“What is the justification for higher prices than 600 Euro / sq.m. for any flat type ”cell”, more than 30 years old?”

Part 3

• to read part 1, click here
• to read part 2, click here
• to read part 4, click here
• to read part 5, click here
• to read part 6, click here
• to read part 7, click here

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.
 

Today I present to you the third 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 real prices"

"In 2008, Ilias Papageorgiadis – A real estate player in Romania – was warning that property prices in Romania are inflated. Few people would stopfrom 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. 5 silvia

It's been about a year and a half since the housing bubble has burst though there are still some attempts of rough handling by all newspapers with some articles like "prices are only 1.100-1.200 Euro now / sqm … you should buy. …………. It is the historical minimum …."

Step by step all blocks in Bucharest degrade and surpass their obsolescence period. All installations require changes and the offered comfort is precarious. However the prices do not drop below 55.000 Euro for a two room, 55 sqm apartment..

What keeps the prices continuously so high?

What is the justification for higher prices than 600 Euro / sq.m. for any flat  type ''cell", more than 30 years old? The demand adjusts to the offer so we can understand that if there is no demand, the offer does not adjust itself? The prices simply froze and thousands of small speculators who play on market got drunk with cold water?

Do you consider the following prices correct:

25 000 Euro for a studio of 50 sq.m.

About 40.000 Euro for a two room apartment of 70 sq.m.?

Thank you.

Ilias Papageorgiadis
The Romanian state, through the Prima Casa project, established a price of 60,000 euro for an apartment. It was obvious that all owners would increase their prices up to this limit. As demand is decreasing, they will have to accept also lower prices. But we should not blame them. Romanians and Greeks have the same mentality. And I will speak about the Greeks, in order not to insult the Romanians.

In Greece, when someone buys something, until he buys the respective thing he complains firstly about the high prices asked. Soon after he exits the notary's he explains to his friends that the prices are very low and they need to grow – for various reasons. It's normal for an owner to ask for a high price for his property. It's his right. The question is why to waste your time on expensive properties? If you want to buy something at a low price, wait till the market will reach your level or think if the price you offer is realistic or not. If you want to buy an apartment in Dorobanti with 500 Euro / sq.m., it is not the owner  who is crazy if he does not want to sell to you. The prices will continue to adapt to reality, but will not reach zero. We don't expect a war here in Romania.

I agree with you, in 70% of cases you are right. On the other hand, there are lots of properties with added value, due to their location, finishings, quality of construction, etc.. Banks and major investors separate the old buildings where their main criterion is the 1977 earthquake. What's older than the earthquake is usually not financed. Exceptions always confirm the rule.

Question no. 6 balmiren

Mr Papageorgiadis, you have repeatedly written in your blog that in nowadays real estate transactions could be concluded targeting a net profit of 7-8% per year.

1. Is this valid for an investment with a budget close to the amount of 100.000 Euro?
2. Is this valid only for Bucharest, or its applicable in case of provincial towns (eg Timisoara)
3. Do you know serious real estate agencies able to identify such opportunities?
4. What would be the fee required by such professionals (give us examples through your case or your collaborators)?

Thank you,

Marius Balmiren

Ilias Papageorgiadis
1. Now we know that the new inflation target for 2010 is 8%, and you also probably know that the investments with low income do not even protect your capital from inflation. This is valid even for an investment worth 100.000 Euro. The problem is that it's hard to find a good property at this price because there are too many investors who can pay this amount but not too many good properties .Anyone with this amount of money should be targeting an annual return of 5-6 % and to take into consideration a potential appreciation of the capital. Therefore, one should choose the properties with potential of the price to grow after the crisis.

2. As far as I know, the whole country has the same inflation and uses the same currency. More or less, we should have the same strategy in Timisoara, Cluj and Constanta. Usually the problem is that there are very few properties at fair prices and there are local "teams" trying to create monopoly on the local market. Therefore there are cities where the real estate market will remain frozen, even after Bucharest will be out of the blockage.

3. I know serious people involved in real estate. I don't want to say that I am serious – I'm not here to talk about myself. I'm sure that if you try to understand what the people are telling you, you can find several people to work with. Indeed many of them are not good, but there are serious people who deserve your time, attention and your money.