“Finally, you can really feel the heat!” Selling villas on the slopes of an active volcano

* this article was first posted on the 9th of March 2009

PART 1

(Sorry, folks, but it is time to train the sales departments
of residential projects how to respect their real client, the end user)

He was probably around 26 years old, but he was feeling like a Real Estate veteran. Having worked for the last three years in a “big” Real Estate agency, he felt he knew ALL and he could not help showing it. He was feeling soooo important, so intelligent and (most of all) so superior than you, the client. He was a typical seller of residential projects in Bucharest…

Residential: A new market was born in few months, but just for investors…
I came in Romania in January 2004. Until 2006, the known residential projects available in the market could be counted with the fingers of your hands. Suddenly, the expected Romania’s entrance into the European Union was combined with the explosion of plenty of new projects, being launched more or less in the same time. In few months there were so many developments announced, so many companies selling them, so many experts selling services to the developers, so many people selling credits, so many “intermediars” with “connections” so many clients willing to buy one apartment. One? Nope, wrong, usually tens of apartments, as they were investors, not end users, the ones who would finally live in this new residential “unit”.
The sales were boosted, being followed by the announcement of hundreds of new projects, everywhere in the city. In 2007 the market was already well developed, at the second half of the year the investor could choose between over 200 choices. Good projects, bad projects, the only important details were: Can we buy there? At what price? What are the guarantees that our agent provides us with about the success of the project? Is there a market study which will allow me to support my arguments? Is the owner willing to accept a deduction of… 2-3% if we purchase 200 units?

Fitze = vanity
Many developers assigned exclusivities to one agency who would “handle all with guaranteed success and huge profits”. Like this they would become rich, changing the prices every few weeks. Also they had time to find new lands for their “pipeline of projects”, as the biggest fear was not to remain without projects to sell. The Real Estate agencies lost control. Competition became very hard, as the promised sales were higher and higher, in order to acquire by the developers the desired exclusivity. More and more people were hired so as to sell the new projects, new departments were created. Very soon we also had in our hands very expensive catalogues of properties. So expensive that you could find only in the most advanced markets of the world…
No one was interested in the end user. Sales were super, the size of bonuses was enough to help almost everyone forget about them. People without any experience of business, any personal success in investments, had become “investment gurus” just because they had some connections which allowed to them to speculate and temporarily create wealth for their clients. Prices in new residential projects rose by more than 70% in 2007, which highlighted the way to the old apartments too. It was difficult to find someone without fitze and when you could see one, usually he was considered “not adjusted to the market”.
Soon the madness was spread all around the country and hundreds of projects were launched from Craiova to Suceava and from Cluj to Constanta.

End of 2007: New records for almost all
When the only serious business experience you have in life is what you lived the last 1-2 years, it is normal for you to believe that you know all. The investors kept coming, until the end of 2007, when the Government introduced the 19% VAT tax in the Real Estate transactions between companies. A very correct act. Bad for the agencies, as we all lost commissions, but good for the country, the economy and in the end for the Romanian people! With foreigners paying more and more every week, how could an average Romanian buy his own apartment? This had to stop, before the bubble would be even worse…
November and December 2007 had new records for almost everyone, thousands were in a hurry to catch up, before January 1st would come. The banks had given just few thousands of housing loans to individuals, their salaries were already too high, their consuming capacity was much better than the past but still under question. But all these were not important…

In just 12 months: Double price for a decent apartment
The success boosted the prices of apartments. The higher prices allowed many people to decide that a Romanian family should not live anymore in small flats, but in spacious apartments “like the rest of Europe”. (what they considered “rest of Europe” was the exception of the rule even there, but who cared? Clients liked the new trick). So, in the beginning of 2007 a normal couple could buy an apartment with 100.000 euro and live decently, as millions did the same “in the rest of Europe”. At the beginning of 2008 this was 200.000 euro or more…
Commissions were increasing, advertising budgets were more, media doubled or tripled their prices, so the final price of an apartment became outrageous. People who had no idea about real costs and budgets assumed that the profits of the developers were huge, so they initiated the land owners to double – triple their prices too. And this created new higher prices as well…

The most intelligent was the one who was asking more…
When I was asking many colleagues of other agencies “how many Romanians can buy an apartment of 250.000 euro and live at the outskirts of the city? How come all people propose apartments with bedrooms of 20 – 30 sq.m., who can pay them?” the answer was “all” or “thousands”. In the same time, I was talking to the hundreds of Romanians that I know and very few of them were even considering this option… But the end of 2007 had created a world when the most intelligent one was the one who was asking the biggest possible price, not the one who was selling and having the money in his pocket.
The prices were up not only because the developers asked more, but also because they paid a lot for the land, their consultants guaranteed to them that with bigger prices and advertising budgets the success is sure, the cost of construction rose by 20 – 40% in 18 months and many more…

Villas on the slopes of an active volcano! Buy NOW, before the prices will double soon!
The Real Estate volcano was ready to explode, but while there were already minor explosions, you could see people coming closer and closer to it, almost to its opening. We don’t have a real active volcano near Bucharest. If we had, I am sure that:
– There would be greedy owners asking huge prices for lands on the volcano’s slopes, without any utilities or common sense.
– We would soon read a study by one of the “big” agencies, explaining why the investment is great there and that there is major demand for villas on this volcano. We would also find as advantages the thermal water which “probably can be found by digging”, the magnificent view and the 0 cost for heating our villa during the winter, due to the heat produced by the volcano (don’t laugh please, we really read many analyses like this in the last years, also many valuations based on this kind of arguments).
– We would enjoy watching a journalist walking on the slopes (usually a female one, on high heels) explaining to the audience why the potential there was great.
– There would Real Estate agencies having many projects with exclusivity and marketing companies promoting the projects with ideas like “Finally, you can REALLY feel the heat!”
– There would be “special” tours for investors, while the “serious big” agencies would buy a helicopter, so as to have it available for their “unique tours” of their exclusive investors (why to rent? There had to be found a way so as to spend the big profits).
– Of course any request for discount would be treated by most of Real Estate “experts” with an arrogant smile and a look full of pity… something like “poor you, you have no idea about the market… buy now before the prices will be even higher”.
So, if anyone would DARE to ask: “But who will be the final resident of a villa like this? Who will go to live on the slopes of an active volcano?”, the vast majority of all the new “experts” would look at him and reply: “You don’t know about Real Estate” (or worse, more insulting words…)

I work since I was 12 years old. Since 1987, when I started, I my activities could be summed up as: commerce – trade, media publishing – journalism – political consulting and Real Estate. All these happened while Greece passed from the golden decade of ’80s (when almost everyone could succeed in business due to the huge available money to be spent) to the more difficult ’90s and the tough ’00s, which eliminated the vast majority of the “successful” businessmen. For many different reasons everything changed and whoever did not change as well was finally obsolete, sooner or later.
I have met so many “big ones” of the ’80s, who are badly paid employees today. So many who had the best cars back then and now their file in the black list of the banks (if we print all the pages and put them one after the other) is longer than several meters. The main characteristics of all the failures were usually: Arrogance, 0 respect to the client, strong belief that one is intelligent and all the others are stupid and will be tricked by him and investment of profits in all possible stupidities (the cases of bad luck simply confirm the rule).