution

One major capital city - with 2m inhabitants and 5 regional city centres - with around 300,000 inhabitants each.

10m in Hungary2m in Budapest2m in 2nd tier cities (below)6m in towns and villages

There is no clear second city (which makes investment outside Budapest trickier).

Communications

Roads are an urgent priorityRail network with large - but needs substantial upgrading.

The Danube provides an addition method of low cost water transport for containers and large items (such as rolled steel). This connects to Vienna and Bratislava to the north and has the potential to connect to Belgrade in the south (not currently navigable for large ships).

Traffic can continue on the Danube into Germany and as far as Amsterdam - although I don't know if large ships are able to navigate that far?

Budapest
========

M0 - ring road motorway around south and east side of city
Redevelopment of Budapest container terminal
Redevelopment of Pest city centre - Champs Elyses of Budapest
Plans to develop the riverside (to remove traffic) from Pest side of the river
30% of Hungarian labour force is in or around Budapest.
Buda and 5th District of Pest - are the expensive districts
9th and 8th districts are seeing large scale development (8th district still has a very poor reputation - and is regarded as dangerous). However, where the 8th district touches the Danube river, there is/ will be riverside living developments and the new National Theatre (like London's South Bank, I guess?)
A new bridge is being constructed in the north - between 3rd and 13th district.
15th and 14th are panelak districts (although 14th contains some expensive areas)
16th districts - contains detached houses

Gyor - 2nd tier city
==============

Audi engine plant - producing 1m engines per yearUniversity townNew port on the Danube creating multi-modal logistics centre

Large new steel mill (Danish) nearby will transport rolled steel via the Danube Cultural city

Miskolc - 2nd tier city
========
Technical university
Centre of the poorest region in Hungary

Szeged - 2nd tier city
========
University city
Cultural city

Debrecen - 2nd tier city
========
University city
Biotech centre

Pecs - 2nd tier city
====
University city
Finish aerospace investment - creating 6,000 jobs
Relatively high unemployment - previously a mining centre
Cultural capital of Europe 2010
World Heritage site

Other towns - and key recent FDI

Szentgotthard
==========
Opel factory

Komaron
========
Nokia phone factory - largest in Europe (claim?). This has drawn labour from across the Slovak border. Note - a new Nokia factory has been announced for Cluj-Napoca in Romania (which I am visiting tomorrow).

Esztergom
============
Suzuki car plant - 300,000 cars per year

Szekesfehervar
==============
Phillips electronics

Summary
========

Budapest is the obvious place for property investment.

Looking around Hungary there is no obvious second city. Candidates for investment might be Pecs (which will be European Capital of Culture) or Gyor - with a new Danube port and proximity to Slovakia and Austria.

These would be my two candidates for 200% growth in the next five years - but perhaps we are ahead of ourselves by one to three years?

If I had to choose one city, it would probably be Gyor as having the greatest potential - although I have to admit that I haven't visited this city,

Perhaps we should see if the reforms work first and Budapest takes off before we head for the second cities?

Got a view?

Cheers
Neil

ps. Tomorrow I am in Cluj-Napoca, Romania looking at the new industrial, retail investments in this city and deciding if I really believe it has the potential to grow from 400,000 (including students) to 2 million in the next 10 years! Watch this space...

POSTED BY NEIL LEWIS ON THU 26TH JULY AT 04:45 GMT

TAGS: Property Investment, Pecs Property, Nokia, Hungary Property, Gyor Property, Drezcen, Danube Bend, Cluj-Napoca Property, Budapest Property

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Constanta, Romania - secret sources of FDI

As readers of Property Secrets know, FDI (or Foreign Direct Investment) is a key driver of property prices in emerging cities in emerging countries.

This investment is typically made by a large multi-national company – Nokia, Microsoft, Tesco or Renualt for example – and takes the form of a new factory or back office or R&D centre.

The benefit of this FDI is not just the money spent and jobs created – but the money and jobs that it draws with it.

For instance, the Nokia factory in Cluj-Napoca, Romania will create 3,500 jobs – but a further 11,500 jobs will be created by component manufacturers who will set up next door.

And, of course, even more jobs will be created building roads, houses and airports to service these new industries.

However, a lot of FDI is what I call hidden or secret.

For instance, in the manufacturing sector FDI is easy to track – as it involves building factories. However, in the more lucrative service sector (ie the sector that creates the largest number of highly paid jobs) the investments are normally to create offices of 20 or 30 people – and therefore, are much harder to detect.

However, I believe there is another secret source of FDI and that results from a massive boom in coastal land values.

In plain English, when there is a property boom on the nearby coast this generates a lot of ‘Foreign Direct Investment’ and the largest proportion of this money gets spent on (and in) the nearby town/ city.

Constanta is an example of a city that is just beginning to experience this ‘secret’ sort of FDI.

I say ‘secret’ because most people don’t recognise it and in addition, many property investors are tricked by the apparent property rises prices on the coast to think that the money is to be made on the coast.

Whereas, I believe, the property investment money is nearly all to be made in the city. See my article "Oh, I do Like to be Beside the Seaside - but not too Near" - for more on this topic.

So, how much secret FDI might we estimate for Constanta?

Well, here is my thinking….

Currently, there is a trend amongst the (growing) wealthy Bucharest people to want a house in the mountains (ie a flat in the town of Brasov) and a house on the coast (ie a flat in the resort of Mamaia – which borders Constanta and can be reached by car in less than 10 mins from downtown Constanta).

The fast motorway – the A2 – is nearly complete all the way from Bucharest to Constanta and hence this is the nearest and quickest way to get to the coast.

My map suggests that the resort of Mamaia is about 10kms long – and perhaps half a kilometre wide – with a large lake immediately behind it on the land side. (This gives a similar geography to that of Mar Menor in Spain – but this comparison ignores the large city next door).

Now, this area is currently undergoing massive development and redevelopment.

With the boom in property prices in Bucharest and the massive economic growth of Romania (again, driven by the city of Bucharest) there is money to play with and the wealthy Bucharesti are buying second homes.

The result is that property that sold for €180,000 off-plan (160 m2) is now reselling for €220,000 just 6 months later.

So, back to my calculation…

The land area of Mamaia is 5 km2

One km2 contains 1,000,000 m2.

Therefore 5million m2 of land could be sold/ traded (or sold in bulk, then split down and re-sold, and re-sold again with a villa or apartment on it).

In addition, on the 5million m2 a further 5million m2 of built area will be constructed. (Here I am assuming an average building with 4 floors – and therefore 25% of the land has buildings on it – giving 5million m2).

Now, clearly there are costs in buying and selling and constructing all these units – but I want to calculate – very roughly – the amount of cash that will be ‘invested’ or more simply, spent!

Let’s say that land sells for an average (once it has been sold and resold) of €300 m2. And let’s say the built area (assuming newly built) sells for a conservative €1,000 m2 – how much money will be invested / spent?

€1.5 billion for the land
€5 billion for the constructed area

Therefore, if the strip realises its investment potential – as much as €6.5 billion may be spent in the next few years.

Now, whilst I may have overestimated some land values (ie some will be quality land and some poorer quality) and I may have overestimated the volume of building, I don’t believe that I am too far away from the truth.

At least, if you took a 10 time frame, then you could easily reach these figures.

Now, in what way is this FDI – or Foreign Direct Investment?

Well, a significant part of this money will be spent by people (property investors and holiday home buyers) who live outside of Constanta.

Therefore, it is legitimate to consider a significant part of this cash as new money entering the local economy for the first time and therefore acting as a new economic stimulus.

So, what will be the effect? Well, as Brits and Irish join the rush to buy the next off plan apartment as the development expands along the coast, so the local Constanta people will reap the benefits.

And, classically, they will spend there money on (and in) their home town - Constanta.

To support the growing resort development, the local infrastructure will need upgrading. The city council will now have the revenue (via various sales and property taxes) to make the investments.

However, the newly rich in Constanta will want to spend their money too. And it will be spent on renovated villas in the downtown areas, new apartments and new cars too.

(In fact, the first new showrooms are just cropping up in Constanta, the key supermarkets are now in place and the first major new development between Constanta and Mamaia has begun construction.)

The local lawyers and notaries will also suddenly become newly wealth and will want smarter offices in traditional style buildings.

And so on and so forth…

Suddenly, the whole city will be regenerated on the back of selling the coastal area.

Of course, there are a number of fashionable resorts to the south of Constanta which are still inside Romania. I didn’t have time to see these resorts, but you can easily imagine that the coastal redevelopment will quickly transfer to these places as the potential land and development profits become recognised.

Again, as the major nearby city, much of the money – whether on architects or new cars, will be spent in Constanta. And of course, this creates demand for a whole new raft of service industry jobs – from show room sales man and architects and property project marketing services.

The great thing about Constanta is that this development is on the back of a rapidly growing container port (which will continue to expand as the road network across Romania is improved and so improving connections with Europe) and its coastal development is based on a unique sustainable advantage – it is the closest seaside location to boiling hot Bucharest!

Currently, all the property sales in the area are to Romanians (mainly Bucharesti) and this is why Constanta is so similar to Valencia, Spain (as the biggest tourist client for the Valencian coast was always Madrid).

And, as you know, this blog started out with a search for cities whose property prices and market would grow like Valencia’s did (ie a 200% increase in property prices in the next five years).

However, I think that Constanta is more than 5 years behind Valencia, but the sustainable advantage will be hard to beat. So, the growth might take an extra few years, but I’m pretty convinced that it will come.

Cheers
Neil

Ps. The big thing that Constanta needs is a visionary Mayor. It is possible the economics will drive a change?

Pps. Next – I’m moving into Bulgaria with a visit to Varna – which has enjoyed 5 years of coastal property boom – to see that the effect has been on this city….

POSTED BY NEIL LEWIS ON MON 6TH AUGUST AT 09:19 GMT

TAGS: Constanta Property, Constanta Property, Cluj-Napoca Property, Bucharest Property

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Bucharest - Cluj Napoca - and the greatest communist legacy.

There is no doubt that Bucharest and other Romanian cities, such as Cluj Napoca, are booming.

On my latest trip I read that the Romania national football team have already qualified for Euro 2008 – well ahead of you know who…

I also saw the first Bucharest store selling replica Romania football shirts and baseball caps – and I think we’ll have a lot more of that ‘in your face’ consumerism to come.

As some of the older readers of Property Secrets know, I have a personal hunch that football success and local property price growth go hand in hand. Now I know the wheels came off this theory during the last world cup – but it is significant and important to note new EU countries national teams (Croatia and Poland included) are doing better and better…

… now of course, my football and property theory is not perfect, as Arsenal’s 7-0 victory of the main Prague team showed last week – but if you look at the general trend you can see a clear pattern emerging.

In addition, during the trip I made last week, a further commercial tenant was announced for the Nokia Village of Jucu in Cluj Napoca. A large Finnish printing firm is going to invest €40m and is creating lots of jobs.

In fact, the project manager for this new Nokia led industrial / business park is predicting a similar announcement every month for the next 6 months or so!

Last week I travelled with a number of colleagues and investors who were making their first trip to the city.

They consistently remarked that they were

'constantly surprised that….’

or that

‘Bucharest is like Spain 15 years ago, although it is going to develop much faster than Spain'

Yes, absolutely, I couldn’t have said it better myself.

The problem with most Brits or even Spanish or Irish investors who have never visited Romania is that they struggle to imagine the speed at which Romania is developing.

Just because the UK took 200 years to industrialised and urbanise doesn’t mean that other countries need to take that long too.

Just because Spain’s ex-dictatorship and EU entry economic miracle took 30 years – doesn’t mean that Romania – or any of the Central European countries will take as long.

In fact, I would imagine that the same development will take around 10 to 15 years. Half of the time it took in Spain and up to 20 times faster than in the UK.

Hence, it isn’t surprising that many investors who have not experienced Romania still have trouble coming to terms the nature of the property investment opportunities in Bucharest and Romania and second cities like Brasov and Cluj-Napoca.

The serious advice I heard was that when you visit Romania you should wipe your mind of your prejudices and start again!

Why? Because Romania is not what you expect. The phrase most commonly used was ‘I was really surprised…’

So, why is this? Why does Romania have the potential to develop so much faster than Britain did or even Spain did?

Two answers really.

1.) Firstly, the global financial markets allow much much more money to be focused on booming economies and so create an avalanche of economic development.

I heard a report yesterday that said that China’s economic development had slowed to just over 11% but that the country wasn’t over heating because inflation remained at around 1% and that 40% of the growth was due to investment spending!

11% growth isn’t happening to the booming economies of CEE (more like 6 to 10%) but growth is happening in a similar way – ie. rapid growth due to investment spending, followed by substantial leaps in exports and then (or in parallel) the development of domestic consumption.

2.) Secondly – and this is the big reason – the population of central and Eastern Europe is a lot smarter than you’d think. There are a substantial number of remarkably well educated and qualified people.

This means that once an idea catches on – or a new way of doing business is introduced, the local population are remarkable well qualified to pick it up and run with the opportunity.

I think this explains why foreign expat managers don’t stay long in New Europe – because they aren’t needed once they’ve handed over the core skills and work practices.

I was again impressed by the range and calibre of business people I met in Romania and I can see no reason why Property Secrets, as an international business, shouldn’t source relevant business services from this country. I would say that I am confident that in Romania we are able to contract with well qualified and smart people – who get business and offer services at affordable rates.

So, how is this transformation taking place? I believe it is on the back of a highly developed educational system.

The legacy of communism is a dedication to education. Therefore, it is my personal experience that the levels of education are far higher then the current GDP would suggest.

And that this implies that the GDP will grow rapidly – not that education levels will decline.

I believe this is one of the key reasons for foreign investment – and the great thing about investment in skilled work forces is that it tends to be the type of investment that benefits the wider economy and so creates a virtuous circle.

Let me finish off with a story.

Last month, my colleague was travelling on the Sofia metro and he started speaking to a 55 year old lady. The lady was very knowledgeable and, of course, spoke perfect English. When my colleague complimented her on her English and asked if she had travelled a lot, she said yes – meaning she regularly used the Sofia metro.

So he asked her more directly if she had travelled or worked in the UK. ‘No’ she said, ‘I’ve only ever been to Sofia’.

The English was learned locally and is an indication of the levels of education and equally, another reason to see economic development in this region as sustainable and inevitable.

So, if education is the great communist legacy, then curiously this communist legacy is proving to be a key catalyst for growth and equally, the development of the residential property market and hence investment opportunities for investors.

Cheers
Neil

Ps. I have rumours that the Romania’s are regarded as the smartest foreign IT engineers (after the Indian’s). Anyone know where that rumour started? Or, indeed, if it holds any truth?

POSTED BY NEIL LEWIS ON MON 29TH OCTOBER AT 11:44 GMT

TAGS: Romania Property, Cluj-Napoca Property, Bucharest Property, Brasov Property

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BUCHAREST - CLUJ NAPOCA - AND THE GREATEST COMMUNIST LEGACY.

thanks, neil. much that's convincing in your opinion of romania's property market. i've heard from friends in IT that romania and bulgaria both produce excellent staff (and very effective virus originators). what about the very real possibility that romania (and poland?) may find their economic growth leading to inflation, and interest rate hikes?

POSTED BY DAN W ON TUE 30TH OCTOBER AT 16:19

BUCHAREST OFF-PLAN?

Good article Neil. Its true that Romanians do seem to be more up and doing than some other countries i´ve travelled to. Theres no limit to how fast the place can grow, cos people are hard workers and have work ethic and good educational background. Take Spain for instance, I love the people and the country but the work ethic doesn´t seem to be here and can be awkward to do business efficiently in this country at times. Its no criticism to spain but this thursday is a holiday here so that means little will get done this week at all and productivity is so low! Not saying that Spaniards aren´t bright people but the warm weather and lifestyle here isn´t geared much to working hard and not many people in spain speak good english and even if they do they may not have confidence to use the english they know. I doubt we could say the same for Romania, as u have just pointed out. By the way, do PS plan to source anymore off-plan deals in bucharest? Its unusual that we haven´t seen any deals from bucharest for a while.. Does it have something to do with the fact that entry price is higher than people expect or desire or thats its simply impossible to source deals? For me a 90,000€ apartment in bucharest is a good investment but i guess prices have gone up a bit. Best regards Liam

POSTED BY LIAMVALENCIA ON TUE 30TH OCTOBER AT 18:04

COMMUNIST LEGACY

I guess your article aims to stimulate discussion by throwing in a few contraversial comments. With regards football......football in Romania is almost a religion and played by kids in the streets everywhere. perhaps that explains why S. Bucharest won the European cup pre 1989 revolution. I seem to remember England was a good team in the 60's in the good old days.....jumpers for goal posts etc! My wife is a good example of a Romanian who taught herself English. This was not really a product of the Education system although I agree that Educational standards are high on lower budgets than the UK, but more a result of wall to wall American TV in the early 90s. As regards IT......perhaps the rumour emanated from Romania! On a more serious note, I have heard many stories about the pre 1989 regime and how the masses were treated like animals. My wife for example studied by candle light in the early 80s because the electricity was turned off by the state for days on end, even in mid winter when temperatures are well below zero. Perhaps ( and I hate to generalise) the real secret of success is the general hunger for a better existence when looking over at the lifestyle in the West.

POSTED BY ALAN RICHARDS ON WED 31ST OCTOBER AT 09:02

EDUCATION LEGACY

Hi Alan Good points - it is hard to say why the eduction level in Romania is high (relative to GDP) and the key point is that 'it is'! In a way, I'm making comparisons to Spain. One of the reasons salaries are low in Spain (ave salary of 1,700 Euros per month vs 3,600 in UK) is because of the massive expansion in qualified people in the 25 to 35 year age group. This was partly driven by relatively high education standards during Franco's time - but also a boom in demand for education as people saw salvation and escape in studying. The key is that it has left Spain with a legacy - and will do the same in Romania. Cheers Neil ps. I agree that Spanish productivity is low - but so was the UK's productivity growth in the 90's. This appears to be how countries develop. I believe that you will see rapid increases in productivity in Spain in the coming years. pps. The Spanish are the hardest workers of wester Europe. 9am to 7pm days are typical for most people - and the Siesta time is rapidly becoming a sandwich at the desk! Sad, but true!

POSTED BY NEIL LEWIS ON WED 7TH NOVEMBER AT 12:26

EDUCATION IN ROMANIA