First 5 months of the year. 5 + 5 lessons for Real Estate market
Part 1
(to read part 2, click here)
Selective hearing sense…
The gentleman on the other line was really upset. "Listen to me, listen to me"… he was trying to sell to me his property with 50 – 60% more than the market today. "Mister, with all due respect, we simply do not agree. This is not a tragedy, we are civilized people and we are free to have different opinions". "Nooooo, listen to me, listen to me" he started again, describing how the clever investor should behave, tricking everyone and making quick profits. I had tried to explain to him the reality we live in Romania in 2010, but he was determined to refuse it. So, I respected all his "lessons" to me and renewed our discussion for the winter period. It is difficult to do business with people having "selective' hearing sense. Unfortunately his approach is still the one of 2008, while 2010 already offers us manylessons to learn from…
The year which disappointed the hopes of many
Just few months ago, there were plenty of people who were predicting better days for Romania and the Real Estate market. I was not one of them, choosing once more to be the "grumpy" one who will share with you the reality we live in daily basis. It looks like now many people have realized that things will not change so easily without difficult decisions and the problems will not be solved just by wishing them to disappear from our lives.
The Real Estate lessons of 2010
So, let us crosscheck together 5 lessons that 2010 has generously taught us so far:
1. It is still a buyers' market – almost 0 transactions in high prices
2010 has reconfirmed that the market will continue being driven by the buyers' decisions. I did not hear of any transaction in high prices. Either an investor has cash or he will also use a credit facility, it is sure that he will choose to invest only when he will establish his terms. Exception: The residential market which targets to the mass.
Only major transactions in 2010: Properties being sold at "distressed" prices. Exception: IKEA deal, a different story…
2. We are heading to foreclosures. It is inevitable
I had explained to my press conference in February that the banks will be forced to liquidate some assets, by undertaking some losses. Over the months that followed, it became clear that this procedure has started, peacefully and silently. Too many portfolios with problems require drastic solutions, sooner or later. And 2010 shows us that: 1. This will finally happen. 2. It will happen sooner than expected.
It is important this procedure to move on carefully, with experts getting involved as there are plenty of serious solutions. If not, I don't want to think of the consequences…
3. We have reached the "rock bottom"
Prices in 2010 have been contracted to their lowest levels since several years. Please note: The prices of transactions, not the asked prices. As the year will continue being difficult (and from October I expect it to be even more difficult), I don't expect the real prices to fall significantly, but I am sure that more owners will be willing to redraw their expectations, adjusting to reality.
Example: An average property in Bucharest used to cost 100. Now it has an asked price of 60 and a real price of 40. I don't expect its price to fall to 10 – 20, but there will be more properties being offered at the range of 35 – 45. (In some cases, this is more, in some others it is less).
4. The stock of good offers remains limited
If there was anyone claiming the opposite, I think that 2010 gave him a final lesson, as it is more clear than ever: The stock of available properties is very big, but the good offers remain few. Properties with "clean" papers, good features, location and price are not many. Most of investors are seeking for this combination and they don't really find a serious number good offers.
Last year I had advised some of my clients to invest on some very good properties, matching the above mentioned criteria. Now they just want to invest more, as they realized that the really good properties, bought at the right price, are a safe option for investors even during a multi year crisis.
5. Market slowly cleans up, but more seriousness is needed
The number of Real Estate professionals and "people involved in this business" has dropped significantly. This procedure continued in 2010 and now most of the companies enter in the last phase of their restructuring (having noticed as well the poor results of the first 5 months of the year). But the rest of the market players, owners, investors, banks etc require even more seriousness and higher level of professionalism. This year clearly showed us that the ones who try to work "like the good old times" simply lose their time and resources without results.
What we still need is a new law for Real Estate, redefining everything from 0.
Tomorrow:
- Another 5 lessons
- Is it good to invest?
- When is the best moment for this?