“Which is the minimum price for Romania and when is it going to be achieved?”

(my interview to www.hotnews.ro , part 1)

On Tuesday, 6^th of July I had given an online interview to www.hotnews.ro, the number 1 news site of Romania. I was replying live to the readers’ questions and after this I also gave a short recorded video interview. You can access this interview here: http://economie.hotnews.ro/stiri-imobiliar-7537961-video-ilias-papageorgiadis-investitor-piata-imobiliara-sfirsitul-lui-2010-durata-anului-2011-vor-incepe-executarile-silite-atunci-vor-aparea-preturile-reale.htm

Today I present to you the first part of this interview.

“In the end of 2010 and during 2011 we will enter into the period of foreclosures. Then we will reach the minimum prices”

“In 2008, Ilias Papageorgiadis – A real estate player in Romania – was warning that property prices in Romania are inflated. Few people would stop from the madness of buying and selling at huge prices, most of them having contracted a loan in this regard. Now although the market is totally blocked, many owners and developers kept their prices high. Ilias Papageorgiadis Ilias a former journalist from Greece, talks on-line about the future of the real estate market in Romania.

Ilias Papageorgiadis will answer our readers questions

Question no. 1 bgd

I know many people who still make money from real estate. The only difference is that they work more for the same profit (I am referring myself strictly to those who build and then sell, not the speculators).

1. Do you believe that this blockage is due to continuous high prices, declining demand and / or due to the disappearance of speculators?

2. Perhaps until we will return at the level of 2007 it will take us a long time, but considering your experience,.. when do you estimate the rebound of the luxury property market  (and here I mean those ultra central properties)?

3. How much would you estimate to be a fair price at the moment for a square meter of land in an ultra-central area in Bucharest? But how about the provinces (Iasi, Constanta, Timisoara, Cluj)?

Ilias Papageorgiadis

1. Not only speculators are gone, but also the serious investors. Romanians and foreigners have lost their touch with reality and began to believe that we live in New York, Paris or London. Even today there are enough people who still believe this. This is the first problem that we have to solve. We must realize that we live in Romania, a country with many opportunities and great future potential, but Romania will never be New York, Berlin or Frankfurt.

The second problem that we have to solve is the wrong mentality that some real estate players still have, namely the attempt to fool their business partners without success. This kind of mentality brings more harm to the market .

2. Ultra-luxurious properties are not necessarily central. Do not tell this secret to anyone, but – between you and me – most of these ultra-central proprieties are far from being luxurious. Most luxurious properties will be among the first unblocked for transactions if the prices will be adjusted according to the economic reality. Reality means that we cannot sell an old and ugly building for the price of a new and luxurious one. Reality also means that the perception of the design which the owner has about his property is usually not luxurious. I cannot say exactly the moment when the market will be unblocked, because right now we enter in a period which will be much worse than so far. More or less, as I already said several times, when western Europe will begin to rebound, Romania will follow, with a delay of 6 – 12 months. But right now we cannot talk about rebound.

3. A fair price is linked to an exact location and urban parameters of each property. It is also linked to many other aspects: the level of the water under the land, neighbors and many other small details that were not important to the owners till now. But things will change, because potential buyers are very careful. I will not indicate a specific price because I don’t want to do something that seems ridiculous. If you have a specific property to refer to, then I can make a statement about it.

Question no. 2 rov

1. Why no residential areas are developed outside of a city in beautiful areas like in the civilized world and they still are built in the pollution and dirt from the edge of the city belt?

2. What is the correct construction price today ( in euro) for a completed three-star level construction / useful square meter?

3. They say the prices will start growing only when they reached the absolute minimum. Which is the minimum for Romania and when it will be achieved (in time)?

Ilias Papageorgiadis

1. The development of residential areas outside the cities as we see in other countries, is a process that took 3 – 4 decades. Romanian real estate market has less than ten years of real presence. How can development of new residential areas be possible without no proper infrastructure and no urban strategy – where or how we should build. Today, especially in crisis, the income of the people is lowered and today’s priorities considered important are: easy transportation, low cost life and easy access to all facilities. Therefore, for the following years, people will prefer to live in town rather than outside the city Unfortunately, we saw what happened in Pipera, an area with excellent potential, but in following decades. In February 2007, I stated in an interview that Pipera will be the biggest real estate bubble in Romania. Today you know if I was right or not. And a little tip: if you want to buy something outside the city please do not buy something far from infrastructure. Do not believe anyone who promises to work upon the infrastructure where the infrastructure is not accomplished. Otherwise you will regret it.

2. Depends on who is builing. If it is a company that meets all standards, approvals and bank guarantee, the price will start at 550 – 650 Euro / sq.m. for a property of acceptable quality. Better quality, three stars quality, depends on finishings, and can reach higher costs. I think with 850 – 1.000 euro / sq.m. you can meet these standards today.

3. Greeks say “get me the profit and I’ll make you rich” (ps the correct phrase is “make me a prophet and ill make you rich”). No one can say exactly when. Now in Romania we live in two different realities. The reality of transactions at a very low price – what I consider the lowest level, and the reality of required prices – when people just ask and wait. Unfortunately, as the crisis continues, more and more owners will move from second to first class. Meanwhile, from the end of 2010 and during 2011, we will face foreclosures. This will be probably the last step. But nobody knows how long it will last, because they are too many variables and too many problems that need to solved.”

Tomorrow:
“What is the real difference between the required price in an add and the real price for which an apartment is sold in reality? An average percentage please.”

• “Which will be the price tendency of the lands around Bucharest? If you could please mention the trends in the North, South, East and West, especially from the development  point of view of infrastructure and facilities in the area.”
• “Is there any connection between the installment for an apartment purchased through a loan and the rent paid for the same apartment? (In general they are equal, not equal, can be in any connection?)”
• “Towards which version of a credit risk calculation would you advise an average family to move on: 20 years with 8% interest or 30 years with 5%?”