Replying to readers: “Developers and Real Estate agents have developed a big lie”

Last week I received a very interesting email by a reader of mine. She says several things, covering many different issues. I will reply to her today and tomorrow, trying to explain to her (and all of you) my opinion regarding several "urban myths" that she describes in her text.

Mrs Anne G. wrote to me on Monday, 16.07.2010:

(to read the first part of her email and my replies, please press here.)

"Developers together with Real Estate agents have developed a huge lie"
"Also, in order for them to sell their apartments, developers together with real estate agents have developed what I would call a huge lie, market manipulation. This is:

"Apartments have a lifecycle.

ERGO
Newer apartments are better to buy. Older ones are less safe".

This is a huge lie, which has no foundation in any technical data. Nowhere is it stipulated that apartments have a lifecycle, except in real estate agents' marketing words! Shall we, in extremis, talk about castles, which have some very old and outdated building techniques and materials, and are still standing? BUILDINGS are not chocolate, they do not expire, I am amazed that this manipulation is still being used and indeed shocked at the sheer number of people swallowing such a lie !!"

Here I have to disagree with you. Castles were not built by cement structure, how we build today. On the contrary, they were constructed mainly by stone. And stone is immortal.

But cement has a specific life cycle. This is not justified by developers and consultants. Engineers and other experts are the ones who know more. Ask them and you will realize that this is the truth. Before the crisis, there were several Real Estate projects in Dubai who were informing their clients that: "As the life cycle of cement is just 30 years, in 30 years time we will demolish the building (and the apartment you will buy) and we will rebuild it, according to the future standards".

"Manipulation regarding the earthquake of 1977"
One other manipulation is the following:

If a building was built before the 1977 earthquake, it withstood an earthquake already AND IS BOUND TO FALL AT THE NEXT ONE. Why so? If we're playing with arguments, why not say that if it has once withstood the test of an earthquake, it means it can stand again? The argument goes both ways.

For your info, I know tens of buildings in Bucharest who have major problems due to the earthquake. A friend of mine (working in advertising business) was telling me that his company wanted to place some banners on central buildings. They were not able to place their advertisements in half of their chosen buildings, because "we needed to keep them steady to the wall and the wall was ready to collapse".

Again I disagree. It is not by coincidence that the Romanian state (like all civilized countries in the world) has very strict rules regarding any new construction. There are serious issues with earthquakes and, between you and me, I really hope that we will not live an earthquake again. If this happens, lots of old buildings in the center of Bucharest (and other cities) will probably fall, as all experts say.

I hope that many owners will decide to invest money on their properties, refurbishing their blocks. Your argument of "if it has once withstood the test of an earthquake, it means that it can stand again" is wrong. It is like someone had a heart attack and he is not cautious in order to avoid another one. Having survived during one heart attack, noone can tell to him that he will survive through another one.

It is understandable that they want to sell. The question is, who will incur their losses (in terms of quality) and how can they gain the trust of people they've been manipulating for so long.

All the ones who (tried or succeeded to) manipulate the market should be punished, I am the first one who will tell you this. On the other hand, Let us not generalize. There are people who simply told to their clients the truth, the difficult, sometimes ugly, truth. Why should they be punished too? Because they didn't follow the easy way of lying?

So regarding trust… it is gained by your overall behavior throughout the years. If you consider that someone manipulated you, he will never have your trust again, unless you are naïve yourself.

"But I don't worry too much for them… As we can see, any government/state in this world is rather inclined to have strikes and discontent citizens, than to let the developers fall, because this would mean to let the banks fall, and the very creation of the idea of "state" is linked to banks (Venice bankers etc.)… state and banks go together, always, everywhere. Developers will survive as well, because none of the power-figures wants them to fall. For example, Germany / EU didn't want Greece to fail, they just wanted to impose bigger interest rates, so they made a bit of a fuss to justify that… same goes everywhere: the mist is too thick for us to see the real intentions, but we can always guess. History is a good teacher".

I disagree with this one as well. There are already many developers who have fallen and many others are ready to "bite the dust" (as Queen were singing).

The banks will definitely try to protect their interest. If you would have given your money to someone else, wouldn't you try to make sure that he will stay alive, in order to pay you back?

Do you know any modern society without banks? Do you think that there can be modern world without the need of banks? I can agree with you, they are not always behaving properly, but (fortunately or unfortunately) our society needs them, as much as they need us as clients. It is one thing how they behave (and their mistakes should be corrected) and it is something else how necessary they are for our modern world.

If the banks fall, the whole society will have huge problems. This is why the State tries to protect the banks. (You can also identify other reasons, where State people have interests etc, but in any scenario, no State wants its banks to fall).

Greece is not the same case. My mother country has structural problems for decades. The cocktail of huge deficits, economic crisis and the blockage in the interbanking system was the main reason for its problems. (By the way, if Romania continues to do the same mistakes like Greece, it applies as a candidate for more trouble as well).