April 6, 2020

Changing Our Paradigm

The professionals in the residential segment can agree that one of the recurrent fights we have to take is the one with various consultants, financial advisors and in general, the all-knowingly minds that not only sustain the decrease of prices but would gloat to the idea of the market crashing and for them to buy the residential units they were dreaming about half-priced.

Of course, this all seems an ideal scenario for many but there is a lack of logical thinking that most do not seem to notice. I can describe this situation from my very own experience, having sold most of the residential projects taken over by the banks after the crisis in 2008, putting them back on the market after a few years.

However, there was nobody left to buy them. It took years of waiting and slow sales until the market was ready to start buying new homes.

What people don’t seem to realise is the fact that wishing for a real-estate crash, means wishing for an entire chain of business to crash at the same time. The real estate market is not isolated from the rest of the economy, on the contrary, together with all its interdependent industries, it is one of the most supportive branches of the economy in the country.

My question is how can the prices drop in the context of the continuous increase in construction costs, continuous increase in the prices of the land plots and last, but not least, the lack of qualified labour on construction sites. Mathematically, the prices have increased directly proportional with the increase in costs.

Let’s take a look at what has happened to the residential market in other countries in the CEE region in the last couple of years.

According to the Eurostat data, the table shows the changes in the House Price Index in the Euro area. It is easy to observe an increase in the HPI, especially for countries located in the CEE Region. For example, in Q3 2019, Czech Republic has had an increase of 8.6%, Poland of 9%,, Latvia of 13.5%, Slovakia of 11.5%, Hungary of 7.8%, Slovenia of 8.5% and Romania of 3.9%.

House Price Index - Quarterly and annual rates of change - 2018Q4 - 2019Q3

Average price of residential property (120 square meter apartments located in the most important cities) in Europe as of April 2020, per country (in euros per square meter)

Furthermore, if we analyze the next chart, “Average price of residential property (120 square meter apartments located in the most important cities) in Europe as of April 2020, per country (in euros per square meter)” published by Statista.com, we come to realize that the average price per sqm in Romania, is one of the lowest in Europe.

Other countries in our region, have much higher prices, such as Czech Republic (6.688 Eur/sqm), Slovenia (3.657 Eur/sqm), Estonia (3.190 Eur/sqm), Poland (2.793 Eur/sqm), Latvia (2.789 Eur/sqm), Slovakia (2.911 Eur/sqm), Hungary (2.515 Eur/sqm), Lithuania (2.163 Eur/sqm) and Romania (1.701 Eur/sqm).

Given the numbers shown above, it is safe to say that Romania has some of the lowest selling prices/sqm for residential properties, in the entire region.

Needless to mention, the selling prices are influenced by the purchase power and the health of the economy of the country, these representing the most important factors.

Furthermore, in many major cities of the above-mentioned countries, the business of buying to let on Airbnb has also been a major factor in the increase of the prices, including Romania.

Another important factor resides in the fact that major cities are booming amid the ongoing migration to urban areas and the growth of industries such as IT and tech.

Having all of the above in mind, it is my strong belief that what we need to do is have a constructive way of thinking, an egregore defined as a kind of group mind that is created when people consciously come together for a common purpose. Our common purpose, focus and especially efforts should be directed towards achieving higher wages through impeccable work ethics, access to affordable bank financing, increased life quality, stability and predictability.

Therefore, our mindset has to change completely in order to have any chance to succeed. Fluctuations may come and go, prices may vary continuously but our goal should be how to look further in a both pragmatic and optimistic way, how to improve the quality of our lives and our living conditions, always aiming for evolution, for setting examples of other countries not only related to their incomes, but also to their mentality.

The direction of a nation resides in the collective mindset of its people, hence, of its leaders.

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Furthermore, if we analyze the next chart, “Average price of residential property (120 square meter apartments located in the most important cities) in Europe as of April 2020, per country (in euros per square meter)” published by Statista.com, we come to realize that the average price per sqm in Romania, is one of the lowest in Europe.

Other countries in our region, have much higher prices, such as Czech Republic (6.688 Eur/sqm), Slovenia (3.657 Eur/sqm), Estonia (3.190 Eur/sqm), Poland (2.793 Eur/sqm), Latvia (2.789 Eur/sqm), Slovakia (2.911 Eur/sqm), Hungary (2.515 Eur/sqm), Lithuania (2.163 Eur/sqm) and Romania (1.701 Eur/sqm).

Average price of residential property (120 square meter apartments located in the most important cities) in Europe as of April 2020, per country (in euros per square meter)

Given the numbers shown above, it is safe to say that Romania has some of the lowest selling prices/sqm for residential properties, in the entire region.

Needless to mention, the selling prices are influenced by the purchase power and the health of the economy of the country, these representing the most important factors.

Furthermore, in many major cities of the above-mentioned countries, the business of buying to let on Airbnb has also been a major factor in the increase of the prices, including Romania.

Another important factor resides in the fact that major cities are booming amid the ongoing migration to urban areas and the growth of industries such as IT and tech.

Having all of the above in mind, it is my strong belief that what we need to do is have a constructive way of thinking, an egregore defined as a kind of group mind that is created when people consciously come together for a common purpose. Our common purpose, focus and especially efforts should be directed towards achieving higher wages through impeccable work ethics, access to affordable bank financing, increased life quality, stability and predictability.

Therefore, our mindset has to change completely in order to have any chance to succeed. Fluctuations may come and go, prices may vary continuously but our goal should be how to look further in a both pragmatic and optimistic way, how to improve the quality of our lives and our living conditions, always aiming for evolution, for setting examples of other countries not only related to their incomes, but also to their mentality.

The direction of a nation resides in the collective mindset of its people, hence, of its leaders.

If you like this article, please share it
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