Charles

I have bitten my lip long enough and need to respond to this and point something out.

Charles, I believe you are being very naïve about the Romanian market. Yes, you know a lot about Cluj, you live there, know the people and know what’s going on in the city.

However, I don’t except your views on other markets in Romania such as Baia Mare. 12mths ago developers in Bucharest where telling me that Romanians wanted 80sqm 1 bed apartments so that was what they would build, they didn’t expect to see the same growth as Poland. Now they have seen 45% growth and are building 55sqm 1 bed apartments. Attitudes change with market conditions. In addition it is worth mentioning that Pipera one of the fastest growing and most expensive areas of Bucharest has a large number of apartment blocks built in white brick!

I have been working in the property industry for long enough to know the fundamentals of a good property market. I have seen what happened in markets such as Silesia and Katowice – some people thought we were mad to go into these markets. And Gilwice saw some of the highest growth in Poland last year.

Yes Cluj is a great market and saw good house price growth in 2007 and I expect that to continue for a good while, however there are cities in the Romania that are only at the start of their property cycle. It is at the earliest stages of the housing market that we see the highest growth. We went into these markets in the earliest stage and our investors benefited from the high house price growth that we witnessed.

The cost of doing business in Cluj is starting to rise. Manufacturing firms won’t be able to afford to locate to Cluj and compete with Technology companies for land and staff – where will they go – they will need a cheaper base with good infrastructure links and connections. Start up costs are much lower in Baia Mare, it has a strong manufacturing tradition and the city has its own airport!

I can tell you right now Baia Mare is only starting to take off and prices can only go one way in this market. It is like telling me that cities such as Gilwice or Lublin in Poland were not good investment locations and to be avoided. There is huge investment going into Romania at the moment and this is having a ripple effect and although it is taking a while, this investment is reaching cities such as Baia Mare. Don’t tell me this market is not going to see house price growth and the Autumn Residence deal in particular.

The first residential development in the city since the end of Communism, down the road from a massive new shopping centre, Golden Plaza and on the main route from the city centre to the airport is an excellent deal and I am expecting this to perform very well.

I will need some stronger arguments from anyone that says differently.

Dear Simon,

Good to get into dialogue with you again … it’s been far too long. If you recall we last met at the November seminar in London when you briefly let me know that your next trip was by helicopter and involved going to Baia Mare and to Cluj.

So let’s get on with this healthy debate.

First, I repeat that I love the PS approach to property analysis which is why I am here. I think its right to say that what I spoke about at your summer seminar (Where to invest – Poland or Romania?) I inspired you to get Neil out to Cluj last summer and thereafter you confirmed your view that Poland was cooling down and Romania was the place to be.

Second, I love my city and can sell it to anyone. But my commitment to the future of this country is not just about Cluj. I first came here in 1998 and spent two years working as a consultant for the British Government – international development. I then spent six years changing the lives of professional Romanians bringing them into job security and lucrative employment in the UK. This contributed significantly to improving the image of Romania in advance of EU accession. In both roles I travelled the country extensively and met many, many Romanians.

Third, I first invested in Romanian property in 2000 in Bucharest and moved my money to Cluj in 2005. I had a vision of the future… made money in Bucharest (Bucur Obor area two/three Metro stops from Universitate) in the early stages and moved my investments on to Cluj. So, with respect, to suggest I am naive may be considered by readers to be a little off the mark.

I don’t question your expertise on the European market and I am sure you are right about the development of property investment in Poland and elsewhere in the New Europe. I respect you as a professional. However I was not the first subscriber to question Baia Mare and since then another has asked for my opinion about Floresti here in Cluj which I have answered honestly and in a way that does not promote my own interests…in short, I would not sell Floresti to a British investor…. A German politician maybe!

So let’s get to the heart of the matter and respond to a few points about Cluj and Baia Mare.

The cost of doing business in Cluj is starting to rise. Manufacturing firms won’t be able to afford to locate to Cluj and compete with Technology companies for land and staff – where will they go – they will need a cheaper base with good infrastructure links and connections. Start up costs are much lower in Baia Mare, it has a strong manufacturing tradition and the city has its own airport!

Cluj is expensive….but don’t buy cheap because cheap is cheap for a reason….or maybe someone has the vision of the future?. Recently it was reported that Pascani (the guy who built Polus Mall and sold it on to Austrians) bought 80 hectares (maybe more or less ) at a village called Chidea in the commune of Vultureni which will hopefully come within the Metropolitan area of Cluj but it is 30 kms from the centre. He’s no fool and had his reasons...profit maybe? Follow his investments and you will do well. Jucu is the industrial and HI Tech future of Cluj ( and the largest planned industrial park in Europe) and can expect development over the next few years of residential, commercial and office space to support a potential workforce of 30,000 people and their families. IT companies will move out there and others to service the needs of a town within a city.

Baiai Mare has an airport and I apologise for having to correct myself…Carpatair don’t fly there. You just have Tarom from Bucharest…but in a few months Austrian Airlines are coming! See Wikopedia…the airport doesn’t have a website.

In addition it is worth mentioning that Pipera one of the fastest growing and most expensive areas of Bucharest has a large number of apartment blocks built in white brick!

Well when you last marketed property in Pipera I forwarded the details to my ex-partner in Bucharest. I will keep her comments to myself but suffice it to say that the use of white brick (as opposed to the red used at Jucu) is almost always reflected in the price of a development.

There is huge investment going into Romania at the moment and this is having a ripple effect and although it is taking a while, this investment is reaching cities such as Baia Mare.

Shopping centres are being built…but one of those property analysis companies with offices in Bucharest suggested last year that only four Romanian cities could sustain further Mall development. I think Craiova was amongst them. I know Cluj wasn’t. I apologise for not being able to provide a specific reference to the report that I refer to but maybe Tavi can put his finger on it. Whilst mentioning Tavi, last year he came back on a comment I had made about air transport since which time I tried wherever possible to identify sources of information when writing for you. I consider this to be a responsible approach when your readers are being invited to invest in a market that they can usually only judge from a distance and which is often hyped up. A good example of such hype are certain properties in Floresti which you will find on one of your competitor’s website where they assert that there is 30% capital appreciation in the area. That’s not true. There may have been a 500% increase in the value of land in Floresti over 2 years but the prices of new build apartments are extremely competitive with some developers pushing prices down with promotional offers. I heard as low as 450 Euro psm the other day!

To come back to investment in Baia Mare you will know that I am very British and scan the Romanian Press as part of my breakfast routine. This morning is dedicated to Baia Mare. Some links are below:

16.1.08
Romanian importer ATP Exodus to invest 20 million Euro to build Mercedes sales and service centre
http: / /www .zf .ro /articol _156667 /investitie _de _20 _mil _ _euro _intr _un _complex _mercedes _de _10 _000 _mp .html
http: / /www .moneyexpress .ro /articol _11769 /auto _mercedes _benz _ _la _baia _mare .html


21.1.08
State authority to put on market hotel site for $5 million.
http: / /www .zf .ro /articol _157434 /avas _vinde _un _complex _hotelier _din _baia _mare _cu _5 _mil _ _ _ .html

9.1.08
Government Highways Authority allocates budgets for development including routes for Baia Mare
http: / /www .zf .ro /articol _155900 /contracte _de _1 _2 _miliarde _lei _pentru _intretinerea _unor _drumuri _judetene _din _transilvania .html
http: / /www .nineoclock .ro /index .php
A search of www.hotnews.ro only brings up one link for January which confirms the above.

22.1.08
Baia Mare to be one of twenty eight locations for Banca Italo Romena
http: / /www .nineoclock .ro /index .php

Whilst I accept that there is a ripple effect throughout Romania the ripples and waves are only hitting certain cities. I accept that Maramures is reputed to be a relatively rich part of the country with traditional industries of forestry, mining and chemicals..and of course tourism which has potential. There are big houses built mainly with Euros earnt in Italy and as with most cities in Romania construction is the most profitable business to be in. But apart from Dawney Day where is the foreign investment? But what wealth is being generated there and what political motivation is there to support growth and change?

A good place to start is the city Hall website (Mayor’s message in English) http: / /baiamarecity .ro /engleza /mesaj _primar .php but apart from that you don’t get too much. Go to http: / /www .primarie .multinet .ro /al21e /index _e .htm#cuprins
And you find an old report in English from 2002 and another at www.sdnp.ro/pdf/AgLoc21_BaiaMare_eng.pdf . Population-wise Baia Mare (http: / /www .citypopulation .de /Romania .html ) is limited and another reader has already questioned whether it should be considered third tier.

A quick skim of the Baia Mare estate agents websites suggests that you have negotiated an excellent price and payment terms…but there are other residential developments in Baia Mare. For those reasons investors will make money…probably about 250 Euro psm by the time of completion.

Your personal ability to negotiate an excellent deal is your key marketing point on this one… you don’t have to speculate about Romanians coming back from Italy in the current economic climate or about proximity of location to the Ukraine….but I’d love to take a trip with you and check out Lviv…800,000 people; a beautiful city and very close to the Polish border..a Ukranian route to the west if ever there was one.

Kind regards

Charles

PS. Below you will find something I wrote a few days for local circulation which may give confidence to those who invested in Jucu:


JUCU Apartments – Foundations for a town within a city

Jucu now

This time last year very few people had heard of Tetarom 3 and Jucu. Then Nokia announced it was coming to Cluj and since that time foreign investment and international companies have put Jucu and Cluj on the international map.

In December of last year Monocle, an international publication covering politics and investment, decided that for 2008 Cluj Napoca was the best place in the world to invest. There are a number of reasons behind this but Tetarom 3, the largest industrial park development in Europe, and the infrastructure that it brings is key to this international rating.

Before Nokia announced they were coming to Jucu one man, the constructor of the Jucu Apartments had vision. At the moment the Jucu Apartments consist of one block which is completed to semi-finished standard with two other blocks due for completion in the summer. All apartments are sold with a small number available in Block One available for re-sale. Forty eight apartments in Blocks 2 and 3 have been sold to foreign investors on favourable payment terms.

Those who were bold enough to take up a limited promotional offer available last spring have already shown a very significant profit with some of their purchases being sold on to foreigners after six months at a 100% profit. More Jucu apartments are planned by the same developer as international companies establish themselves.


Jucu of the future

Good property investment strategy involves identifying an opportunity before it comes to fruition...get in early. Try to imagine Tetarom 3 in three years time. Perhaps there will be as many as thirty thousand workers, a mixture of highly paid professionals and skilled and semi-skilled shop floor employees.

Thirty thousand workers means sixty thousand people requiring somewhere to live. Those people will also need roads and trains, buses etc. In addition that number of people need services – shops, banks, garages, bars, recreational facilities, medical facilities…all the services that put together make a town within a city. Offices will be required.

A point will come where service companies will locate to Jucu because of office rents and location will have a significant advantage over current central and semi-central buildings in the heart of the city.

Roads are being constructed with Jucu as a nodule. However in years to come Cluj will need to find an alternative to car transport noting enviromental issues concerning thecity and the EU agenda on this issue. It will need to have transport facilities that move people – not cars – quickly around the city. The idea of an Expressway from the motorway junction at Gilau/Floresti to Someseni has already been shelved. Imagine a high speed monorail link from Jucu – Apahida – Airport – Marasti – Gara – Baciu – Floresti…..workers and businessmen could travel from one side of the city to the other in 15 minutes. This is a transport system that is essential for any developing city.

Radu Lucianu, Managing Partner of Eurisko, recently predicted that in five or six years Bucharest prices would reach as much as 10,000 Euro per square metre to put them on a par with Munich and Madrid. That may seem to be a large amount of money but it is not unreasonable to suggest that within that timeframe Bucharest will catch up with the prices of other major European cities…..but at this point I must remind you that it is Cluj Napoca – and not Bucharest – that has been assessed as being the best place in the world to invest. Even now Cluj prices are competing with Bucharest having been pushed to thqt level because of the massive foreign direct investment that is going into Tetarom 3 and other lesser developments.

In conclusion investing in Jucu now may not be getting in before the wave has started to roll. However buy into Jucu now and in twelve months time you will be riding the crest of the wave. The real profit from the Jucu Apartments will start to come once Nokia and others commence production.

Hello Charles, and PS contributors

Interested to read your post which I must congratulate you on as being concise and controlled.
I have not spent much time in the Baia Mare area but have spoken to some Romanian friends and colleagues and all were fairly non plussed about Baia Mare itself, although the region has many good qualities. The common theme was that Baia Mare is cheap because nobody really chooses to live there because of the very negative press that it had about 6-7 years ago concerning pollution. I think it was the BBC that referred to it as the "most polluted place in Europe". I understand that it has since made efforts and achieved some success in cleaning up its act, but bad reputations can linger and there is still a potential risk!

Also surprised at the strength of Simon's reaction to any criticism about the latest deal, as if it was a personal insult to his ability to find a good deal. It seems that we have touched a nerve! There was no personal insult intended on my part, only asking PS to substantiate some of the claims made in its sales literature for this deal. It is just plain wrong to suggest that Baia Mare is where Brasov was 1 year ago, which calls into question other aspects of the report.

Of course PS are right that the investment ripples have now reached the third tier cities, but I don't expect the returns to be as fast as those being gained in Bucharest and second Tier cities and I don't believe that this is the best deal around at the moment. I too am monitoring the major cities in Romania and there are plenty of opportunities out there which have equal or better returns over a shorter time frame.

Hi Al

Going back to your earlier observation about PS discovering Brasov recently I can go back many a year to when I worked for DFID. Romania is a country where they could and do have conferences about anything!! What is the Bucharest playground - Sinaia, Predeal, Poiana Brasov and Brasov itself was just as much a playground then as it is now..and I visted these locations frequently as a conference speaker. Its accepted that since that time (2000 approx) Brasov as a city has undergone growth and development.

I share your view that this is not a personal assault on Simon's judgment and I think he has done an excellent job on price and payment terms but I do question whether the marketing information is to the same standard that has previously been provided by PS.

I seem to remember a few months ago we had a little debate about the ability of Bucharest wage earners to afford Bucharest property prices. When enquiries were made as to the source of information in a widely circulated Press Release I was advised that the source and contents were confidential..but of course I found it...and my point about a selective survey was easily made.

I feel very strongly that potential investors should be given information that is verifiable and accurate.

I know Sunday is not the best day to do this but, weather permiting, I'll drive up to Baia Mare and check a few things out. I wish I could stay there for Monday but I just dont have the time.....Cluj is just so full of energy and I have so many investment options to consider before land prices go up as from March.

Charles

Hi

As promised I dropped in on BM today. Here are some observations.

You leave Cluj and drive through Jucu, Gherla and Dej…a depressing place but with some new build apts. When driving through Romania you always check out new build activity – usually houses in the villages as an indicator of local wealth often in the form of ideal homes being built by those working abroad.

At Dej you can go north east to Bisrita a road I know well and on which nearly every village has a selection of new build properties. Entering Bisrita you would find some magnificent homes.

Leaving Dej to the north west the villages are a little different with ver little sign of new build activity. I drove eight kms out of Baia Mare on the Satu Mare road and found the same. I cannot comment on village new builds on other routes out of BM.

The eight kms out of town brought me to the airport. I have to say this brought back memories of the days when I flew around Romania in those old Russian Antonovs…about 24 passengers with the seats so tight that knees were almost in one’s chest. Apart from one security guard the airport was closed the Terminal building being well decorated internally with flaura and forna.

Leaving the airport towards the road I did see one indication of British trade … a parked up lorry from Oswestry no less…and not a German truck in sight!

It is important to understand that in Romania the term ‘city’ can encompass a village in our terms. According to Wikopedia (http: / /en .wikipedia .org /wiki /List _of _cities _in _Romania )the smallest Romanian ‘city’ has a population of 1,802 people. The same source ranks Baia Mare as the seventeenth largest with a population of 140,937. These figures are based on a 2005 estimate since which time many young people may have gone to work abroad.

I think its useful to a little rule of thumb population analysis at this point. We know that a significant proportion of Romania’s population are either of school age or pensioners or made redundant from State industries…something which mat well have had a significant impact on Baia Mare given the closure of chemical and mining industries which were developed in the city after Ceascescu moved large numbers of people to BM between 1953 and 1969. So let’s be generous and say that 60% of the BM population is of working age which gives us 84,000 and that only 15% of these have left to work abroad. That leaves us with a population of 71,400. Put in a 10% unemployment rate (a guess) and you are down to 63,000 people. Given the type of city it is (working class predominately) and noting that many of those who pursue education at University level go to Cluj or even Bucharest (I know this from my experience in recruitment) taking into account the 5% or so who are filthy rich the numbers who are in the aspiring middle class bracket dwindle.

Baia Mare has the usual selection of international stores that can be found in any Romanian town…Praktiker, Metro, Real to name a few. It has car importers the most notable of which are the two recently opened Mercedes dealers (ATP Exodus). Don’t the Germans do well! A drive around the city exposed a relatively few number of banks and financial institutions. The city has a reasonable stock of hotels including the 4* Ambassador and privately owned 3* Mara.


Coming into town on the Satu Mare road you find on the left Victoria Street. I wouldn’t call this street ‘arterial’ – the key streets are Bucuresti and Unirii. I would describe Victoria Street as being a parallel road to the river with maybe 150 at most detached houses constructed or being built on its forested side. I didnt find the Autumn Residence – my laptop battery failed so I did not have the street number (and there were definitely no marketing signs) but I found two other blocks on Victoria Street under construction. One could have been the Autumn Residence (I’ve just looked at the google earth link ) but marketed by a different name locally (72 apartments)( I have checked and I am right go to http: / /www .toamneiresidence .ro /en /index .php Toamnei is Romanian for Autumn…how very confusing if you don’t know or dont have the nonce to check an online dictionary as I have just done). The other block had footings in and was located immediately next to the Gold Plaza site.

The University is not so far away and has both old and new buildings in the city.

The Gold Plaza site was subsequently described to me as ‘just a project’. The site has been levelled but no trenches have been dug and thus no footings are in. There is another site opposite Metro which, again, has been levelled but with no indication of what will be built there. A further flattened site which looks as though a factory has been bulldozed down can be found the city side of the Diego store.

On sites where construction is intended or certainly about to start it is normal in Romania for health and safety notices to be in place giving details of the project – authorisation reference, architects, developer, start and planned finish dates etc. Could one of these have been Atrium?

On a Sunday afternoon it is impossible to find professionals to talk to. However hotel staff, eager for a tip, are happy to talk to customers so the barman and then the restaurant waiter at the Hotel Mara were lined up for interrogation. The hotel has eighty rooms with the seventh floor being renovated. Prices start at just over 50 Euro and I was told that occupancy rates were reasonable. Those staff I spoke to were asked a series of questions and in general corroborated each other.

Close to the hotel are a number of blocks in the red (steel and bricks constructed by no roof or windows let alone finishings). These buildings had been intended as social housing projects but then the city council ran out of money and it was considered better to let them lie in neglect until a buyer offered big Euros for the central sites. I didnt ask but I guess these blocks were commenced after the mining disaster and thereafter circa 2002.

There was no foreign investment in the city according to those with whom I spoke and as stated previously the Gold Plaza was ‘just a project’. Employment was ‘so, so’ and when discussing the middle class issue it was noted that ‘to make it you have to steal’. When raising comparisons between places that were OK – Bucharest, Brasov and Cluj – as opposed to extremely poor cities such as Galati and Vaslui, Baia Mare was placed ‘somewhere in the middle’. When the question was raised about those who worked abroad coming back to BM the response suggested that each year they would return for a few weeks a year and then go back to earn the Euro.

In conclusion I suggest again that it is Simon’s ability do an excellent deal on unbelievable payment terms that will make this one. The number of apartments bought is small and there is at present little new build competition.

However I cannot agree that BM should be considered a third tier city. Many cities have approvals and theoretical budgets for new roads and that on its own is not enough. A number have already been mentioned in this discussion (Pitesti, Ploiesti, Arad, Sibiu etc) but add to that Suceava, Iasi and Turgu Mures which has a huge industrial estate next to one of the longest airports in the country and will have junctions to the Transilvania Highway (TM was given serious consideration by Nokia). Add also Turda and a small place next to it called Campia Turzii (which has city status according to Wikopedia) ….they too will effectively become suburbs of Cluj and have their own junction with the Highway.....so there's plenty of opportunity for expansion and development in Cluj county. To my mind places such as these which will evolve naturally from mother city Cluj and have the advantage of the Highway which is currently being built are as good a bet as any. I wouldnt want to call them cities becaus to my mind they are not but in five years time they will effectively be part of suburban Cluj....if I can make an analogy... what Solihull or Wolverhampton is to Birmingham.

Charles Bell