New 2 rooms apartment with 30.000 euro? Dangerous for the country and all its citizens
Lately I have been writing a lot about the residential market. Except this, I talk to tens of my Romanian friends and I collect their opinions too. I realized, however, that what I noticed throughout my daily activity and meetings is something spread to a greater part of the society, most probably the majority of it.
Romanian society appears to be upset with residential developers
Romanians appear to be upset with residential developers. They accuse them that they increased the prices too much, creating properties which would be impossible for "a normal family" to acquire. All this while many problems happened and a very low quality of construction was delivered. Not by all, but by enough in order to create apublic impression.
"The right price for a normal family should be around 30.000 euro"
I personally believe that the old second hand apartments on the periphery of Bucharest should not cost more than 25.000 – 30.000 euro. But I see that people want to pay this price for the new ones as well, about 30.000 euro for an apartment of 2 rooms (50 – 60 sq.m.).
When 30.000 euro for a new apartment is "possible"
30.000 euro / apartment represents a price of 500 – 600 euro / sq.m. and it is directly compared with the prices of ANL apartments which will be put up for sale. But, with the exception of ANL, this price exists nowadays only in 2 cases:
- When someone can buy a number of apartments at a distress price, by a developer with major financial problems.
- When someone chooses a new apartment from developers who develop pre-constructed buildings.
All the rest have higher costs and it is impossible for them to sell at this price. Why?
The cost of a safe respectable construction is over 500 euro / sq.m.
Today, after the crisis, the cost of a safe construction is over 500 euro / sq.m. Whoever tells you that he will build a typical project with lower costs is simply dishonest or he will compromise too much and the quality will be really mediocre. All these stories of "much lower costs, because I know how" are bedtime fairytales for children. The last person able to construct with really low costs was Asterix, as he was drinking the magic drink created by the druid Panoramix.
Selling 2 rooms apartment with 30.000 euro means:
Letțs check all the parts of the deal. If we have a residential project, selling apartments with 30.000 euro (500 euro / sq.m.), what does this mean for all the parts of this project? How will the developer pay no more than 400 euro / sq.m., maintain a 25% profit and deliver something decent to his clients?
- The price of the land should be 30 – 50% less than the market prices of Bucharest today. It has to be less than 40 euro / sq.m. So if a land can host a project of 3.000 sq.m., its price should be around 100.000 – 120.000 euro. (In 2008 this land had an asking price of 1.200.000 euro, even at Titan).
- "Design"? "Concept"? What are these? No budget available = forget them…
- The architects and engineers should be paid 20 – 40% less than today. Competitive equipment? Respect for the inhabitants? I beg your pardon… We don't need if they cost more.
- The lawyers and notaries should be paid 30 – 50% less than today. This means that the lawyer who is paid 700 euro / month should return back to 350 – 450 (average).
- The State should cut 20 – 40% of its taxes related to all the phases of the project. From buying the land, applying for new urbanistic parameters up to the sale of each property. State's damage: Hundreds of millions of euro.
- All the approvals and the authorizations should be received in 2-3 months time, without any "special attention" for anyone.
- The salaries of the workers should go down to 150 – 200 euro / month. All the craftsmen who know more, should receive 30 – 50% less than what they charge today.
- The taxes on salaries should also reach bottom accordingly. We have to keep the budget tight.
- The taxes on petrol should go down by 30%, in order for the trucks to carry things without high costs. (Needless to say that trucks should cost less too).
- The costs to connect to the networks should decrease by 20 – 40%.
- There should be a World crisis of the prices of commodities, in order for steel, cement and all other materials to reach very low costs. This will allow importers to sell to the developer at a very cheap price.
- The quality of finishings has to be accepted either good or bad. Not enough money to demand the workers to be careful.
- The Real Estate agents should not get involved. If they would try to enter, they would have to work for 0,3 – 0,5% commission, for the costs to remain low. Would they be able to survive and maintain their professionalism? No.
- The marketing and advertising costs should be diminished by 50 – 70%. Leaflets? Sites? Advertisements? What are these? Not enough money…
- The bank should provide financing for Euribor of 3 months + 1%,. With higher costs, the whole project is out of limits. (What did you say? They pay 3 – 4% for deposits? Then deposits should also go down to 0,5%. How else will the banks find money to give such a low interest to the developer?)
- The loan to the end user should also have a very low cost, it does not matter how the bank will manage to find ways to pay their employees.
I can tell you another 50 categories of costs which have to be reduced. If someone achieves all these, then he can really build with a cost of 400 euro / sq.m. (all inclusive, from taxes to architects and from marketing to construction costs). Like this he will sell with 500 euro / sq.m. and he will get his "fair" 25%. Are you happy now?
So, in order to reach 30.000 euro, we must all become poorer.
But this price… 30.000 euro… isn't it going to be too much then?
Let us assume that we demolish our society and we build a new one, matching with the above mentioned standards. Are you sure that you want to live in a country like this? Billions will disappear from the market. The poor people will become poorer, the middle class will vanish in less than 2 years. Salaries will collapse, the State will run out of money. Everything will become "too expensive" for people with empty pockets.
But if everything would be too expensive, then 30.000 euro would be a lot! Maybe we should go down to 15.000 euro, or even better 10.000 euro, in order for a new apartment to be "easy to reach" for everyone! (And as the new one costs 30.000 euro, is there any old one in the same area which can be sold with more than 20.000 euro?)
And I have a naïve question: Do you know any developer willing to develop such a project and provide everyone with the home each of us desires?
New apartments with 30.000 euro: Impossible and dangerous to try
The choice is yours. Do you want this kind of apartments? You will simply destroy your life and you will go back 8 – 15 years. Back to the problems you feel you left behind.
I apologize, but not all of us are supposed to be able to buy a new apartment. If all can, then the system is Communism. If not, we should ask for prices closer to reality, but also with higher standards, better services, more respect. Until then, some of us will live in old blocks and some others in new ones. Instead of lowering the prices, we should try to correct the mistakes of the society, to solve the problems that upset us every day. To create a system which will allow everyone of us to have his chance, if he works hard. And also to punish the ones who speculate, as some of the developers (but not all).
Romania grew when people felt that they could create in this country, when they felt able to undertake risks, to move on. Not when everything was pushed down, in order for nothing to be different, for better or worse.
The choice is yours…