About Us Company’s Vision Company’s Advantages Articles

Articles

10 Reasons to Invest (Now) in Romania

Summer 2008
Part II

Half the summer is gone, but the hottest part is yet to come!
The city of Bucharest lies in deep slumber. Here, nobody cares (yet) about the crash of this bank or that in the USA, the sinking dollar or any other problem that seems so real elsewhere.
It is summertime, it’s the holidays, and right now hoards of Romanians are lying on the beach and consuming bottle after bottle of beer.
Only the occasional rain gives any indication of things to come. This summer, too, will end, and after it will begin a brand new interesting year, a turnaround year with the highest level in real estate development in Romanian history. And this is just the beginning.
We had published the first part of this article in our previous newsletter. Heartwarming responses from our readers encouraged us to put forward five more reasons to invest in Romania right now.

Reason no. 6 – Other Romanian Cities

OK, I probably won’t be the first to tell you that there are other cities in Romania besides Bucharest. Their potential is way too big to sum up in one short article.
As a matter of comparison, not all real estate investments in Israel lie in Tel Aviv, and many developers invest in Petach Tikva, Ashdod, Haifa and their likes. Each city has its own target audience and its specific client profile.
Over the past year, many developers who have had great success in Bucharest have started turning to other large cities in Romania. Investors are studying the potential of those cities and possible profits they may bring.
Banks and finance companies are also showing willingness to find financial solutions for interesting development projects in large cities – Timişoara, Iaşi, Constanta, Cluj-Napoca (one of the most interesting cities, which is why we are paying special attention to it in this newsletter – see article below) and other cities. For the full list of cities, click here.

Braşov and Ploieşti, being closer to Bucharest, have already received special attention from developers and are now considered somewhat over-developed, although there still is plenty of space for special ventures, especially in housing – villas and investment holiday homes.
When a developer wishes to initiate a real estate project anywhere in Romania, it is advisable to conduct a market research to find the most appropriate venture. Where primary decisions are concerned, most market research will include the following: Population size, town characteristics (Does it contain universities? Does it have any industry in particular?), existing development projects and current pricing.
In addition, understanding how financing works is critical and can save plenty of time and resources before initiating a feasibility check of any type of venture.

Reason no. 7 – Estate Pricing

Surprisingly, despite the relative deceleration in the local real estate market (we will not deviate into the various reasons for the current situation, which include the slow summer season, a transition into project-building and changes in banking financial strategies), there has been no considerable decrease in estate pricing.
On a lighter tone, I will share with you two behavioral patterns we have spotted:

• The Romanian landowner –
  He has the marathon-runner’s patience, has experienced many ups and downs in his life and refuses to believe he will not sell his land exactly for the price of his asking. Mostly, those landowners do not back down on their price and display an iron will. At the negotiation table, they may give way a little, but this is no special attribute of current times and has been noticed before. Romanians are excellent bargainers and only like quick deals. They only care for “serious clients” and even then one should not expect much.
• The Foreign landowner –
  Since so many foreigners play a leading role in the local real estate market and have bought most of the lands in Bucharest over the last three yeas, there are more than a few companies and funds which have put land up for sale according to their original target – "flipping" (purchase for sale).
  In the face of a slow market, the foreign investor is reacting harder then the locals. Without thorough understanding of the market and its trends, he may often estimate that it is time now to lower prices (with five times the original investment gained already, why wait for further profit?...).
  Very quickly, the rash seller will find, that dramatic discounts will not achieve a quick sale, but that it is difficult to climb back out of the pit. Regrettably, many of the companies and funds, that had invested in multiple land purchases in the region, have suddenly decided to sell them, making the situation worse.
  At this point we can only implore you: Learn from our Romanian friends, take a deep breath, and wait a while. We recommend doubters to conduct a quick primary check of land prices. You don’t (really) need this article to see that your investments are still ok, and that there is no need to panic.

Reason no. 8 – Office Rental Market

Did you know that the vacancy rate in Bucharest stands on less than 2%?

Yes, you got it right, 98% of new vacancies for office rental in Bucharest are all full and taken by various businesses, mostly tied in non-breakable contracts for 3-5 years ahead.
The office rental market maintains a surprising stability. Over the previous year, accelerated building projects were begun in the new industrial estate of Pipera, and all doubters were given proof that demand surpassed all and businesses are flowing into that area as well.

What will the future bring? No doubt a new level of stability will be achieved.
Rental rates for Class A buildings stand on 20-22 Euros per sqm + VAT.
Bucharest itself is relatively well developed compared with neighboring capitals (Prague, Budapest and Sofia), but the demand for mid-range spaces (ca. 200 sqm) in accessible Class A and Class B buildings in town is still high.
Retail development, the progress of the service sector and continuing arrival of foreign companies, ensures continued stability in this market in the very long range.

To be appropriate, it must be stated that Mentor Group is involved in development and purchase of office buildings in leading cities in Romania. We will be happy for you to join us.

Reason no. 9 – Developing Agricultural Land

One of the easiest and safest ways of getting rich in Romania, was and still, is buying agricultural land. Alone, with friends, in a purchase group or via an investment fund – it all works, there is room for everyone and everybody makes profit.
Anybody with any experience in Romanian ventures knows how to do it – buy now for 5 Euros, sell a year later for 10-15 Euros per sqm. Obviously, some greater success stories were noted – bought for 2 Euros, sold later for 10 Euros… Romania is Romania: everything was possible.
Not all of the thousands of hectares bought were put up for sale. If you own such land in the outskirts of Bucharest, now is the time to consider whether you really want to sell. True, you can still sell at a good price (with some patience), but… this is not the only option. Many developers still go for the method of development and upgrading, then offering the land as a project for sale. This is a useful method which still brings high profits.
Another way is to develop the land for a residential project. Actually – why sell if you can build? This option is not suitable for everyone, but it is worth serious consideration. Ongoing changes in Bucharest reflect global changes – apartment prices in the city center are on the rise, it is harder to get mortgages for these expensive apartments, young couples and entire populations are moving out into the suburbs and transportation and residential infrastructure in the outskirts are rapidly developing… All this pinpoints a rising need and a clear trend,of growth and development in the rural areas surrounding the big cities. Bucharest itself is rife with examples of successful projects of this kind – the Cosmopolis Project in Stefanestii, projects in the Voluntari area, development of Corbeanca region, etc.
All those were realized due to developers with a vision, who had decided against “flipping”, and for using their lands as a lever into project-developing. From the financial viewpoint, this is very possible (banks supply ca. 80% of the funds for residential projects), but it does require prior knowledge, some personal funds and plenty of motivation. No doubt, this is the correct way for the beginner developer, in a small initial venture.
It is recommended to consider executing such projects step by step, without being shy of employing specialists along to way in order to obtain funds, building concepts and, obviously, project management and execution.

Reason no. 10 – The European Union

Two years after the entry of Romania into the European Union definitely brought changes. Beyond massive investment in roads and infrastructure, a new spirit has come into existence.
Laws and procedures are now taken seriously. Normative working process was adopted by government offices and encourages the feeling that it is possible to make things happen.
Regrettably, our old friend, the "Shpaga" (Romanian for bribe) hasn’t yet wholly disappeared, but it is in decline.
Consider how wearing your seatbelt while driving in Romania is now an actively enforced regulation: it did not use to be that way. Investors need this type of stability to exist.
We, venture makers, need this kind of stability. Whoever worked here during the last 5-10 years knows, how complicated it can be to face new regulations each week, with the anxiety involved in getting various building permits, land registration etc.
Much to our relief, this challenge is now a thing of the past, and we are now facing a new era.

We would love to receive your feedback and questions - don’t hesitate tocontact us

Author:
Osnat Peled – Marketing and Business Development Manager – Mentor Group
July 2008