Feb

6

 Is anyone on the list familiar with real estate or related investment aspects of Bucharest, Romania?

A friend is doing some work in Bucharest and asks my advice about her idea of investing her entire life savings buying (rather than renting) an apartment there. Sounds a little crazy to me, even if Romania's recent EU membership is causing a boom. Does anyone have any knowledge or insight that would change my view?

Charles Sorkin writes:

What's the real underlying question here? It's easy to look at the performance data on loans that were originated with strong underwriting standards (like Freddie Mac mortgages) and conclude that the middle class credit-worthy borrowers aren't having many problems. Not surprising… these are high-quality loans to people with jobs, and who had their down payments on hand.

It might also be safe to assume that there will be buyers of last resort to support prices of properties foreclosed upon from sub-prime borrowers.

Thus, in answer to the question: "How is the real estate market?"… one could say that it is holding up reasonably well.

But is that what macro investors care about? Or ought we to be more concerned with the question: Will the financial difficulties encountered by sub-prime borrowers be sufficient to diminish consumer spending and trigger a recession?

Jaime Klein writes:

(1) Romania is a new member of the European Union, so its currency is strong and stable, property rights are safe, it is melting into the Eastern wing of the Union (Hungary, Bulgaria, Czech Republic, Poland) and real estate prices are very fast leveling with those countries'. Your niece arrived late to the party. Bucharest is Europe again and real estate prices are rocketing, it is difficult to find something reasonable in dollar terms. Five years ago prices were dirt cheap, and even a year ago you could find good value.

(2) Real estate development in Eastern Europe (and increasingly in Russia itself) is dominated by Israeli companies. They had people familiar with the area and the languages, and they entered very early in the local residential and commercial construction business. Eastern Europe's first mall was built by Motti Zisser (Elbit Medical - it is not a pharma co.) and it was a great success. He was followed by about a hundred Israeli developers, many quoted in TASE (Summit, Ahora, Olympia, Ofek, Yoab, Africa Israel, which is unrelated to Africa. It is a holding company with vast real estate business in Russia, owned by Lev Levayev), Kardan, Profit, Dor, Damari, Rothstein, Dori, etc. The sector doubled its value in 2006 and is still growing very fast. Most of them had been silently accumulating land in expectation of the countries becoming members of the European Union and are well positioned to take advantage of the coming boom.

(3) On the level of anecdote, I returned to Hungary ten years ago, when the government gave back the properties "nationalized" in 1948 from the "bourgeois" class. I went to see a "forest" (erdo) that the Communists took from my Father. My forest had become the downtown of that provincial capital. I accepted to be compensated with certificates and gave up all claims to the land. Others bought factories and property with those certificates; I sold them. Those who bought real estate saw their investment's value go up 1000%. Budapest's prices are now equal to those of the rest of Europe, and it can be presumed that the same will happen to Bucharest's in a few years from now.


(4) The action is moving to further frontiers like Ukrayna (which actually means border lands) and oil-rich Central Asian towns. If your niece wants to invest in a nice historic town with mild Black Sea climate and great untapped potential, I think Odessa would be a good place to look around.

 


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  1. Anonymous on February 7, 2007 10:21 pm

    i’m a native romanian and own property in bucharest and 2 other cities. bought in 2002 for cash and value increased 7x due to the advent of mortgage market and eu admission.

    now it’s a lousy investment. no matter how you put it can’t earn more than 4-5% per annum if you buy now so you’re better of in treasuries. prices will go down fast as salaries can’t suppport the rent levels and the country has big hidden problems. 80% of econ is rural which is getting killed by french n german lobby

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