Hi All,

2008 is turning out to be an unexpected year for Romania where many people feel they are stuck between a rock and a hard place and unsure what to do next..

Despite a backcloth of high GDP growth and huge FDI, the first cracks are beginning to appear in some segments of the market due to the food and oil crisis, rampant inflation and global uncertainty stemming from US subprime and european markets catching a cold.

- For instance, Warsaw has caught a nasty cold and has been stopped dead in its tracks so will Bucharest follow...?

One should also bear in mind that Rednet prices for Warsaw are like Idealista prices in Spain.

- They are ´paper prices´ a lot of the time and not a real indication of what someone is actually gonna pay for a property. Statistics, statistics, statistics...

Some reports are being revealed of prices falling in Bucharest for panelaks, by as much as 20% in some cases.

Is this fact or fiction?

So, does anyone have any news on the current ´etats des affaires´ of the Bucharest market and price per square metre - I don´t mean mean statistics - but someone who has actually tried to buy or sell a property there recently?

There definitely appear to be mixed reports about Bucharest... One school of thought believing it is overpriced and investor-driven and that half the apartments in the city are empty and owned by speculators.... and other reports that new developments sell like hot cakes there..

- Did any of you worldly-wise investors know that one or two highly prestigious developments in Cluj-Napoca are on the verge of going bust apparently and 30,000 flats are being built or completed in the new suburb-come-city on the edge of Cluj-Napoca, an economic powerhouse in dracula country (Transylvania)?

The neighbourhood in question is called ´Floresti´ by the way and theres a price war going on at the moment there, as developers have to undercut each other to sell.

In count dracula style, will they be able to suck some money out of first time buyers or are some devlopments going to go belly-up? Or maybe we will just have to be patient and wait and see what unfolds over the next year.

But please let me tell you that there are flats for sale starting from 30,000€.
In fact I bought one in January for 45,000€ and it will include a turnkey finish. Was given a 10% discount for being a good boy and putting my money where my mouth is and paying in cash - way to go! - do it the Romanian way!

To sum up, now is a time of uncertainty even in Romania which was viewed as being one of the sure horses this year but from a personal viewpoint I have to admit that all the fundamentals in Ro certainly look good for the future.

People will flock to where the value is and prices of 30,000€ and 50,000€ are still very reasonable in desirable suburbs of cities like Cluj, which after all is a beautiful places, full of culture, mountains nearby, lakes etc. And booming industry and universities.

I´m definitely betting on Ro for the long term and I hope you do too.

Regards,

LiamValencia

I recently had my unit in Romania valued at no more (or possibly less) than what I paid for it 15 months ago, through PS at supposedly significantly below market value and developer 'discount'.

Unanswered emails and general uninterest from I-PA add to the uncertainty, as far as Romania goes.

Doug,

Who did the actual valuation of your property ?

Hi Doug,

I am greatly concerned that you feel there has been a lack of interest and non response to your e-mails. Please could you make an official complaint to the i-PA team. We are keen to run our complaints procedure correctly, capturing the complaint, investigating the situation and implementing an improvement or corrective action. This ensures that we have the opportunity to really act upon poor client experiences and build a business that learns from mistakes and provides a higher quality a lot faster.

Hi Liam,

Romania is not dead. There has certainly been a slow down but this was to be expected due to the phenomenal pace that has been experienced in recent years.

We are receiving enquiries from locals on a weekly basis for units that we have for sale but it is currently a buyer's market and sellers need to be flexible and fast to make the sale.

Regarding your point about a price war between developers, I would be concerned if this was happening in the middle of the build schedule, but not if the developments are approaching completion. There is a developer's pricing policy or pricing phenomenon that occurs throughout the world. PropertySecrets recently conducted a powerful piece of work and analysed this in great detail. I believe they will be presenting this in seminars and investor evenings in the near future.

So from my experience I would state that Romania is a turbulent market but the economic factors are very strong for the medium to long term investor.

Short term investors have a tendency to focus on the value of their property on a daily basis and draw conclusions from all positive and negative information feeds that they receive. The important point is that all property can be sold on any day for the right price. The buyer and the seller that come together for the sale on that particular day each have their own predicament and price elasticity. As the volume of secondary sales increase and the data becomes more available the turbulence will reduce.

For example, we can speak to two buyers about two adjacent, identical properties and the purchasing power of each will be massively different. One will pay cash for the asking price netting the investor a whopping profit, whereas the other will have to sort out a mortgage and may only be able to pay 80% of the asking price. They come from totally diffferent demographics. Drawing a firm conclusion with a small sample size would be foolish; hence we have to rely on general data rather than our own real sales data at this time. We are currently forming alliances with several leading estate agencies and advising them on how to collate and present their data so that we can start to capture strong market data for the resales activity.

Hope my ramblings on this subject help.

All the best

Oliver Watts

I bought into Bucharest in the middle of last year and although I bought with a 10 year view, I didn't expect the 1st phase of growth to end so quickly.

At mid last year property secrets were forecasting at least 30% growth for Bucharest and for 2008 I think their forecast was 25%.

Property Secrets main points were that there is a huge undersupply of housing stock and that even though prices are relatively expensive compared to average income and compared to other EU countries these comparisons are not valid ones to make and turbo charged growth was just getting started. However now it seems there are suddenly some oversupply issues and prices reached affordability limits and now we surprisingly have a buyers market.

Did PS get this one as badly wrong as appears and how does Bucharest look to PS now on a 10 year view?

I believe we say supply/demand is part of it. And affordability another - ESPECIALLY in Romania, where it is high.

Just my personal opinion, but I think Bucharest with a 10 year view is still a very good bet. It's what happens in the interim and whether you can afford that, that would concern me.

Hi Guys - interesting debate...

To give our view - in no particular order

a) Floresti (south/ south west of Cluj) was always a nightmare waiting to happen. We looked at deals there - but left them well alone. The Nokia plant and airport are all on the other side of the city.

Until the ring roads are built - this area is going nowhere as it requires a 1 to 1.5 hour drive just to cross the city.

Also, if any one has been to Floresti they will see that the development plan is non-existant and many developments but up against others so making it a new neighbourhood with no planning and next to no ammenities.

This is a good example of how not to develop - but not proof that Romania is no good as a destination.

b) You'll have noticed how few deals we've done in Romania lately - this is for good reason - we haven't found the deals we've like at the prices we've liked.

c) It is true that there are a large number of units being delivered in Bucharest - and it is also true that the Romanian market has reached a state of impass. Anyone who receives the Romania market performance report (out very shortly) will see our latest view on this market.

d) I've attached (I hope) a piece of research that shows the under supply of propety in Bucharest.

e) I am an investor in Bucharest too - my plan is to hold and ride out the current uncertainty - and we are beginning to see some smaller markets outside of Bucharest pick up again.

f) Like Liam - I have no worries about this market over 10 years - but we were suprised at how quickly the market reached the peak. I believe this is down to slower credit and mortgage growth than predicted - or at least than we saw in other CEE countries - but again, all the evidence is that this credit is now coming on stream in terms of real offers from banks and that Romanian people are - slowly - accepting it.

We saw some mortgage offers to Romanian citizens being down graded by about €10k in June - and I think this is a temporary and knee jerk reaction from banks...

But I'll let Steffan tell you more about the latest in the mortgage market or you can read a very recent update...(http: / /www .propertysecrets .net /article /overseas _mortgages _romanian _mortgages _coming _of _age /2076 .html)

g) Lastly, a lot of projects in Bucharest are close to completion but not completed. There is more evidence coming in that once units complete they can be sold.

h) I've been looking at some of the 3rd tier/ emerging regional capitals of Romania - and whilst the potential is undeniable - we've been concerned about the difficulty of a secure exit strategy - and that is why we've been constructing what we've called an Assured Exit strategy. It is not finished yet, but I think this kind of way is the right way for anyone looking to make further investments in Romania.

i) Our recommendation for any investors is to hold out - and get through this time - perhaps to rent - but that the markets will come right and then you'll see the growth you'd expect.

j) lastly, the growth curve in Romania is not smooth - but jagged - so you can see some periods when the investment appears not to have grown in value - and then it will suddenly jump. This appears to be a typical feature of this earlier emerging market.

Hope this helps (and my graph uploads).

Look out for the Romania Market Performance report too (Ben should be able to tell you when that will be available).

Cheers
Neil

hi neil

thanks for the post. the graph you included shows just the sort of information that does indeed affect medium-long term price movements, given growing economies. but your data is for 2005, and therefore won't take into account the massive building of the last couple of years. more current data, taking construction underway into account would be interesting.

with both romania and poland, where PS's price forecasts have been most badly wrong of late, i think you've well researched the demand side but missed much of what was going on on the supply side.

regards,
dan

Thanks Dan

The graph was intended to show the long term demand, yes - but you are quite right, does not consider the short term supply side.

The short term supply side is going through what we can only call an interesting phase....

a) most developments are heavily delayed - affecting the supply of completed units (this ACTUALLY is holding the market back, as marketing campaigns are delayed and it is still difficult to sell a 'nearly' completed unit).

b) then there is the credit crunch - and the pure and simple knee jerk reactions of a small number of Romanian risk managers (may be about 20 individuals in total) and how their actions have caused a stall

c) then there is the media which has been very negative and has - until recently - encouraged locals to hold off and wait...

I'd be interested to know if you've got any analytical tools which can accurately predict these factors 12 months ahead...

In particular I'd like to know

...what will the media mood be in July 2009?

... what will the risk attitude be of the 20 or so risk managers in Romanian banks in July 2009

... what rate of delay will there be on developments in July 2009?

If you can tell me this - accurately please - then we'll give you a clear view on the 12 month supply side picture.

I hope you don't mind me laying it out like this - but I think it is clear that you are asking for crystal ball analysis.

We've no problem with doing this - but it is important that all investors understand that this is 'crystal ball' analysis - and that the demand side (so long term potential) is far more reliable and therefore open to analysis.

This is why residential property should be viewed as long term investment - because there will be cycles - but the demand factors will eventually conquer and deliver the kind of returns that we expect.

This isn't - of course - to ignore the short term supply bounces - but is an attempt to get things in perspective.

Cheers
Neil