The Economic Evolution Influence on Fortunes – part I
The year 2008 was the end of the era of spectacular real-estate developments, of huge profits, of loan expansion and also of solvent demand that could accept everything that was offered on the market, regardless of price or quality. This period of 5 to 6 years in which the economy boomed, brought a fabulous gain to the ones that risked, had the courage and invested intelligently by grasping opportunities, managing to significantly raise their wealth and creating prosperity to employees and their business partners. This unforeseen progress was possible because of the country’s entrance in the EU followed by a significant flow of foreign investments as well as the result of “cheap money” that came from Western financial world. I think we can compare the period that ended last year with the conquest of the West in the XIX century in USA. The engine of this growth was the introduction in the economic circuit of an important asset – the land – which was at the basis of all real-estate developments and of all fortunes, mostly due to the speculative character.
The inflation in the financing area, the cheap loans, in conjunction with low prices and relatively little assets, mostly real-estate – lands- made the value of them to reach exceptional levels in the last years. Unfortunately, this evolution in expansion is not going to repeat soon, as this was followed in the past 12 month by declines which contributed to the significant diminish of fortunes, specifically because of the collapse of real-estate and capital markets. The real-estate investors and the holders of consistent properties will confront themselves with major difficulties and difficult access of financing, being already obvious the lack of appetite for risk from investors. The entrance in the era of “expensive and rare money” will significantly influence the values of businesses and of real-estate. I believe that the period “cash is king” will continue in the following years, and the diminishing of the values of fortunes based on real-estate or personal wealth will continue until they will be adapted for the socio-economic realities. Our GDP per capita – one of the lowest in Europe – will recover probably in the following decades based on the increase of medium income of the majority of the population.
Dr. ec. Adrian Crivii, FRICS, MAA