20 Real Estate questions 20 answers for your properties

Real Estate is a complicated and difficult segment. It might look easy from the outside, but the reality is 100% different. This is why I try to reply to all your questions, here in my blog plus in the special section that we organized together with www.imobiliare.ro. Usually I reply there in the last Wednesday of every month, but as today I am attending the ICSC conference, only for this month I will reply to your questions tomorrow, on Thursday. You can leave your questions here.

In order to… warm up for tomorrow, I chose 20 questions from the tens that I received. I tried to choose questions related to properties and to problems that people face every day.

PS. Regarding questions… I have a… vice. I don’t reply to questions where people ask me for… “free evaluation of their property, from a distance”. Respecting my occupation and even them, I constantly propose to them to pay someone in order to receive a proper evaluation of their property. This could be me or anyone else, but it has to be done professionally, not from the internet and like this.

So, below you can read 20 of the questions you have sent to me and my replies:

1. Q: How attractive will the Arad-Timisoara area become for investors, after the opening of the highway?
IP: This area is very interesting as a logistical hub and because it is a place that can attract many investments in the industry sector, outsourcing services etc. I know that the authorities there are very ambitious and I'm expecting things to happen. Unfortunately, until now, the results have not been fantastic but it's an area of Romania where the potential is clear and easily seen.
(PS: This does not mean that people should raise the prices, but if they keep their properties, have serious reasons to expect prices to rise in the future)

2. Q: Mister Ilias Papageorgiadis, how much lower will the Romanian prices get, if they can go lower?
IP: This is too general a question to be able to fully help. Generally, we can say that we have reached a level of stability and we are not expecting a major decline in the following period. Of course, things could change (because of the Prima Casa 4 program or international economy problems etc.). If you want my opinion as a potential buyer, I would not look only for the lowest price during this period. I would try to combine a low price with the best property on the market. Location, quality standards and other factors would determine my decision to pay more for the right property then to buy the wrong property that is cheaper.

3. Q: I want to buy an apartment in Iasi. What should I know before buying it since I grew up in the country and don’t really know? Thank you to anyone that will offer assistance.
IP: I wrote an entire book about this! Tens of answers regarding all the aspects that you should know before buying a property. I apologize but I can’t reproduce everything here!
A few advices:
– The lowest price is not always the best
– Take into account the cost of the renovations
– Buy what you need, not what others tell you is best (FOR THEM) to buy
– Be patient, it’s going to take some time before you find something that matches what you are looking for
– Be ready to negotiate directly with the owner. Don’t agree to negotiate (or even tell him the price) with any “taxi driver” that tell you “tell me what you want to pay in order to inform the owner”. Ask and insist to meet the owner directly.
Good luck!

4. Q: I would like to buy an apartment in the near future and I’m thinking of enlisting the help of a real estate agency. Unfortunately, I only vaguely know what their duties should be and I’d like to know what my rightful requirements in this collaboration should be.
IP:  Firstly, you don’t only need a real estate broker or consultant. You are, probably, also going to need the services of a lawyer, an engineer or an architect (I’m not even going to mention the other professionals that are involved in the inspection of a property before the actual transaction). A real estate consultant/broker should offer the following services in order to justify his/her commission:
– To know his/her field of expertise very well
– To be able to explain the advantages and disadvantages of every property (not just to take you there, open the door and let you see it, like some kind of taxi driver)
            – To put in contact with the owner, in order for you to be able to negotiate with him. If he refuses, be on the defensive
            – Not to try to “fish you out” in order to find out what you are willing to pay
            – To offer assistance with the documents, procedures etc.

5. Q: A question for Mr. Papageorgiadis: why do real estate agencies present the price for BUILT square meter and not for the useful surface? In the notary’s grid we are presented with the useful surface.
IP: When a developer sells an apartment, he sells the built surface. The client does not only buy the apartment, he becomes co-owner of the land and the conjoint spaces. When he buys an old apartment, he buys just the useful surface (and, in some cases, the part of the land that belongs to him). Many agents don’t pay attention to these distinctions and do not explain all these details to their clients. Secondly, the clients to not want to pay for extra services. As far as I know, you pay the notary, this professional being the representative of the state in the transaction and is better equipped to deal with the issue.
This is not an excuse, though. I agree that real estate brokers should be better organized, educated and ready to answer any question and to be able to explain every aspect of the transaction to their client. But these clients also have to pay for the work of this professional. “You pay peanuts, you get monkeys”, as the English say.

6. Q: What type of real estate investments do you think are the most profitable long term for a buyer with a budget of 100.000 euro?
IP: I will prepare an analysis on my blog, concerning this topic. The main question is what type of investor you are. The same medicine isn’t appropriate for every patient.
In any scenario, because of the troubled times we live in, I’d suggest you put 30-50% of your capital in the back, in a 3-6 month deposit.
There are options for real estate investments, stock options or other types of investments and if you give me more details on your investment profile, I can make some proposals.
For example:
Are you looking for an investment that is going to generate a stable income – then a smaller income property is what you are looking for.
Are you looking for properties with a yield rate in the future – you can invest in the land market etc.
There isn’t a general rule for everyone.
I will prepare an analysis for every investor profile and publish it on my blog, but you should meet with a consultant (and pay him) in order to prepare your own, unique plan, that conforms to your own personal needs.

7. Q: How do you explain the fact that in two cities similar on many points, Cluj and Timisoara, the difference regarding the residential price is so big? In Timisoara the asking price and selling price is below 800 euro/sq.m., at Cluj the asking price is over 1.000. We’re talking about average prices, so comparable. Is there going to be a decrease in prices in Cluj?
IP: Cluj is a, relatively, closed market. This has kept the competition law and has not allowed many foreign players to enter the market. The local developers have made fewer projects, having less competition and a big demand on the market.
Timisoara is a completely different market. Tens of thousands of Italians are involved and many foreigners have developed (or have tried to develop) real estate projects. Competition there has been and still is big, many negative incidents have decreased clients’ trust and now the demand isn’t as big.
Many people have mention the quality of construction, considering that it’s better in Cluj then it is in Timisoara. I don’t know if this is true. What is your opinion?

8. Q: Mr. Ilias, you talked a few times about the potential that Romania has and highlighting this potential in order to attract investors. But if I make a comparative analysis, I notice only the disadvantages compares to neighboring countries: bureaucracy, corruption, high taxes, etc. What do you think are the advantages of our country?
IP: You’re right. Bureaucracy and taxes are only present in Romania. In other countries people simply press a button and get everything delivered to their door and they don’t have to pay taxes at all. Let’s be a bit more pragmatic. There are many problems in Romania and I can name 100 more aside from the ones mentioned above. But, in the same time, the majority of problems are common to other countries, plus some of them are easy to resolve once the society decides to become more responsible. The taxes here aren’t so high. Bulgaria, that has lower taxes, is, in turn, one of the poorest countries in the UE because not only taxes make a difference. I agree, there are many things that should be done but I continue to see the glass as “half full”. Some of the advantages I see in this country:
• The location, which allows it to play an important role in the European politic and economic environment (and not only).
• The fact that “everything here is yet to be one” (when in the majority of European countries it’s already done). Sooner or later we will start building highways, new houses and all the projects that we need. That will bring a real growth that is sustainable while in other countries all these things are already done and are not going to be built again.
• Green Energy: Romania has a huge potential in this field. Other countries are more organized but they lack potential. All that is left is to organize ourselves and attract investments of over 10 billion euro.
• Real Estate: In the majority of countries everything is built, most people have a new home, built in the last 20 years (or they rent a property that fits their needs). Romania is still at the beginning of this process and has, at least, 30 years to build houses for people that want to buy their first home.
• Society: We’ve made a few steps but I think things can only get better from now on.
(I know … I’m not offering easy solution and I’m not describing situations where “money will come tomorrow, without any effort”, but Romania has the potential to be a regional leader. It’s up to us to change and make things better, step by step.
For me, every problem is an opportunity to change, to be better, to surprise Europe and win. The question is only one: Are you willing to do this? Or would you rather sit in front of the TV and complain about the situation when, in fact, it’s us that are contributing to this situation?

9. Q: What fine would I receive if I broke down a wall and I don’t have cadstre and approval?
IP: For this type of situation you should talk to the authorities or with someone that knows what fines are given in this type of situation. On a general note: you can’t imagine how many transactions were blocked or annulled because the owners didn’t have a valid cadastre paper or a Land Registry. Having all the documents of a property in order is not just an “option”, it’s an investment for you and your family.

10. Q: What is the VAT on selling an apartment? Should the VAT be added to the price I want and should it be added to the advertisement? Thank you!
IP: The VAT is added to the final price. Personally I prefer the ads where the VAT is mentioned separately because, many times, we can buy a property without paying the VAT (for example, if it’s an old property, the owner decides if he wants to receive the VAT or not, as far as I know). So I suggest you inform your consultant and the potential client that you want “THIS price plus the VAT”. This way it’s right for everyone. After that it’s the job of the accountant to set up the details of the transaction.

11. Q: How correlated are the costs of construction and the prices of apartments and houses?
IP: They are correlated, indeed. I know that in the 2007-2008 period the situation got out of hand (especially since the majority of apartments were built in order to be sold to foreigners, not for the Romanian end users) but now things have changes. This is why we’re afraid that an increase of the prices for construction materials would force developers to raise the prices in their future projects.

12. Q: What is the period of investment recovery for an apartment that is rented?
IP: I'd say 10-12 year (8-10%) but 16-20 years would also be good (6-6%). It depends on the property, the investment strategy and much more.
Keep in mind that when we calculate we take into account the entire price, not just the one paid to the owner. Add the taxes, the renovation costs. Plus, for the anual income, you have to deduct from the rent and cost or taxes that you pay. Then you will have your answer.

13. Q: You talk about a real estate law. How could that help the common man? The seller and the buyer? I hope your project doesn’t mean forcing people to make transaction only through agencies. What is your vision?
IP: As far as I know I have not announced any new project related to a real estate law. I am talking about the necessity of such a law and I am ready to support any serious initiative concerning this topic.
I have my own opinions and ideas but since no one has asked me about them until now I prefer to keep them to myself. Ultimately, I want this project to be done and I’m not interested in being the leader of such an initiative. If it something serious, I would be happy to join.
The common man is the first to benefit from such a law for real estate if this law establishes transparency, procedures and other important means to protect the parties involved in a transaction. The majority of people complain about the present state of the market but they are scared of any change or improvement. My point of view is that a law that can clarify these matters is the only means of protection for people. The sharks do not need the law to protect them.

14. Q: How can you evaluate a real estate agent’s professionalism on the first phone conversation?
IP: Firstly, he has to answer the phone! There are many who, simply, do not do this …
Afterwards:
– Is he polite?
– Is he arrogant?
– Does he know the property you are interested in?
– Does he guide efficiently in order for you to receive all the information you may need?
– Can he answer questions?
– Do you feel like he knows what he’s talking about?
– Does he call you back if he promised to?
– Does he set up a meeting at his office before you go see the property? (I find this normal …)
– Does he ask you what your final price is? (I get upset when I see people that do not know me trying to negotiate for their client)
I could tell you more but I think it’s enough for a start. Do you need additional information?

15. Q: After three years, if we’re to speak the truth, the houses and apartments in Romania still have a yield rate of 300-400% in ten years. A 2 room apartment that you could buy for 18-20.000 in 2000-2002, is sold today for 60.000, and this after the big crisis. Can we actually talk about a true crisis, in the present situation?
IP: To be able to calculate, let’s compare the prices of 2011 with the ones in 2001. Let’s assume that the prices of 2001 were at about 20.000 euro  (for a 2 room apartment, in Bucharest) and that the prices of today are at the 60.000 euro level. 1. How much has the inflation gone up during this period? I think it must be at least 3 times more. 2. How much has the GDP gone up? I came in Romania in 2004 and the official GDP of 2003 was 3.5-4 times lower the one we have today, after the crisis. 3. Ten years ago we didn’t have even half the amount of transactions we have today. 4. Ten years ago the level of foreign capital invested in the Romanian real estate market was at 50% compared to today. 5. In 2001, there were a few thousand people that had access to residential credits. Now there are a few million. What I’m trying to underline is that it’s not relevant to compare 2001 with 2011. For a country like Romania is like comparing two different centuries, because the progress of the Romanian market was much quicker than the one normally encountered in Europe. PS: If the Prima Casa program didn’t exist, the price for a 2 room apartment in Bucharest would be much lower than 60.000 euro. Is there someone who disagrees?

16. Q: Good day. Can I buy a house in the country through the “Prima Casa” program? Thank you.
IP: If it’s your first home, then I think it’s possible. But for a second home, holiday home etc. no, because this type of houses are not included in the program. This is “first home”, not “first guaranty” and the state is supporting people that are buying a home for the first time, not offering them a first state guaranty to buy anything they want.

17. Q: I want to buy a home with foreign income … Can I do that in Romania?
IP: In the past it was quite simple but it isn’t anymore. There are a few banks present in Romania that have representatives in other countries. They were more flexible to give credits to Romanians living in other countries, in order for them to buy a property in Romania. Now the situation is different.
Together with the crisis, banks have become more careful as far as credit portfolios go. That is why I suggest you first identify if there are banks in the country where you live that are also present in Romania. In the case of foreign banks, ask around if there are collaborations with Romanian partners and if they offer this product. They will guide you from there. You can do the same with Romanian banks present there.

18. Q: There are many houses that owners call “luxury homes”. If you go on a foreign site and see what a luxury home looks like you will understand that for us luxuary means: tile, PVC, artificial fountains in the living room, dwarfs in the garden and a lot of kitch. In any case, 99% of all houses do not have any kind of architecture. It’s embarrassing for the country. I hope we have enough money in the future to tear down what we’re building today.
IP: I completely agree with you. This is why I often disagree with some owners that think they own “the Eiffel tower”. But this is almost “standard” for the market here and when you tell people the truth, they get upset and they don’t speak to you anymore (sometimes they go on forums or sites and speak badly of you).
But, coming back to your comment. When we truly have a luxury property, do we really want to pay for it? Or do we try to buy it for free and say that all the investments are not important?
Plus a final question: do you think we have reached a level, as a society, where we can understand the advanced tastes and designs of buildings from countries with 50-100 years of tradition? Too many people find something ugly beautiful because it is all they know. This situation needs time to change …

19. Q: Mr. Ilias, the apartment I want to buy will have me paying a credit for 30 years. It is very possible that by the end of this period, the apartment will have “expired”. How can I know the life span of a building and if it is not new when I buy it, how many years it has left?
IP: Firstly, this is a risk you take when you buy an old apartment. Experts say that the life cycle of a building is around 40 years, so you can imagine that many of them are already “expired”. I wrote a lot about this subject on my blog, if you contact me and give me your email, I can send you the links.
How do you find out the life span of a building before you buy an apartment? It’s simple, ask the experts. With renovation/consolidation work the life span can be prolonged to hundreds of year. Unfortunately, in the majority of cases, owners refuse to invest in their own properties and then they blame the state for any problem that occurs.

20. Q:  Why don’t you post pictures with the apartments you are selling. Why don’t you learn to be more professional, gentlemen?
IP: You are right. But in most cases:
• The owner does not want to.
• The agent was not there to see the property (he was busy on hi5 or another site like this)
• The agent does not want to post the photographs because there is a chance that the potential clients will skip him and go directly to the owner
So in a market without rules, where the majority of people want to avoid every cost possible and want the best (for free), it’s not easy to implement serious behavior.