A residential market similar to department store during “end of sales period”

One of the most favourite topics of discussion during the last 2,5 years was definitely the situation in the residential market. We have written too many articles explaining why many residential developers ended up with unsold apartments, being located at wrong areas, overpriced and not properly designed and executed. Meanwhile “Prima Casa” entered into our lives and the market adjusted to a new reality. But the “feeling” across the market remains: There is too much unsold product…

A “secret” that any buyer knows, but “the analysts” don’t tell him:

Lack of requested properties

With so many thousands of “available” apartments, especially in the newly finished projects, there was a strong belief that there will be very few (or no) new developments in the years to come. I have read so many “analysts” explaining that “until all the available stock to be absorbed by the market, we will not see any new developments”. Correct?

No, wrong. Do you happen to search for an apartment nowadays? If yes, I am sure that you have noticed that you can not find easily what you are looking for. But if the market is full of available product, why can’t you identify the right property for you? It is simple: Because while the market is “full of properties” in general, when we try to find “the right property for us”, we usually realize that there is a lack of properties in the categories that people choose as their top priority.

A market similar to a department store during “end of sales period”
Today the Romanian (and especially the one of Bucharest) residential market looks like a department store at the end of sales period:

• There are too many available clothes (properties as well)
• Most of them in colours that people don’t like (like a wrong location for a property)
• Some of them with obvious mistakes, scratches, or manufacturing mistakes (like apartments with all kinds of quality problems)
• Available clothes can be found at sizes that people don’t usually wear, XS or XXL, XXXL etc (like inappropriate surfaces for the apartments we find).

In the same time the store has also brought the new collection:

• You can find whatever you wish.
• In the colours and sizes you wish.
• (But the price is not “a promotional one”, not the one you wish)

Few areas with lots of transaction and strong demand
Let us check Bucharest. The majority of Romanian end users usually choose 3 different areas to invest, when it comes for them to choose their new home:

• West (Militari, Drumul Taberei etc)
• East – South East (Titan, Dristor, Tineretului etc)
• “Affordable center” (Iancului, Obor etc)

These 3 areas attract more than 65% of the total demand in the residential market nowadays. Why? For 1.000 different reasons, but the result is still the same: In these areas the demand / supply ratio remains balanced, maintaining a “respectable” level of prices. Also these are the areas that speculators choose, once they attempt to rise the prices, twice per year. Why? Because it is easy to pump the existing demand and present it like “an explosion”. (Ofcourse they keep on failing in this strategy, but this is a different discussion).

Limited good and affordable product in the preferred areas

Let us go to the above mentioned areas and try to check the situation in the new developments segment. We usually find:

• Expensive properties (due to high costs of construction, land, financing etc)
• Or very poor quality of construction (especially in some projects in the West)
• Insufficient properties matching to the available demand.

What is the result of all the above? People buy apartments in the few decent projects with affordable prices, or they choose to invest in the old apartments. Any market research will confirm to you that they are not very happy with the offers they have nowadays…

Tomorrow:

• What is the solution of this problem?
• A hidden investment opportunity lies beneath?