Investors Still Love Romania! (Part II)
Posted by Stefan N. pe 1 Martie 2009
This is Part II of a 3-part series, courtesy of Mru Patel, Founder Chairman and CEO of European Property Investments who holds the copyright herein.
Debunking The Myths
Crap times are here!
So, all that taken as a whole, the deals European Property Investments (EPI) and the Investors companies I manage together in Romania so far have returned annualised growth in excess of 50%. Yes 50% per annum! That was exactly a year ago. YES I agree its stopped last year and now as there are fewer to no transactions and difficult to replicate. Even I, at my most bullish, know that kind of growth was NOT sustainable and not even desirable over the long term.
So what is happening is a cooling period and some distressed sales (I think a lot more will follow) which is exactly the situation right now. That is why it’s great news for the property investor with cash. I feel that the times I had just 2-3 years ago are back again and we have another opportunity to see those gains due to the demand and market drivers explained above. I will be raising another fund and if additional funds are received again over the next 3 months, I could still target key distressed deals from my network of sources.
I also agree and see the risks of unemployment in Romania, its all part of cost cutting everywhere in the world and performance tuning as Romania is becoming more driven with better western systems and with procedures. However it also has Investments and joining the EU has brought €30B over the next 7 years from the EU alone. This coupled with increasing amounts of BPO, new Foreign Direct Investments for outsourcing in Romania is also creating jobs. The other risks are of Presidential elections next year (well most countries in the world have that issue and how the PM or President will perform), the risk of currency fluctuations (but this is still at a lower level than the changes in the £-€ or $, and risk of recession as like the rest of the world, which due to demand and growth here where majority of the residential properties are owned by locals who have money or equity in existing properties, is a lower rate than other countries.
Where do you invest now?
So the limited number of the new deals that I would call “worth an investment in”, are mainly in the city with rentals or potential for rentals to feed the demand. The good deals that I see and get on a daily basis are from:
- Quick sales due to cashflow needs for bank debts
- Repossession sales from banks and liquidators (due to my contacts and network here early access to sell off from these are vital before auctions)
- Early heads up from my surveyors and assessors/valuers
- Friends in businesses that I meet in my social and Real Estate groups that I belong to (3 monthly meetings types of groups)
- Social networks on Romanian groups for Private Equity, real estate and Investors
So, should an investor be put off by this cooling and, let’s face it, by these scary headline changes about inflation and so on? A fair question. Let me answer it with another:
- Why is Ford spending €1 billion in the country?
- Why has Nokia – the biggest mobile phone company in the world – just closed its German operation and relocated lock stock and barrel to Romania? It will produce a phone every five seconds, incidentally. More importantly, it’ll employ around 3,500 people in and around Cluj.
- Why is major IT and communications companies such as Microsoft, Oracle, Siemens, Vodafone etc all investing hundreds of Millions today with major relocations and employment in Romania?
- Why is the German group Daimler reported to be looking at opening a major new production plant in the country, probably in Cluj?
- Why is Fadesa (Spanish Developer) investing €1.1B in building a residential complex project with over 12,000 units in Stefanesti? Hot off the press !
- Why is OPUS building Cosmopolis development also in Stefanesti with over 4,000 units?… Sorry cannot miss this… Why did EPI target that area over 2 years ago and own with their Investors over 30 Ha? We knew these projects were going to happen and bought well ahead of time and will hold for them to start development. Cosmopolis has already started and sold the first tower.
- Why does the French retail giant Auchan have a massive expansion plan in Romania underway? They’ll have 20 hypermarket outlets here by 2010 and the CEO Regis Mougel jokes that their „expansion in Romania will end only when I retire.” They’re investing some €320 million over the next few years. This is even though their competitor Carrefour being here with similar expansion plans and 4 hypermarkets already in Bucharest alone.
- Why is the construction company Mivan spending €300milion on a massive new business complex in Bucharest, €100 million for a new logistics park in Bucharest and €700million for ten new shopping malls?
- Why is the South Pacific Group investing €300million in a grand prix circuit in Snagov?
Total land area: 221ha, Bucharest Sector 1, North side of the city. Major components:
Residential: 3,000 units, selling price > 3,000 EUR/sqm
Commercial: Retail park, with Shopping Mall, Furniture (IKEA, Mobexpert), DIY (Bricostore), Cash & Carry (Metro), Hypermarket (Carrefour), B&W (Flanco, Media Galaxy), vehicles showrooms, Baneasa Shopping Mall,etc
Office: Baneasa Business & Technology Park (max 130,000sqm GLA, currently 26,000sqm existing
Other proposed: Hotel, private healthcare
Phases and completion schedule: 3 phases, 2005-2015
Total land area: 100ha, Stefanestii de Jos, to the North-East side of the city, 15km from city centre Major components:
Residential: 4,600-6,500 units, selling price < 1,300 EUR/sqm
Commercial: 220,000sqm facilities
Other proposed: Hotel, private healthcare, offices
Phases and completion schedule: 7 phases, 2007-2014
Total land area: 64ha, Stefanestii de Jos, to the North-East side of the city, 15km from city centre. Major components:
Residential: 12,000 units, selling price not available
Commercial & Offices: up 450,000sqm facilities
Phases and completion schedule: 6 phases, start date 2009
Total land area: 20ha, Bucharest Sector 1, North-West, exit to Chitila, adjacent to Ring Road. Major components:
Residential: 3,000 units, selling price not available
Other proposed: kindergarten, outdoor sport facilities, children playground, restaurant, drugstore
Phases and completion schedule: 2 phases, 5 years, start date 2010
Ok, I’ll stop there. I could go on, and on. And I’m sorry to labour the point. But it’s an important one. All these investors and dozens and dozens of big spenders like them have a crucial factor in common. They aren’t just talking about the country being a great place to invest with beautiful scenery and great lifestyle – they’re putting their money where their mouths are. That’s the first thing they have in common.
But there’s something else that I think is just as telling. Each of them is making a statement about the long term potential for their various businesses, whether they are in BPO, IT, Agricultural products, manufacturing or retail – they are investing for the long-term as they see the country has a skilled labour force (staff often with 2 degrees on the CV) that is cost effective compared to other parts of the world yet still in the EU.
(continued in Part III)