Do you like “role games”?Let us play the… residential developer!

(part 1)

During the previous months, we all “enjoyed” a big number of upset people (and some media) complaining for the high prices of apartments. They all blamed the residential developers as the ones who “keep the prices high and try to steal our money from our pockets”. I am the first one who says that there are many bad professionals out there, but today let us try to enter in a developer’s shoes. Especially a foreigner one. Do you want to play this “role game” together?

Our hero, Mr X, a successful developer in his own country
2006 – 2008. Let us assume that Mr X is a developer in his country. He is not a crook, on the contrary. He is successful there, with an impressive track record and reputation. He heard so many people saying that they made lots of money in Romania, so finally he decided to come over as well. Why? Because profits in his country were low and he thought about trying somewhere else, for better results.

He didn’t come to Romania with bad intention. He accepted that he had to collaborate with serious people who would be paid more than in his country. He was not a very big investor, nor a small one. So he decided to invest about 10.000.000 Euro in total, partially his money, partially his bank’s contribution.

Coming to Romania…
He came to the country two – three times, just to understand where he was and how the local market and economy were structured. Meetings with lawyers, accountants, architects, Real Estate consultants and other people he might had known in advance. Everyone was explaining to him that the country had an excellent potential, that it was an “investor’s paradise” (but most of them forgot to mention that this was valid only if he would buy something in good price). Usually a “hello” to his country’s embassy was part of his PR and research. Restaurants, hotels and all sorts of small “invisible” expenses were added, becoming a lot in the end…

Ready to invest…
It took him several more months until he was able to be ready to move on. He chose his collaborators, lawyers, accountants etc. Everything was expensive and was moving slowly. He set up a company and paid several small amounts of money, for various reasons. After months of research, he found the property he wanted to invest in. But then he had a dilemma: How to proceed in a deal, when the owner was changing his mind (and price) every single day or week? He was not used to deal with people who behaved like this. Also, he was told that he had to undertake the risk to apply and receive by himself the approvals for new urbanistic parameters.

So many people around him were treating him like “a cash machine”, sometimes telling him obvious lies, just to obtain a smaller or bigger amount of money. From the taxi drivers to his first employees, the majority of his new circle were just trying to squeeze his wallet, by all means. But the expectation of high profits made him forget these daily problems…

First transaction…
It took him another 3 months until to reach his first transaction. Meanwhile he also hired some people, creating his first “team” in Romania. As “country manager” he brought someone from his own country, a friend of his, whom he had to pay a lot. He lost several properties because their owners changed their price even in the notary’s office, or they sold to someone else, who offered them an absolutely crazy deal. He was shocked to find out that just few months later, that crazy price was the new “market standards”. So in the end he adjusted himself. (Even if he felt uncomfortable sometimes, watching people who never were entrepreneurs, making fun of him because he didn’t want to pay much more than how much he considered he should).

He chose a land whose price was approximately 500.000 Euro 3 years ago, 1.500.000 Euro 2 years ago, 3.000.000 Euro last year and 4.000.000 Euro this year. He was not able to negotiate, it was “either you pay this price, or I sell to someone else. I have another 100 who beg me to sell to them”. This land was not located downtown, but his bank, his evaluators, his Real Estate consultants and his new friends told him that “it was super” and that “you have excellent potential to earn very good profits, lucky you…”. This land could build “13.000 sq.m.” as everyone told him. “It is not difficult to obtain the authorizations, you will just need to pay the right persons” he heard.

On Monday, 12.07:

• “Of course you have to pay a lot, you will earn even bigger profits”.
• “For sure you can sell with 2.500 Euro / sq.m., I guarantee to you”
• “In your own country you like living in large, spacious apartments. Who told you that Romanians are inferior and they like smaller surfaces?”

(Necessary clarification
Please allow me to clarify something: I strongly believe that a big part (maybe half) of the residential developers being active in Romania today are people who either were tricked while chasing easy money or they developed on purpose bad constructions, in order for them to cash in more money in shorter time. But for every developer who behaved like this, I also meet one more serious, professional, with strategy and plans. A person or company who tried to develop something good, with respectable quality, civilized, aiming to build a strong brand name and to achieve his clients to be happy for buying his property).