Top five real estate investment tips

Notwithstanding the 90% drop in property investments volume last year, most of real estate execs expect the market to gain strength in 2010. But with one condition: investors must stick to some fundamental principles, according to the market sector they put their money in.

1. Keep a close eye on the expected return

The traditional financial measure of an investment is the yield or the annual return on investment (ROI).

“When calculating the return, investors must take into account the sustainability of the rents they assume when calculating revenue, contract duration and property take-up rate. If investors target expensive properties in central areas, they must understand that in 2010, they will not generate a return higher than 10%”, Georgiana Anghelus (photo), consultant at Colliers Investments told Wall-Street.

For secondary properties, that may generate a return of 10% or even higher, investors must keep a close eye on the risks attached to these properties for the duration of the investment.

2. Commercial property investments

For any type of investment, investors must be properly informed on the market and on the performance of market indicators, Colliers says.

“In case of office spaces, investors must focus on both the rental income under existent lease agreements and rent renegotiation terms. An investor also has to look at the performance of the office market for a three-year period”, said Georgiana Anghelus.

The average volume of a lease transaction in the local office market fell 46% year-on-year in 2009 to 1,220sqm /company, according to a recent DTZ Echinox research.

3. Investing in lots and land

Few years ago, lots and land have been some of the most attractive real estate investment destinations, but the dwindling prices have put land transactions on ice in 2009. Those who want to invest in undeveloped land in 2010 must consider the potential pitfalls, such as zoning ordinances or covenant restrictions.

“The new zoning regulations enacted on October 1, have imposed restrictions on land use, which is why investors should be familiar with these restrictions before they attempt any major work on their properties”, said Sinziana Oprea, Broker Land Division, Colliers.

In 2009, the only transaction conducted in this sector made public was the acquisition of a 4,000sqm lot in Floreasca area for €2 million or €500/sqm.

4. Investing in commercial properties

For commercial real estate investments, 2009 has been a year of extremes: the biggest mall opened in Romania, the biggest real estate transaction and also the first shopping center to be shut down.

In 2010, investors who look at the retail projects must beware of the terms of the existent contracts and location, says Georgiana Anghelus.

“Even if the tenant pays more for a better location, the amount can be recovered in time”, she added.

5. Residential real estate investing

As for residential real estate investment, this year, investors should take into account two things: apartment mix, which should be adapted to the target segment and due diligence (e.n legal and financial audit) for the project, according to Stefania Baldovinescu, manager consulting department of Colliers International.

Three-room apartments and studio apartments should have the same share in the portfolio, while bigger apartments don’t have the potential of maximizing the ROI.

“The due diligence should take into account the specific demand of end buyers for the respective location, project quality which is given by the location and concept, as well as the facilities in the vicinity of the building”, she added.