Moldova: Overview

RENTAL YIELDS

Last Updated: Sep 16, 2009

Significant yields contraction in Moldova

Apartments in Chisinau, Moldova are now more expensive than when we did our survey last year, in terms of Euro. But rents have not risen in Euro terms. Result: yields appear to have declined significantly this year.

In 2006 our research was finding gross rental yields of between 12.4% and 18.6% for apartments in the centre of Chisinau. The country had not yet witnessed the dramatic upward adjustment in values common in transition economies. Now, after a boomlet, yields are at a much more normal 8.7%. This is still a good yield, but given the high risk associated with a property purchase in Moldova, not an outstanding bargain any more.

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TAXES AND COSTS

Last Updated: Jan 05, 2008

Low income tax

Rental Income: Gross rental income is taxed at 5%, withheld by the tenant.

Capital Gains: Capital gains realized from sales of real estate properties are no longer taxable.

Inheritance: There are no inheritance taxes in Moldova.

Residents: Residents are taxed on their worldwide income, at progressive rates of 7%, 10% and 20%.

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BUYING GUIDE

Last Updated: Apr 13, 2007

High transaction costs with long process in Moldova

The maximum cost of registering property is only 2% of the property's value. However, the 20% VAT on property purchase significantly increases transaction costs. The process takes about 81 days for the five procedures, according to the World Bank. Note that transactions are done in cash.

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LANDLORD AND TENANT

Last Updated: Jul 19, 2006

Moldova's conflicting tenancy law

Moldovan rental market law and practice is generally pro-landlord.

Tenancy Laws: There is some conflict between the Law on Rent of 1992 and the Civil Code of 2003. Even though the Civil Code takes precedence over the Law on Rent, the contradictions between the two creates confusion, especially in litigation.

Tenant Security: Contracts are automatically terminated upon the expiration of the fixed term.

There are no special tribunals for resolving landlord tenant disputes. On average such disputes are settled in six months' time.

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ECONOMIC GROWTH

Last Updated: Jul 15, 2008

A poor country with secessionist problems

Moldova is the second smallest country to emerge from the former USSR; with a population of 4.1 million in 2008. It is the second poorest country in Europe with a GDP per capita of US$1,248 in 2007, and is heavily indebted. More than a decade after independence from the USSR, its economy and history have been on a rollercoaster ride. Moldova has seemingly insoluble separatist problems.

It is one of the former Soviet Union’s most densely populated countries, with 127 inhabitants per square kilometer. To address the huge demand for housing, the government built around 2,300 apartments in the past two years. They are planning to build seven thousand more units.

Only 34% of the population is employed and more than a third of the economy is agricultural. Over 75% of the population lives below the poverty line; by far the greater portion of the houses in Chisinau, for example, lack central hot water.

The country lacks natural resources and relies on imports of fuel and raw materials. The government is ridden with corruption and bureaucratic red tape. A remarkable portion of the population works overseas, about 25% of working age Moldovans, and they send back much needed foreign currency.

The average annual GDP growth rate from 2001 to 2005 was 7.08% per annum. Although economic growth slowed down to 4% in 2006 and 5% in 2007, these were still remarkable compared to e economic decline experienced for the entire 1990s, after independence. Real GDP per capita has also recovered and is back to its pre-independence level, after falling by 40% from 1992 to 1999.

Torn between its historical ties to Romania and its close links to Russia, the country’s major political predicament is the strength of the pro-Russian Slavic secessionist forces in the Eastern region of Transnistria, who want autonomy from mainland (Romanian) Moldova, and wish to be annexed by Russia.

The separatists have their own government, their own currency, media, army and police force, although Transnistria is not yet internationally recognized. The southern region of Gagauz also wants autonomy. It is inhabited by Christian Turks who fear “Romanization” by the centre, and even possible union with Romania.

A bloody civil war was fought against the Transnistrian forces in 1992. A three way peacekeeping force (Russian-Transnistrian-Moldovan) facilitated a fragile peace accord between the two factions. Autonomous territories were established in Transnistria and Gagauz by the 1994 constitution, and no armed conflict has occurred since, but relations between the central government and Transnistria remain volatile.