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Investors Still Love Romania! (Part I)

Posted by Stefan N. pe 1 Martie 2009

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Romania:
Debunking The Myths

This is Part I of a 3-part series, courtesy of  Mru Patel, Founder Chairman and CEO of European Property Investments who holds the copyright herein.

Today I want to talk about what I believe puts some people off investing in Romania. And I want to explain why the reasons are rubbish!

Before I get into this I apologise for being blunt, but (and as anyone who reads my newsletters and knows me will know), I will say it as it is with little to no gloss ! I’m still passionate about Romania as an investment location, but First, let’s make one thing clear – I’m talking here ONLY about making money.

Sure, I think a great deal of the country after all I spend over 75% of my time here with the full sacrifice of family life to make this journey with success at the end of it. It has a Buzzing capital of Bucharest,  Beautiful scenery, great lifestyle and the people are great.  But, I’m a property developer and investor and I’m fundamentally fascinated by the place because I want to make profits. I assume you are too, otherwise you wouldn’t be reading this, or you are an investor with me and want to read whats really happening here.

Over Christmas, I took 5 weeks off to specifically look at my life, catch up on family neglect, music (my other passion) and investment strategy. I returned in Romania and continued again for a further 3 weeks. I reassessed why I am still in Romania. Do the key fundamentals still stack up for my reason to go there in the first place? Does the research analysis still hold true?

When I researched Romania 5 years ago, I did a complex spreadsheet (my IT analytical background kicking in) looking at every major aspect of why invest in the country, ranging from GDP, Foreign direct investments, population, finance, growth in middle class etc through to country related real estate market, supply, demand, growth, who is buying, prices, costs,  rentals, disposable income, intrinsic property value etc. I am convinced the country still holds good grounds for good returns on investment, albeit with the current tide has become slightly longer (but NO way as long as UK, USA, Dubai, India etc). I have not read one report or heard any expert in those countries markets say that the prices will recover or get back to where it was in the peak within 5 years.

This is no way Biased as I am of Indian origin and have invested there, a UK citizen (also have small investments, a home, friends & family there), My wife and kids and a lot of my family are also American citizens, a Dubai resident and an Investor in Romania. So I could return to any of those countries as I know opportunities exist there too, and be closer to friends and family. I strongly believe Romania is better and will explain/debate why.   Hence, I will continue to spend most of my time here because for any major investment (and most importantly managing friends and family types of Investors too) one needs to be very close to the ground and live there to be in real touch with the locals unlike a lot of Investors and Investment companies here who fly in and out on a fortnightly or weekly basis for a few days and “Partner” with locals !

The Romanian market summary is as follows:

  • Old apts have crashed to approx 30-40% from peak (as new apts become available) 
  • New apts have kept their prices due to demand but I see some developers offering discounts for multiple purchases or special offers (how ever NOT more than 10% max. The developer friends I have here are willing to do early investment deals with higher returns (as with most parts of the world) 
  • Offices and commercial buildings are still in demand and have kept their prices
  • Office rents are still the same or even increased in some areas due to demand and fallen by 10-20% in areas of over supply, largely in the north area.
  • Land prices are very difficult to say as this is where the transactions have fallen so there is NO real view of pricing, however as a whole from the fewer transactions it has fallen in general by some 10-20% from a year ago purely because of desperate sales bringing them down (most sellers are holding!)
  • Romania is not hit as badly as other countries as it does NOT have much debt, mortgaging and finance is new and the National Bank asks the retail/investment banks to put 40% of the credit loaned to the client as security with the National Bank.

I then compared the above with whats happening with UK, USA and Dubai. The picture was a lot worse and the recovery period from most analysts a lot longer !

One of the first reasons I come across – or have more recently – is the idea that Romania is in some way risky. Why?

Well, one reason is unfamiliarity, I’m convinced. People just don’t understand this market, this country, very probably because they haven’t been there and they find the startling economic transformation taking place hard to believe or fathom. Anyone living in Dubai or a major Chinese city probably wouldn’t. Anyone living in Ireland for the last ten years or so probably wouldn’t have trouble either. But it is a hard task for many to see this kind of transformation without concluding that it is in some way risky or some kind of bubble.

The main difference here is the Romanians are avid owners of property and majority of the real estate here is owned by the Romanians who aspire to move to better accommodation and locations. They absolutely would do anything to live a better life and have dreams of quality homes, cars, food, lifestyle products etc. All the big brands are doing well here often sold at higher prices than in the U K. There are ample luxury cars from Phanthoms, Lamboghinis, Ferraris, Maseratis, Bentleys, through to thousands of the usual Mercedes, BMW, Audi etc. Last year Porche/Audi said it was their highest performing country in EU. Just Bucharest alone sold over 300,000 cars with a population of 2.5M. 

Romania is also advantaged with natural resources like oil, gas, iron ore, gold, crystal etc and the second largest exporter of key agricultural products like Corn, Wheat, sunflower seeds/oil etc. This is a key criteria for the Export/GDP ratio where Romania is growing and hence why the shock is NOT as large as countries where that ratio is small e.g. Germany, France, UK, Dubai etc. A recent report I read from BCR (Owner is Erste Bank, the largest Austrian bank here), stating that the economy in 2008 was still not bad (GDP growth at 8.2%), and will slow down in 2009 due to the recession, but NOT go into negative situation like in some countries.

The foreign direct investments (FDI) grew in 2008 by over 26% to €9.02B, from €7B in 2007. Just yesterday I heard 2 new development projects still going ahead worth over €1.9B and starting next month having secured the finances etc. The Spanish and Israeli developers building in the suburbs are very close to some of the lands EPIS & Investor partners have bought.

But, OK, let’s face some reality here. There is a severe recession and I even hear depression talks constantly in UK, USA, Dubai and India. There is a nervousness around generally where to invest and what to invest in or even just hold and do nothing, sit tight, hold on to cash (Cash is King!) etc which is inevitable. We’ve had a period of incredible global growth and now we are seeing a slowdown and price crashes and a lot of organisations going under… another discussion about my favourite topic of Banking and Bankers in general !!! And I hear people talk about deflation, balance of payments, rising interest rates later in 2009 etc. I’m not dismissing any of these factors. They’re real. They are having an effect on economic growth and in turn slowed the property price in some countries and crashed in others.

(continued in Part II)

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