Your (provoking) questions, my answers
Hello from Cannes. While MIPIM enters in its “hottest” period, I would like to start replying again to your questions. I chose Wednesday as a day suitable for this and we start as of today. Soon you will notice that I will provide you with even more means of communication. Why is that? Because without your feedback, I would end up as a crazy (not old yet) guy, talking to myself.
So, let’s see… What do we have today?
What was missing in order to build something – anything! – on those vacant land?
“So how was possible that most of the new real estate developments to “happen” at the city’s periphery, eventually in the middle of the field, far away from any signs of civilization? Why did we tear down the historical factories in the city? INOX or ROMTRANS for example (Tudor Vladimirescu area) transformed into vacant land and this is how they stayed for years! My God, from there there’s a 5 minutes walking distance to Marriott or Casa Poporului! What was missing in order to build something – anything! – on those vacant land? Or on VULCAN’s site? At the oil factory? Or at "Ventilatorul"? Or, tougher question, – why on the empty area on Academiei area (Uranus – 13 Septembrie, in so called "Centrul civic") is still an empty area and is turning slowly into a garbage disposal area? Why the only beneficiaries of the demolitions were so far those in the field of scrap recycling?”
(Text translated from Romanian)
My reply: It is too difficult to bring all factors to help you develop such a project
You are right. Things are exactly as you say. But this is just the result of many parameters and I will try to name the factors that caused the situation you mention:
- Owners asking too much. Too many factories were not sold, due to very high prices asked by owners.
- Too much speculation. Too many people proposed these properties to thousands of investors. Almost all of them were offered to an incredible range of prices, while some media were trying to convince us that “this is a lifetime opportunity”. In Greek we say “when you hear many roosters, the sun won’t come up on time”…
- Endless, millions of urbanistic problems. For some people it sounds easy: “You buy a land, you obtain an authorisation, you build, you sell, you make profit, and you are rich”. Yeah! Just go to the municipalities and you will see how easy it is… All these big factories etc needed PUZ. This PUZ needed to pass through many stages, with huge costs. Result? Some of them became ready to build after the crisis started…
- Wrong studies. There are very few factories built in expensive areas. Usually they are built in zones for middle class people. But once a developer bought the land with a crazy price (see above) and his consultant convinced him that he can sell with high price, he designed a project addressing to media – upper class. The result: Again, dead end…
To sum up: Big factories require investments of tens of million Euros. This needs:
- Powerful developers
- Serious consultants / architects / collaborators
- Confident bankers
- Authorities willing to support healthy progress
- A good market psychology
If one of these 5 is not good, then forget about the project…
Elena is asking about Fundulea…
Fundulea and other areas around Bucharest
“Good day Mr. Ilias Papageorgiadis!
I am following your blog for some time but this time you wrote a very interesting article about Fundulea. I had some connections with this subject exactly in the crazy period of 2008. I heard the same stories: an amazing opportunity, it will have an outstanding development, etc., etc. I remained on the sideline and just watched the reality: now, 3 years after, that land close to the highway are still empty, no trace of development or even a construction started. That is a confirmation that it was a good thing to follow my instinct.
What do you think about Fundulea’s faith in the future, do you think that it will still be something build there and there will be some development of that area? I am wondering what’s the situation with all those that acquired land in that area, what they will do now with their properties.
I am sending you my best regards!”
(Text translated from Romanian)
My reply: Be defensive when you hear about public works…
Fundulea is just another example of aggressive speculation, as we lived it during 2005 – 2008. This is why I wrote in my blog about it last week). If you ask me, all that happened there is nothing, if you compare it to other areas around Bucharest and Romanian big cities.
I don’t expect the situation to change though. I suggest you to be very defensive when you hear about public works. The reality has proved to us that things move slowly in these projects, soooooo slowly that make you lose your patience. I always suggest to my clients to buy something more expensive, but with guaranteed utilities, than to risk getting blocked for 5 – 10 years.
Regarding Fundulea, things are more or less the same. An interesting area, that might be developed over the following 5 – 25 years. Today there is nothing clear so far.
Sorin asked me:
Aren’t we celebrating too early the increased demand?
“I am tempted to answer affirmative: the lower point of the crisis was reached. In Ploiesti the demand for real estate was revived three-four months ago. There are lots of people ransacking the real estate market. They want to sell and to be informed. The properties visits increased considerable (during some periods of time it is three times more that the average reached during the summer period). The reverse of the medal is that the number of closed deals is the same as before. Aren’t we celebrating too early the increased demand? A normal thing will be to count what’s left in the sieve and not what was drizzled.”
(Text translated from Romanian)
The first step for the market to stabilize is the psychology to change. But to change the psychology, we need more interest by people. So, we are still in the beginning.
You’re right: higher interest doesn’t mean more transactions, but keep in mind that more interest by clients will (sooner or later) result in closed transaction. This means that the demand exists out there and we need to offer the right product in order to absorb it, in a “win – win” scenario.
If everything goes well in Europe, Romania will be really exiting the crisis in about 2 years from now. This rise of demand is one of the first signs which will lead us out of the “darkness”. But as I have also said: Everything is still very fragile