Romania 2009 – 2010Drawing the next investment successon a black colored canvas

Part 1

      (“Eurobuild” magazine has asked my opinion regarding Romania and a general idea about my predictions for 2010. This is what I sent to them, it was published in the beginning of October).

July 2009: “Why to waste our precious time in countries like R o ma n i a?”
      “Romania. Ha! Romania… does this country still exist?” An arrogant English gentleman was sitting across the table, full of happiness for the moments of pleasure he was enjoying. “So, Ilias, you didn’t tell me… what happened to all the arrogant property sellers today? Those who were eager to steal the money of property investors, especially from the foreign ones?” “I guess that most of them are exactly where they used to be, at their offices”, I replied.
      “O ho ho ho” (he laughed as if he heard that Gordon Brown won the forthcoming UK elections by 10% spread) “I don’t want to hear about your Romania, your properties and projects there. Most of my friends wasted their money in Romania, from small investors to big funds. Today we have opportunities here, at home in UK. Why to waste our precious time in countries like R o m a n i a? Ha ha ha ha…” That was July 2009…

October 2007: “Romania will be up 30 – 55% by 2010″
      I first met the same gentleman in October 2007, at Munich, during EXPO REAL exhibition (where my company MORE Real Estate Services had a stand). He was searching to find me, as he was desperately interested in meeting anyone coming from Romania, anyone who could offer him any deal about properties in Bucharest and other secondary cities of the country.
      When I asked him the reason why he was in such a rush, he explained that his investment fund decided to enter Romania with a 50 million euro budget to be invested by the year end (so he only had two months left). This was because their studies (backed up by several “multinational brokers – specialists”) predicted that “property prices would increase by 30 – 55% in the following two years, until 2010. And with the leverage of 90% that we have, you can imagine the profits, young man”.

Romanian market to reach bottom during 2010: A lost bet?
      The “madness” of 2007 – 2008 is history. We have now entered in the final phase of the “drama”, with prices expected to reach bottom during the following 6 – 12 months, even though the prices in some categories of the market are already very low. Some people believe that this is bad, because the “bet for high profits” is lost…

A new challenge, for plenty of reasons…
      Yes, we will have a difficult upcoming period. But isn’t this the best way so as the market to start moving again (unfortunately)? The first reason to initiate someone’s interest in investing is the new, lower pricing that the Romanian market will offer. This translates to numerous opportunities in this domain the following months. Ofcourse not all cheap properties are good, but it will not be so difficult to trace the good properties in attractive prices. So, I see this more as a new challenge, for various reasons.
      Let us explore the advantages and defaults of Romania and its Real Estate market and I am sure that you will be able to arrive at your own conclusions.

The depreciation of the Ron is expected to reach even lower levels…
      Yes, the Romanian currency has lost 25% during the last 12 months. Further turbulences are expected as the economy will face major problems in the forthcoming period, with some analysts predicting further 10-15% depreciation.

… but Romania benefits from strong fundamental economic figures and the Governor of the National Bank is a factor of stability himself
      If you search for the countries with the lowest foreign debt in the European Union, you will find out that Romania is amongst them. Also, check those countries that diminished their current account deficit during this year. Romania will appear in this list too (approximately -80%), covering the remaining deficit from the Foreign Direct Investments. Lastly look for those countries that have the necessary capital reserves available to guarantee the stability of the banking system and the citizens’ deposits. Romania tops the list again with its National Bank protecting the economy quite good and with its Governor to offer reassurance being a major factor of stability himself.

Romania failed to absorb the European Union funding…
      Not only. More worryingly, some say that the country failed to be a net receiver of EU funds as it… managed to be a net payer to the European Union. Local and foreign investors also believe that the wealth of the previous years almost hypnotized the ones responsible to organize the necessary structures.

…but 30 billion euro EU funding is still available and the target of adopting the Euro is rising
      This year the country will probably absorb much more than it did in the previous two. But still there is enough money to be received and pumped into the economy during the following four years (2010 – 2013). Between us, it is the first time that I really believe that the authorities have realized the necessity of absorbing EU capital.
      At the same time, after the elections I am expecting the politicians to set the “next big target” for Romania: the Euro adoption in 2014. This would suggest the introduction of strict fiscal measures in order to prepare the economy for the accession to the monetary union. The introduction of such policies will eventually lead to an initially difficult period, however all of us witnessed the excellent period (for investments) before the official entrance to the Eurozone, that other countries experienced.

(tomorrow the second part)