Romania Property Market Overview

Let’s face it the Romania property market is a complete mess – driven by poor government policies and wild speculation by foreigners.

The Romania government has implemented a number of measures to attract investment, stimulate the economy and gain membership to the EU bank in January 2007. It could almost be described as “great leap forward”.

As we wrote last year, such is the pace of change in the country investing here is not without its risks.

Economic growth was too fast and has imploded. Furthermore the currency is under huge pressure and has lead to problems as many locals have borrowed money in Swiss Francs. This has made it hard for locals to repay their mortgages.

The mortgage market is still very immature. Locals can, and do, get mortgages and for foreigners some products are starting to come onto the market but still these are difficult to get and limited to only 75% LTV. This is still one of the key restraints to investing in Romania.

Mortgages for foreigners still do not exist at all!

Price growth had been very high in many of the Romanian cities – though this growth really had no basis and was driven by speculation and hot air. It was certainly never “cheap” by any standards. Prices were growing at between 20 – 50% per annum (though we’re not sure this was accurate) this has simply not been sustainable and has led to a huge crash.

Now prices of property and land are falling 30-50% per annum, with some commentators predicting much more.

There is a wide variance in the quality of stock on the market. We believe that prices at the luxury end will continue to increase and prices at the lower end will fall in the future. Some projects which are being billed as luxury now will only be considered standard in the future. We recommend you choose your property very carefully – if at all.

Until recently there has been a lot of building taking place and much speculation by foreign investors. Many of these projects have been cancelled and foreigners are trying to get out with as few burns as possible (many losing deposits!).

Traditionally the main rental market was for higher end property and yields were similarly high above 10%, but now have reduced considerably. The demand in the middle of the market is more difficult to determine as it is so new and fragmented. This is a very risky market.

Whilst there are a lot of medium term positives and potential in the Romania property market there are still large economic risks due to the recent rate of expansion of the economy, mortgage finance is still very poor, the resale market is under determined and rentals are uncertain, furthermore there is a huge amount of speculation taking place both my locals and foreigners – which is now ending in huge prices falls!

Overall there is money to be made, for the brave, if one chooses the correct project though the risks are currently high enough to scare off most cautious investors. There are many desperate sellers in Romania, so for those with cash opportunities could abound.

Bucharest

Bucharest is often described by locals as “the jungle”.

It has a population of over 2million people which is increasing all the time, many estimates now put it over 3 million people.

As the capital of Romania, Bucharest, has attracted a huge amount of investment and companies to its streets.

This investment has reduced unemployment down to around 2% and wages are rising rapidly in many sectors and there are not enough skilled workers to fill the jobs. Thus, many have the money and confidence to purchase property.

Infrastructure is still a huge problem. The roads are in a terrible condition and traffic is a nightmare. This is being changed but will take many years to sort out the crumbling mess left by communism.

Property price growth here has been very high, but the market remains fragmented. A good area today could be a less desirable area tomorrow.

Given the rapid changes the market is undergoing one should be careful and choose the right areas in which to invest. The huge prices falls cannot continue forever, though the lack of mortgage finance, property service companies and a decent rental market make Bucharest a place to avoid for the time being.

Cluj-Napoca

Cluj-Napoca is the economic capital of the Transylvanian region and tries hard to distinguish itself from Bucharest.

Its position near the border with Hungary, and being on a trans-European highway, make it a vibrant trading city.

Its location and the fact that it is a popular student town are some of the main reasons why many international companies (such as Nokia, Ikea and car manufacturers) have chosen to base themselves in the city.

This wave of investment has slashed unemployment and driven up wages – and property prices.

The increased number of jobs is attracting a wave of migration to the city with the population expected to double in the next 10 years from 400,000 to nearly 1 million people. This is putting large strains on the already underdeveloped infrastructure.

Either way demand for property is likely to increase in the Cluj-Napoca medium term.

The economic and demographic fundamentals to the city are strong and supply is unlikely to keep up with demand. Hence, it could be an interesting investment bet – relative to other opportunities in Romania.

In the short term, however, it still suffers from falling prices, poor rentals and lack of mortgage finance.

Brasov

Brasov is a beautiful city nestled in the mountains only 3 hours drive from Bucharest.

A new motorway is under construction between Bucharest and Brasov which should cut the journey time down to 2 hours.

Brasov has also attracted its fair share of investment, particularly from manufacturers and technology companies, which has helped stimulate the economy of this already relatively wealthy city.

Given its beauty and proximity to Bucharest it is a popular place to live for many.

As well as having industrial base Brasov also attracts tourist money in both the winter (skiing) and summer.

Similarly to Krakow, Brasov is a place you cannot write off as a medium term investment location as people will always want to live and visit there. As an investor, however, avoid the short term mess!

Constanta

Along with Varna, Constanta is the Black Sea’s main port and thus is the main entry point for trade around the world to enter Central and Eastern Europe.

This naturally provides a large number of jobs and sustains other business services around the port.

Investment has not been as high as some Romanian cities.

In the summer the coast nearby Constanta (whilst not as pretty as the Bulgarian coast) still makes for a popular weekend break destination for many people from Bucharest, this popularity is only likely to increase as Romanian’s get richer and the motorway is finished being upgraded.

Long term price growth is likely to be good in Constanta but we feel that there are better opportunities elsewhere in Romania for much lower risk.