“Darling, you got to let me know… Should I stay or should I go?”
One of the few things I enjoy in Cannes is definitely the morning walking on Croisette Boulevard, usually heading to the Palais de Expositions, where all expositions are held. That morning of December, 45 days ago, my last day there for 2008, I was walking and thinking too. I didn’t follow the normal route, from my apartment down to the boulevard and then right to the Palais. I decided to go left, with direction to the famous Martinez hotel (but almost everything there is famous, so no big deal…). Most of the shops were closed; no one at Cannes is out for shopping at 08.30… The air was not cold, but refreshing enough; I looked at the palm trees and the sea at my right, felt really relaxed and continued walking…
The pizza restaurant on my left reminded me of a good friend, as he likes eating there. This led to the discussion with him and some other friends the day before. My company MORE International Invest had a stand at MIPIM Horizons, the first Real Estate exhibition for Emerging countries. But as the exhibition was new, the organization didn’t include lots of publicity and the world economy was trembling, we had very few visitors and plenty of free time for talks. In one of them, I had strongly disagreed with my friend, because he said that he expected the money to flow back in the market even from Easter and the crisis to end up this June, in few months.
There were many years in the past when I was talking about the future of Romanian Real Estate describing it only with positive words, having trust to its bright future. But since the E.U. integration, I got sceptical, in the last quarter of 2007 I started to expect that the prices in several domains and areas would go down and in 2008 I described with details the crisis which was ready to reach us. So, that day I stated my opinion again, which is quite negative, but not dramatic…
The positive approach…
Even in December there were several people who still hoped that the crisis would end soon. In that discussion, the arguments of my friends could be summed up as follows:
• It was too soon to feel better after the shock of September and October. They were positive that the New Year would start with better psychology and the news would soon change the atmosphere too.
• With euribor going down in 2009, maybe even less than 2%, the economy will react as money will become very cheap.
• The needs of people here in Romania are still very big and the demand is many times bigger than the supply. Sooner or later this will be remembered again.
• The banks don’t have an interest to let the system collapse; they will be the first ones losing from a catastrophe…
• … Thus the loans will start to flow again after Easter and by September things will be more or less as they used to be.
• The prices in properties will go down, but especially in the part of the new apartments the deductions will be limited, as the costs of the ones who built with the high prices of 2008 do not allow them to sell under one level.
“I disagree”
While walking, I realized that Croisette had ended some hundreds of meters ago, so I turned back, having this time the sea on my left. Soon I passed across the street, moving to the large clean walking path by the beach. On my way back, I saw the hotels and shops on my right. For a moment I realized that all these represent the status symbols of the world we built the last two decades, the target and desire of the majority of us. So when I was walking close to them, or when I was inside, I was also hypnotized and would never like to think that they can become obsolete one day… like almost no one would like to think that Lehman Brothers could ever fall, up to the last second all people were sure that a bail out would appear out of nowhere… because some things are obvious “it can’t be, they can never change” we thought until 2008…
Keeping a distance from a problem and trying to see it clearly, without feelings and subjective targets included, is a virtue for whoever can achieve it. Walking across the shops, Dior, Versace, Salvatore Feragamo, Fendi… I remembered again my disagreement with my friends the previous day. After all the reasonable arguments I heard, I told them my approach (to which I insist today too). So, I think that…
• The crisis has not ended yet, we are in the middle of the turbulence, definitely not in the last phase. The majority of the problems of real economy are just popping out now and they will be known to us the next months.
• Romania has indeed a great future, but before to reach this, it has a very difficult present. I informed my friends back then that we still expect several companies to bankrupt, especially in the retail domain, while the unemployment will rise.
• A strong Government (at that time there was not the existing one yet) may succeed to solve the problem, but we still don’t know ALL the aspects of it. We don’t even know what will finally happen to Lei, where it will land.
• I don’t see the banks opening their doors soon. I find it more reasonable to remain “closed” the first three months of the year, then to post losses or much less profits and after their shareholders to press them for profits. If not the shareholders, the Government and the Governor of BNR. Right after, at the beginning of the summer, we will see the very big clients having access again to the system and also the very small ones, the retail banking. Until the doors to open for the middle sized clients, I think that we will be ready to prepare for the next Christmas holidays.
• (And never forget that this generation of bankers will not forget for few years what they lived the previous weeks and months…)
• This means that firstly we must go down, then stabilize the situation and then, probably in the second half of 2010, to start going up again. All these of course if USA will move fast and by the end of 2009 will be out of recession, with Obama’s measures. First they will be out and then the rest of us will follow…
“So finally… Should I stay or should I go?”
Walking and thinking… I reached the Palais de Expositions. But it was still early, no one was looking eager to enter inside, so I decided to turn right and move upwards, to the shops in the small streets and the parallel street to Croisette, Rue d’ Antibes. While I was investing some time in buying low cost memorabilia and couple of presents, I remembered an old song of Clash and its famous refrain “Darling, you got to let me know, should I stay or should I go” (click here). This was also the final question my friends asked me the previous day: “Ok, as you say all these, if all this darkness will really happen, what should we do? Pack our things and leave? Or stay in Romania? And why to invest now in Romania and especially in Real Estate?”
NOW is the time
For me the answer is obvious. Exactly NOW is the time to invest, NOW we find opportunities (and the most important) owners with the ears open to listen to us. Crises create chances. Whoever had in target a good asset, NOW is the time to obtain it. Ofcourse the prices will go down, but they will not be demolished, where real value exists. So, the risk free investors can obtain good properties, in good locations, in the way they want to and a very attractive price. The risky ones can find assets with very low prices, betting on bigger profits if they succeed to complete a turn around story in the years to come.
These difficult times are the times when new winners, new leaders are born. Let us not be only a part of the problems we all live every day the last months. Let us try to step aside and look the situation in Romania from a distance. Ofcourse things will be difficult, but this country has a great future ahead, for many different reasons (which I am at your disposal to analyze, whenever you want to). This is why all the serious investors I am talking with have given me order to find them properties to buy. Yes, to buy. Ofcourse by negotiating the prices, definitely by putting their terms on the table (the period of the unserious crazy owners has finished for good). But whoever knows the basics of economy and Real Estate and does not consider investments in properties as something similar to the stock market or gambling, knows that now he can find properties that in few years time will change his life for sure.
Finally I entered in the Palais and after few hours we collected our stuff and left, the exhibition was really empty. I met my friends again, we apologized to each other for our aggressive discussion the day before, “we put some water in our glass of wine”, as we Greeks say. One of them gave me an order to purchase properties as well, while the others will remain active in the market. Time will prove they were right…