The beginning of the end? Or the end of the beginning? (Part 1)


Romanian Real Estate market 2011

Part 1

(to read part 2, click here)

2011 has already started and January is gone. But we are still in the beginning of the year, trying to identify which will be its direction. Talking about the Romanian Real Estate market, we have come up to the following paradox: "Lots of people predict that the crisis is over and that better days are coming, while for the moment the market remains frozen and there are no clear signs of recovery".

"Be positive, psychology is the key" – "Don't you see around you?"
Already since November last year, I have been asking people (more than 100 in total), trying to identify their approach to this question. Are we close to the end? Should we hurry up with the investments, before the market rises again? Or are we still in crisis, with long way before "the end of the tunnel". There are many persons who told me: "You should be optimist and give a positive message, above all the market is influenced by people's psychology and this is the key". Many others contradicted: "Don't lie, don't promise things that will not happen. Don't you see around you?"

This is why I decided to follow a different strategy this year. Today I will give you the arguments of the ones who claim that positive growth (stronger or not) is about to come. Then tomorrow I will present to you why many people claim that we are still "in big trouble". And finally onThursday I will tell you my own opinion, but I will be looking forward to receiving yours as well.

"In 2011 the market will go up.
This is the beginning of the end"

10 + 1 arguments for the positive thinkers:

1. "As Romania exits its economic crisis, the Real Estate market will soon follow. Also the European Grants remain not absorbed, which might become the country's strong point for growth". This is a very popular approach lately. A certain part of Romanian society considers that "the worst is over" for the Romanian economy. Some people (and media) have already partied "for the end of the crisis". Assuming that this opinion is correct, it is obvious that the Real Estate market will improve as well.

2. "The prices have reached bottom, they can't go any lower". This is another popular quote that I heard a lot during the last period. Too many people consider the prices as very low ones (comparing to 2008 ones, I guess). So, if the prices reached bottom indeed, it is normal for them to rebound, as many people claim.

3. "There is very strong demand for properties, especially by end users. By absorbing this demand, the market automatically will move and prices will rise". One of the representatives of Coldwell Banker mentioned in the last CPI that in January the demand for properties was almost double than the same month in 2010. Sales didn't follow, but many people consider that there is "too much demand awaiting to be invested and soon is about to explode".

4. "Some banks started financing again and some others considering doing it during the year". (as a colleague of mine loves saying "don't shoot, I am just the messenger here"). There are serious people who can swear to you that there are banks which finance Real Estate again! Their approach is that "several banks, even couple of Greek ones, have started financing selected clients and projects. This is the key for the market to unblock".

5. "Many Real Estate Funds have money which is not invested yet and the investment period expires during 2011 – 2012". Too many Real Estate Funds were formed during 2007 – 2008. According to their rules (as agreed by the co-investors), their investment period is 3 – 5 years, but for most of them it expires during 2011 – 2012. This is something known in the Real Estate market and there are lots of people who expect these Funds to make a "move". (I confirm that already one "move" like this happened in January and my company talks with more Funds nowadays).

6. "Most of the developments with problems either reached insolvency (and now they will be absorbed by the market) or they found a financing solution and they are not so stressed anymore. So no need to wait for more". This is a theory assuming that all the banks have sorted out their problems with major developments. Either these burst, or they found a solution to continue their presence in the market. So the believers of this opinion don't expect many more projects to reach insolvency this year.

7. "Foreclosure procedure itself is good, it restarts the market". I fully agree. If foreclosures begin to dominate the market, except the unhappy stories of people losing their properties, this also means that many investors will enter in the market, investing at a low price. This low price will be considered as "the basis" and the prices will start rising from this level upwards. (Attention: "The basis" will be the price these people bought, not the asking prices in the market today).

8. "There are not many good properties available today, especially very few good residential projects. This will lead to price hiking very soon". The first part is correct. There are not many good properties available in the Romanian market today. Combine this fact with the strong demand and here you have the ingredients of this theory. The market is expected to rise this year, as lots of people state, adopting this opinion.

9. "Many strong companies in the Real Estate world already found solutions during the crisis. They seal transactions, maintain low vacancy rates in their properties, move ahead. This is the first sign for recovery. Plus some companies have announced that they have already exited the crisis". There is a growing belief that this crisis has created a serious number of "crisis proof" Real Estate companies, which managed to exit the problems without serious wounds. They are presented as the pioneers who will lead the market to a new period of prosperity.

10. "Crisis changed the people. The mentality is improved and they will not do the mistakes of the past. This is why they will invest and create a new circle of steady progress, with careful investments and well thought decisions". This is part of the bigger idea which assumes that "crisis taught us important lessons and made us all more cautious and careful for the future". If this is correct, this will lead to a new "golden era", without the mistakes of the recent past.

10 + 1. "The Governor of BNR, Mr Mugur Isarescu, is the factor which provides stability to the system and will help the country to exit the crisis soon". Yes, I agree. I also consider Mr Isarescu as the major factor of stability in Romania and I really trust his ability to guide the country through the crisis. But the believers of this theory consider that his sole presence is more or less enough for the problems to be solved, or anticipated. So like this we will exit the problems quite soon.

Do you have more arguments in order to support the theory that we have entered "in the beginning of the end"? Please send them to me and I will mention them as well.

Tomorrow: Maybe it is just "the end of the beginning"?

10 arguments for this opinion

On Thursday: My personal opinion

On Friday: The "lovely serious people are back"



  1. Mihai Feb 1, 2011

    “The prices have reached bottom, they can’t go any lower”
    Ha ha ha. For any serious stock market investor this sentence is a funny joke. Only a beginner could believe that and base an investment decision on it. I am quite sure that it is the same on real estate.

  2. John the Stock Speculator Feb 1, 2011

    This assumptions are quite correct in my oppinion…but…there is a “but”. For this to happen, it’s a must that global economy (or the biggest ecconomies) not to re-enter into a recession.
    Or, in my oppinion, this a scenario quite plausible, the recovery was nothing but the result of the stimulus programs in various countries, and further stimulus programs are very hard to continue (contries are overwhelmed in debts and deficits).
    So the fragile recovery will find its natural end.
    I believe it’s a large probability that in 2nd half of 2011 or 1st half or 2012 the global economy will be in reccesion again, much worse than the first, and with governments with limited resources for stimulus plans.
    Also the stock indices are very-very overbought, a situation of optimism similar with 2007. The stock markets probably will fall, with 6-9 months before economies.
    So, in this global enviroment, a recovery of romanian economy will be dificult. Probably in 2011 we’ll have a thin recovery (which will fuel the analists & investors with optimism) but in 2012 it will be another free fall (like 2009).
    In this case the real estate market will continue the decline, and probably will find a bottom in the late 2012 or early 2013.
    This is the scenario I bet (probably 70-80% chances to happen, 20-30% a miracle to occur).

  3. Marian Feb 2, 2011

    Baltabac! Deabea urmeaza 😉

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