Let's buy a house in Istria (part 3)
Like many people at the moment, we found ourselves searching for ways to generate more income and, in late December 2010, started looking to buy a rental property in Istria. Based on past experience, we knew it would take a while – and indeed, the hunt still continues – but in the process, another idea came up: an apartment block in the heart of old Pula instead. The only catch – it wasn’t built yet! With no experience in property development, speaking little Croatian and without appropriate financial backing, of course we decided we just had to take a look.
What’s gone before – The hunt begins | Mugeba revisited
In Roman footsteps
Azra, my estate agent, started it all. “Does it have to be a house?” she asked, as I sat in her office, explaining our need to generate income. “There are other good possibilities right now. With the market crash, many developers have over-extended and are now selling unfinished projects at cut-down prices, to cover their debts. There’s a really good deal for a five-apartment development in the centre of old Pula – only €125,000.”
It looked good. The architect’s drawings showed an attractive, three-storey building with five, one-bedroom apartments and it had planning permission. All that was left was to pay the local taxes … and build it. We could stump up the purchase price and surely we’d be able to raise the extra money.
But how much extra? I didn’t want to just take the developer’s financial plan at face value, so it was into research mode. First I spoke with a few builder contacts, who agreed with his budgeted build costs (well more or less). But comparing his projected sale prices against current real-life prices in Pula was far harder: most Pula apartments are in the suburbs, not in the heart of the old city. However, as with the costs, his projections seemed about right and it did seem as if the apartments would be desirable and sell well. Even when Mr. Spreadsheet himself ran detailed best and worst case scenarios, looking at long-term appreciation, ROI, yield and all those other incomprehensible abbreviations, everything looked good … too good. It was time to visit Pula, see the site and find the catch.
When Azra said the site was in the heart of the old city, she hadn’t exaggerated. After a coffee by the Roman arch (all business here is accompanied by coffee), we walked into the old Roman main street and took the second street on the right. And there was the site, somewhere behind an old stone wall and gateway. It was a lovely hill-side location, quiet yet close to the heart of the city, and with only an old stone apartment building above it and nothing much below.
It starts to unravel
Then … the first snag. Azra raised the issue of parking. With parking as rare as hen’s teeth in Pula centre, the council demands that any new apartment has to have its own parking space. In fact, the plot of land behind the building was just about big enough, but there was a problem with access – a problem only solvable if we bought the strip of land connecting our plot to the road. It was for sale – but this meant the project price had just leapt.
Even with the extra outlay, we decided it was still worth pursuing and set off to raise the extra capital. We needed to raise several hundred thousand Euros and with conservative projected returns of 19%, surely this would be possible? Wrong! Even for such a potentially profitable venture, I could find no backers. If we wanted to do this, we’d have to fund it all ourselves. The realities of property development in today’s economic situation were becoming apparent.
Then the real catch turned up – not money, but history. ‘Our’ site lay in the heart of Roman Pula, where hitting archaeology when you dig is guaranteed (and I think I even tripped over some, clambering around the site). “You are aware you’ll have to pay for an archaeological survey of the site, aren’t you?” asked our friend, Srdjan, when we mentioned the project to him. News to us. “And,” he continued, “you’ll have to pay for the dig, if they find anything. Not to mention it would delay the project by months, if not years”
So a profitable and essentially simple development could very easily have turned into a bottomless money pit. In the end, our days as property developers only lasted one afternoon. But it was fun while it lasted.
With our short Istrian property development careers behind us, what did we do next? Did we stop looking and buy Mugeba, or did we continue our hunt? Find out next time, when we look to see what else is out there.
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