Easier for all people to quit smoking than for Romania to demolish and rebuild the old residential blocks. It is simple mathematics…

Hello to everyone. One of my constant readers, Mr Pedro Matos, sent me a very interesting question. He is a foreigner living in Romania and asks something that thousands of people ask as well: What will happen with the old blocks of Bucharest?

Pedro’s question is here:

“Dear Ilias,

My question is simple: Do you believe there is a market for refurbishing existing homes and apartment buildings in Bucuresti? Is this a viable option, both in technical,economical and social terms? Or will these thousand of “bloc” buildings from the communist era will just have to be demolished over time, in order to make room for newer, modern apartment buildings? Also, how do you rate the possibility of urban sprawl, or the increase of suburban areas in a city like Bucuresti in 10 to 20 years time?

Best regards.

Pedro Matos”

(Please keep in mind that the following analysis is based on Real Estate point of view, I am not an architect or engineer, or urban development expert in order to see things from their own point of view).

Yesterday I explained to you:

• The 3 categories of old residential blocks
• The positive and negative elements of them

But the question still remains: What should we do with them?

The theory of demolishing the old blocks and building new ones in their place
Since I came in Romania, back to the glorious year 2004, I keep on hearing all kinds of foreigners talking about the old residential blocks of this country and their prediction that “sooner or later all these will be demolished and replaced by new modern ones”.

I also know jokes. Listen to one of Al Pacino: “Skeleton goes to the bar and asks the barman: Bring me a beer and a mop” (watch Johnny Depp narrating it here: http://www.youtube.com/watch?v=84-vIZztZLo )

But now let us talk seriously. Yes, it would be lovely for the country to replace its old blocks with new ones. But is it viable? What are the realistic arguments of the people who support this scenario?

• They are right. Yes, in theory everyone agrees that all these properties should be replaced by new ones. But except nice words, I don’t see any serious action.
• The buildings’ life cycle is about to expire. This is real and serious. There are many properties located in buildings that are really bad, scaring anyone who knows about engineering and especially structure engineering. We also know that smoking kills, but do you know many smokers who quitted it lately? It is easier for all people to quit smoking than for Romania to demolish and rebuild all its old communistic blocks.
• Once an earthquake occurs, many people will risk dying.
• They propose what is correct for their country. Their opinion is healthy and it represents the healthy future that everyone wants for his country.

So they are right. But…

We can not demolish them. End of discussion.
It is impossible for Romania to demolish its actual communistic blocks and build new ones. The reasons are endless, but les us choose the most important ones:

It is simple mathematics: Expensive and impossible to happen
It is very expensive and difficult for someone to buy all the apartments, demolish the building, build a new one and have profit as well. Let us check why, using some math:

• Let us choose a building which is built on 1.000 sq.m footprint.
• It has ground floor plus 8 floors, 9 levels in total. This means 9.000 built sq.m.
• More or less this building has 3 entrances and about 100 apartments of 65 sq.m. each (because the common spaces in old buildings are enormous). So 6.500 sq.m. are “useful”.
• Let us assume that the price to buy the apartments is 1.000 Euro / sq.m. If all owners sell, without any of them to refuse or blackmail the buyer, the price would be 1.000 X 6.500 = 6.500.000 Euro.
• So, you pay 6,5 million Euro to buy the whole building = the land of 1.000 sq.m. It is a bit expensive, isn’t it?
• If you want to build there 6.000 sq.m. above ground and another 3.000 under ground, you will need another 4,5 million Euro (at least). So, you will have a total cost of minimum 11 million, for 6.500 built sq.m, almost 1.700 Euro / sq.m. built.
• How much should you sell it? Who will buy it? How can you make profit out of this?
• And all these if no one “changes his mind overnight” or “asks for more money, because he will see that you need his property”.
• If someone can do this procedure and succeed, without trying to trick people or breaking the law, I will ask Nobel Academy in Sweden to create a special prize for him…

How many billions to allocate? Where to find them?
People tend to forget that just a small neighbourhood to rebuild would cost some billions of Euro.

• Who will pay this money?
• Which bank will provide credit?
• Which law will clarify everything?
• Who will set the standards of new constructions and who will guarantee their implementation?

Also:

• The right of property ownership in Romania is protected and no one can force someone to sell a property (except the State, but not anytime as well).
• Property owners are not ready to see their properties being demolished and replaced with new ones.
• The idea of “association” does not work in Romania. So we can not propose to people: “Give us your property now, we will build a new block and give you the same apartment back”. 
• People love big words, when it is about others’ properties, but when it comes to theirs, they think that all of them are the owners of “Eiffel Tower” or “Burj Al Arab” and they should sell them with an extremely high price. 
• The society is not ready for such major changes and the politicians are unable to sustain the weight of a huge project like this, without starting to fight (like they love doing).
• Everything must be serious, with respect to everyone’s property, without tricks and “smecherii”. And this is not easy when a part of society knows to do business only like this.

So, to sum up: I agree that the ideal would be to demolish and rebuild everything. But this is not possible to happen over the following years (if not decades). So what should we do instead?

What is your opinion on this?

Tomorrow: Realistic target: Refurbish them!