The “war” enters in its last phase. Who will win?The developers, the clients or the banks?
In the beginning of February, I had described at a press conference what I expected to happen throughout this year. I had spoken about the last phase of crisis, which will bring us the biggest problems. If you remember, it was the same period when the vast majority of people were expecting the prices to rise and things to improve. During that press conference, I had analyzed to the journalists that unfortunately many developers will face insolvency, with the spill over effect influencing their banks too.
This week was full of bad news.
– The last Real Estate exhibition can not be described as a "successful" one, despite the very good work of the organizers. People are simply not eager to buy, at least this is what most of the participants told to me and my friends who were there on Sunday.
– One more residential project is officially in insolvency. The same happened with a Mall, the first one which reachedthis situation. The examples of Cortina Residence and Tiago Mall Oradea show us that the problems are deeper (than many people thought) while the solutions are difficult, sometimes painful too.
Developers: Many disappointed, some waiting
There are too many developers who are in trouble now. They have not sold many properties over the last 20 months and despite their new lower offers, they see their clients waiting for better prices. Some others though remained healthy, because either they sold fast, or they have the available liquidity in order to finish their projects. But more or less, the majority of them feel:
– Upset, as they are blocked and some risk their name and even their existence in the market.
– Sorry, as most of the "strategies" they followed (usually paying them a lot) did not have any result in a declining market. Also sorry for some wrong decisions upon locations, surfaces etc.
– Very worried, as they don't see any positive news for the near future.
– Stressed, many of them, as their bank really puts pressure on them.
– Uncomfortable, as they have built during 2007 – 2008, when the cost of construction was much higher than today. They also bought lands at prices which are double (or more) than 2010, so the whole cost is very high.
– Determined not to sell with losses. "I invested on this project time, resources, a part of my life. I don't want to sell with losses" (someone told me this Sunday).
Some of them have given up trying, while others still fight. Luckily some others still stand.
If things will continue like this (as it looks like) some of them will reach their limits by the end of this year or the first part of 2011. Ofcourse there are always ideas and proposals, but the more they delay, the more difficult will be to implement them. When the time comes for drastical solutions, usually people prefer delaying.
(I still believe that the projects which offer a fair deal with decent or good location, decent quality of construction and interior architecture, good surroundings and transportation means plus an affordable price are able to sell and avoid the worst).
Clients: Defensive, feeling that they don't find what they are searching for
In the same time the clients are defensive. They hear so many offers, but very few match to the reality, when they go to see the promoted apartment. This is why the majority of them remain out of the market, practicing… "window shopping". The crisis has knocked at their door too, making them tougher during negotiating. They try to adjust the prices to their new, lower incomes. It seems that most of them feel:
– Upset, as they still don't find the offer they would like to.
– Sorry, if they bought a property during 2007 – 2008 and nowadays they pay installments for something that values half than when it was bought.
– Very worried, as they don't see the prices reaching their expectations.
– Stressed, as they find (as they complain) many bad projects, but very few good ones at the right price.
– Uncomfortable, feeling that most of developers are "not flexible" and don't help them finalize a transaction.
– Determined not to let anyone brag that he sold expensive to them, creating a fortune "tricking them" (don't forget how many people advertised their high profits in 2008, explaining how they made a fortune and they could afford living like kings).
– Decided not to buy at a high price (whatever "high price" means for them).
Some of them wait for better times, while others continue searching. Many more are just wondering what to do.
Reading the people's online comments and talking to them in daily basis, I realize that some of them feel that there is a war between them and the developers. Something which is not true and it damages the market as well. Many of them decided to remain "frozen", being undecided or afraid of the product, the market and its players.
But I strongly believe that if someone wants to invest today, there are excellent opportunities waiting for him, serious developers to deal with, good Real Estate consultants and anything else he needs, in order to conclude a successful transaction. He just needs to search better.
Banks: The "usual bad guys" can end up as "victims" too (!)
Believe it or not, banks can be the first ones who will lose out of this "war". Things are quite complicated for them, because nowadays they:
– Have to choose if to execute a developer with problems, or help him more. (First option causes guaranteed losses today, second option risks even higher losses in the future).
– Have to accept that they made mistakes in the past and these mistakes may cause major damages.
– Are very careful with their liquidity and it is not easy for them to ask for a cash injection by their mother bank. (But what if it is needed?)
– Listen to many clients complaining that the prices are still high. Many developers complain that the prices are too low. Banks have to come up with their own opinion. If prices have to go down, then developers will lose money and the banks will risk losing the loans they lend to them. If prices will go up, then the clients will not follow, or there is a risk that they will follow but they will not be able to pay their installments, so again the bank will risk their housing loans to become non performing. (Complicated, no?)
Usually we tend to accuse the bankers for all the bad things of this world, forgetting that they are the ones who move the economy. When we want to blame someone, it is easy for us to reach to the conclusion that "banks are to blame". Ofcourse they are responsible for many things, but not for everything. In Romania of 2010 we have some banks which had borrowed billions of Euro and they risk to lose part of them. They can become "victims" instead of the "guilty" ones.
There are also plenty of solutions for the banks as well. Using the services of Real Estate experts (because banks are experts in lending money, not in properties), they can reach solutions of mutual benefit for all sides, including developers and clients. And as the "war" will continue, I strongly believe that the banks are the market players who will give the new market's direction. Whatever this will be.
Who will win this "war"?
Noone! When a war starts, all parts have collateral damages. This is why I suggest to all three parties to sit down and reconsider. If they don't collaborate now, they will all lose in the future.
What is your approach? How can we avoid this "war"?