lonelywolf 's den

“Before you speak, listen. Before you write, think. Before you spend, earn. Before you invest, investigate. Before you criticize, wait. Before you pray, forgive. Before you quit, try. Before you retire, save. Before you die, give.”

Saturday, February 4, 2012

The Romanian real estate bubble

Sooner or later each of us get in the market for a house.
For me it will be later but as you might now I am debt free.
Romania had one of the worst real estate bubbles in the world.
1000% in mostly 6 years.
That's right you could buy a house in 2002 for 14000 Euros (1 bedroom) and in 2008 it was already 120.000 Euros.
So a bubble that is as irrational as they get.
Here you get a relevant chart

It was so tough that on wikipedia we have a special page.
Why was this so bad ? The average salaries are about 350 Euro.
So at the top of the bubble you needed to pay 120.000 on a 30 year loan with 600 Euro/month payment.
At the time I had returned after a small contract in France and I was also considering buying.
I wanted to get such a loan so I went to a bank. They required a 6% down payment. Since I had none they said I should borrow it from them as a consumer loan.
Then I was presented with the loan payment plan. Well of course I had enough money but still it was over 50% of my income.
I gave up and started renting (again). And I am not in the lower income range .. not even close.

We were the country with the worst house/prices to real estate ratio in the world.
Even 1 year later in 2009 we still needed 30.29 ANNUAL salaries to buy an apartment.
Apartments build 30 years ago where that expensive. 50 square meters. No parking.
Awful living conditions.

Why it happened ? The transparency was 0, real estate agents would lie to you to get you into whatever transaction at any price. And it was a huge quantity of media manipulation.
Huge. "Real estate only goes up". "Real estate prices rose by 10%/month".
The taxi driver would tell you about deals. People where mortgaging their whole next 30 years sometimes with consumer loans or even mortgages on their parents houses.
"Buy now , tomorrow it will be more expensive". "Ensure a pension to your children."
The gangsters were buying properties with cash (money laundering AND profit).
Everybody was driven by this irrational frenzy.
Also all the people who worked abroad were expected to use the money saved working there to buy property here.
Not to mention the huge pools of foreigners and real estate funds ready to "invest" in Romania.
It was so bad that entire discussion forums where manipulated people who would not agree
that the rise of prices would be fast and "magic" would have his messages removed or even get banned.
( Unfortunately they still use that approach. On 2nd of February a guy claiming that prices still need to fall was banned altogether ).
Like it happened with the .com crisis.

Everybody there who would not agree to the "real-estate only goes up and fast" theme would get their posts deleted and get baned .
have a lot to fall got "baned" for "foolishness and supporting bad ideas".
There was no real alternative investing in Romania.
Just the stock-market (which was not used because it was the subject of a Ponzi Scheme just 10 years before) and the certificates of deposit which barely covered inflation.
After 6 years of uninterrupted rise the reservoir of greater fools finally ended and the bubble burst.
40% where lost almost instantly. The EUR/RON rate increased. Almost a complete disaster for people who took 30 years mortgages. And especially for the banks.
And then the government and all the politicians (which stood by and let it inflate since most of them had a lot of real estate) HAD to do something.
So the first thing they did was to say they would guarantee to any bank the amount of 60.000 Euro of each apartment (that is 15 annual incomes still) and require only a minimum down-payment of 5%.
They called it "social program" to help "first-time buyers" secure a house.
This insured that we would NOT return to the normal house prices/income ratio.
So the bubble did not burst .. very loud that is.
No we have so national statistics saying we lost about 10% of the Romanian population.
So according to the Case Schiller index the houses grow with inflation +1% (barely 1%).

Of course in Romania they went up by about 1000%. So my view is that they will recover to about 40% of the bubble top value -> that is probably 48.000 Euros /2 bedroom apartment.
This should include our hyper-inflation as well.
But the government and the powers that be do not want this to happen because it would "damage the economy".
The truth is that most politicians have huge real-estate investments and most banks have funded all the insanity.
Really some sellers are complaining that their 120.000 Euro apartment can't be sold for .. 70.000 Euro today because the banks are not loaning money. Well grow up. It never was worth 120.000. Cheap and irresponsible credit made it be worth that much. It's real value is probably half of 70.000 Euro.

Why I will not borrow money for 30 years ?
a) There is a variable interest rate meaning you could pay 300 Euros/month this month and 430 Euro/month next month. So the traditional "INFLATION-protection" would be impossible to use.
b)The government made sure we would pay EURO but we are paid in RON. So they made sure we would also risk the conversion charges (or pay a huge interest rate for RON loans) and of course the exchange fees.
c) The population of Romania is severely decreasing , so are the opportunities. So why have debt tie you to one spot ? Prices in real estate have been for years subject of greed by corporations and lack of transparency .. and this will not change.
d) There are huge scandals related to the real estate developments. They are known to run at a profit of at least 100% and they are not willing to work for less. Moreover they are always giving you faked information (buy now prices will rise we have 20 customers in line) or pushing you to buy faster.
I have read stories of huge flats which were paid for (off-plan) and not delivered. And when they were delivered .. the quality was less than what people expected.

The most interesting thing to do is save money and wait for the market to mature.It will take years but fortunately our CD rates are very good (4% /year) and our stock-market is ready to grow again.
The real estate sharks will have to wait for a while for my money .. and even go bankrupt.
Most of them were too greedy to cut costs. Some spent their customers money to do the development.
My only hope is that Romanians too will understand that : Nobody cares about your money more than you do

For international readers (In Amsterdam I met some Dutch people ready to invest in Romanian real estate looking to quadruple their investment) : Do not invest in Romanian real estate unless you want to loose it all. Here's what happened to people who did

Of course Romania is typical (or I thought WAS) for Ponzi schemes : We had Caritas , FNI and Delphin International.
All where a huge financial disaster for the "investors". People here either die poor or get rich quick.Most just die poor.
This message is more like a waring to myself in the future. I hope I will remember it.

Monday, September 5, 2011

Preparing for Amsterdam

This autumn I will again go to Amsterdam with my wife. She has to deliver a presentation for European Respiratory Society .. and I just have to bike.
Which brings me to realize how not rich I am. In order to do anything there they will require you to show a credit card or block a huge amount on your debit card.
So my choice is to get a credit card .. again just to rent a bike and sit at a hotel room.
Which officially pulls me away from the debt-free crowd I managed to join. If the credit card is approved that is.

One more financial setback : Our country's government has decided that you cannot drive a car without proper winter tires starting with November 1st. While I have to agree with the safety reasons I wonder how much of this decision was for safety reasons (we have one of the deadliest roads in Europe) and how much was for supporting the tires sales ?
Of course paying 700 Euros for tires and rims - almost twice the average salary in Romania is a huge setback for most . I can survive without too much issues but still I can only think about my father driving his old Dacia 1300 1978 model for almost 30 winters (years) on icy/snow filled roads without winter tires. And he never crashed the car. I drove the car for 3 winters as well (I have a 2008 Dacia Logan equipped with ABS) without loosing control .I just do everything gently and try to be aware of the conditions around me when accelerating,braking, turning.
And winters are getting milder each year...
There is something else that worries me : The lack of common sense of drivers that do not know how to drive gently. I already see them every day as I bike to work : furiously accelerating between traffic lights only to brake even more furiously at the next. Sitting in traffic jams for minutes does not cause them to drive slower when they get out of them. Don't get me started at the ones that drive on highways at twice the legal speed and expect you to just vanish if you are trying to pass another vehicle at a decent 130km/h (legal speed).
No winter tires will save you if you are trying to drive into a corner with 100 km/h or into a tighter curve at 200 km/h
Further more you might be inclined to do so one you have "winter" tires. Can the government legislate common sense ? I don't think so.

What else is new ? My weight was yesterday (after a 30km ride) at 107.6 kg not close to the weight I wanted to have (~95 kg) but at least is under 110 kg.
I had stopped drinking Coca-Cola and also reduced the consumption of coffee a bit .. probably should switch to tea. I am almost happy.
My plan is to be at ~100kg .. or at least less than 105kg in Amsterdam and bike .. a lot like 8 hours /day.
Of course there are other interesting things to do in Amsterdam but since I am both married and on a budget I will stick to biking :).

Now regarding the professional side things are slowly improving. I have read yet again the "Pragmatic Thinking and Learning" book and started applying the lessons in combination with " The Pomodoro Technique".
Of course the Pomodoro technique is pretty effective (using it right now for writing on the blog) but you have to actually increase the duration to 40 minutes for any complex activity .. or even more. Why is that ? You need to first load context into your brain ..and this needs at least 20 minutes (without interruptions).
I experimented with durations and 40 minutes with a 10 minute brake seems ok. Of course my Android application would not allow more ... which brings me to the next news :
I have also bought an Android phone (in a moment of desperation which is going to cost me another 2 years of subscription payment when my old Nokia 6234 had another malfunction - the volume button) - an HTC Desire S which is a very expensive Pomodoro clock :) (using Pomodroid). Of course I use other applications on it mainly my Gmail Account , GTasks for managing tasks, Adobe Reader, Google Maps .. ,Youtube and many others.
Of course I also use it as a portable game console : Angry Birds,Alien Invasion,Fruit Slice and other tools for waisting my time are installed.
I found the phone a good laptop replacer for short web navigation and reading email. I still cannot write on the damn touch keyboard ... I find this post by Jeff Atwood totally relevant.

Now regarding the Ruby skills .. well since being very busy with my work project (and starting to enjoy it) I found my Ruby and RoR skills slowly decaying which is bad for my Pragmatic Investment Plan ( a portfolio of skills suggested by the Pragmatic Programmers in their books). My Project Euler problems are still at 27 which means I am still not advancing.
So what I need to do is to allocate a chunk of time and prepare to work on these issues because you need to make time ..but somehow the mental energy is missing at the end of the day and uninterrupted time is a rare commodity for me recently.
This concludes my post .. as always it is an interesting experience to put your mind online ..