Could a sick mentality poison the recovery process?

Since some weeks ago, I keep on telling you about the slow recovery process that I expect us to have, if everything goes well in the following 1 – 2 years. It might start as a politically initiated "progress", probably it will be fuelled also by a possible European economic recovery during 2011 – 2012. The fact is that there is a serious potential for 2011 to be better than 2010, 2012 to be better than 2011 and 2013 to be the best year since 2007.

"Why do you sound so uncertain?"

Many of my friends "accuse" me for being very uncertain in my predictions this year.

• "Why don't you write clear that you expect a rise of the Real Estate market?"
• "Why are you so uncertain?"
• "In 2009 and 2010 you were more precise. Why not now as well?"

Too many parameters that we can not control…
Simply because it is impossible! There are too many parameters that we cannot control. The political news still remains an instability factor. Alsomany other procedures have not finalized yet:

• Can oil prices' rally cease world and European growth?
• Who is next after Egypt, Tunisia and Libya?
• Is Europe going to solve its problems on March 25^th?
• Are there many other European countries exiting the crisis during 2011, except Germany?
• Should we wait for negative news, if Counsellor Merkel loses all her electoral battles this year?

Everything is still tangible…
So it is not easy for someone to clearly state that the situation in Romania will radically change. Right now we just have a better environment comparing to the past. This can lead to more positive results. Everything is still tangible…

But let us assume that everything will be solved tomorrow morning. Is it enough for the market to restart a new cycle of progress?
Let us approach the issue of market's recovery from another point of view and assume that tomorrow morning something happens and the major problems of Romania are solved. Is it enough for the Real Estate market to enter into recovery and steady growth? Are we sure that this is the only part of the puzzle missing, in order to see the prices rising again?

Sick mentality: One of the most important problems of Romanian Real Estate market:
The official crisis in Romanian Real Estate market started in September 2008, but in reality the market was blocked already since many months before. Why? Because almost all people had lost their mind, asking for insane figures that did not make sense to anyone to pay for. Today, three years later, we notice that this mentality has not really changed much. A big part of the market ("market's players", owners etc) just wait for a good excuse in order to start doing whatever they were doing in the past: Play games, raise the prices to sky, search for victims.

This sick mentality brought us here. People got so greedy, that they wanted to make sure that the investor would not have a chance to earn profits from his investment. They wanted to take even the potential future profits, making sure that "no one will make profits on my back" (as I have heard hundreds of times).

Nowadays, every six months we see them following exactly the same approach: They try to increase the prices of properties, ignoring the weak demand. They just consider that "the period of low prices is temporary and very soon things will return to their previous status, with clients begging for a property to buy and us being the "masters of the game".

(Only good thing is that this is a majority, but not all people are like this. There is a growing minority which learned from the mistakes of the past).

If tomorrow morning the market unblocks…

Most probably it will be blocked again in maximum six months

Let us assume that tomorrow morning the market unblocks. I am afraid that the market's evolution would be something like this:

• The demand for properties will increase.
• Media will report more transactions.
• Owners will increase their prices.
• The demand will remain strong.
• Media will report the profits obtained, mentioning that "since the beginning of this new era, the profit for an owner is…%"
• More people will try to buy properties, targeting "nice profits" too.
• Owners will start asking whatever price they wish.
• (Meanwhile some wise guys will sell their properties avoiding the others' madness)
• In maximum 6 months, the market will be blocked again.
• The prices will be double or triple (in papers).
• The demand will freeze.
• And the market will be blocked for another 2-3 years.
• Result: The real prices of transactions will be even lower than today's ones (!)

"Is  this sick mentality so strong?"
Yes, very wrong. It undermines the healthy recovery and progress of the market. Most probably it will end up having a negative impact on the interests of the majority of property owners.

"Is this mentality supported by strong arguments?"No. Romania is an interesting market, there are many opportunities for investment, but there is no justification for a new "rally" again. Not now at least. Actually we are far away from this stage.

"Could we prevent this negative evolution from materializing?"
Theoretically speaking, yes we can. But we need to try hard, in order to prevent this sick mentality from dominating again.

"So could the market unblock, without the prices rising?"
The prices should rise through the market's normal procedure, a balance between supply and demand. Prices will increase ofcourse, but progressively. Not by 50 – 100% per year.

When the Romanian Real Estate market unblocks, we will witness a major "battle": Those having this sick mentality will do their best to bring us back to the past, essentially also destroying their own future potential. It is in our hand to stop them and secure a healthy, long term market growth.