"If I want to develop residential, it is a safe bet. The good news is that banks are financing such developments with good terms, so I might have quite a high return on my investment," says Ilinca Paun, Managing Director of Colliers International.
The average selling price of apartments rose by 8.40% (8.56% inflation-adjusted) to €1,045 (US$ 1,155.98) per square metre (sq. m.) during the year to September 2016, based on figures from imobiliare.ro. On a quarterly basis, house prices rose by 2.45% (2.81% inflation-adjusted) in Q3 2016.
All major cities in Romania experienced rising house prices during the year to September 2016:
- In Bucharest, the capital, the average selling price of apartments rose by 5.34% (5.49% inflation-adjusted) to €1,144 (US$ 1,265.49) per sq. m.
- In Cluj-Napoca, Romania’s second most populous city, apartment prices were up by 9.52% (9.68% inflation-adjusted) to €1,231 (US$ 1,361.73) per sq. m.
- In Timisoara, the average selling price of apartments surged by 10.73% (10.88% inflation-adjusted) to €1,022 (US$ 1,130.54) per sq. m.
- In Brasov, the average selling price of apartments increased by 6.85% (7% inflation-adjusted) to €920 (US$ 1,017.70) per sq. m.
- In Constanta, the country’s oldest city, apartment prices rose by 5.07% (5.22% inflation-adjusted) to €953 (US$ 1,054.21) per sq. m.
The Romanian economy grew by 3.8% in 2015, and growth of 5% is expected in 2016. In 2017, the economy will still expand but at a slower pace of 3.8%, according to the IMF.
"Both residential supply and demand are gathering steam as a result of the favourable economic outlook and the newly introduced fiscal regulations," say Knight Frank.
Romania's new Fiscal Code was introduced on January 1, 2016. Most notably, it reduces the standard VAT rate from 24% to 20%, but also simplifies the tax collection process, to boost investment and economic growth.
There are no restrictions on foreign nationals acquiring dwellings in Romania. Ownership of land is tricky, but companies incorporated in Romania as well as resident foreign nationals and non-resident EU citizens can acquire land.
Analysis of Romania Residential Property Market »
- a 120 sq. m. apartment in Bucharest will cost around 190,000 euros
- a 70 sq.m. apartment in Bucharest will cost around 105,000 euros
The purchase price of apartments in Bucharest is around 1,550 euros per sq. m..
How much can you earn? Bucharest's rental yields are good:
- a 120 sq.m. apartment can rent for about 950 euros per month, earning a rental yield of 6.1%.
- a 70 sq. m. apartment can rent for about 550 euros per month, earning a rental yield of 6.1%
Please note that our prices primarily represent very well-maintained apartments. We have used the “useful area” instead of the “built area” when we computed for the sq. m. prices because we only included old apartments in our survey. When one buys an old apartment in Bucharest, one buys the useful area. But when a developer sells an apartment, he sells the built surface. Therefore, the buyer becomes co-owner of the conjoint spaces.
Currency risk: over the past four years the Romanian Leu has remained largely stable against the euro.
Conclusion: Bucharest is a bargain. In only a few European countries are homes less expensive than in Romania. Even more important, Romanian price to rent ratios are very low. Romania is growing rather rapidly, so there is upside potential. But, well, it very much depends whether you want exposure to Romania given that gross rental yields are good, but not extraordinary.
Round trip transaction costs are moderate in Romania. See our Romania transaction costs analysis and our Residential property transaction costs in Romania compared to other countries.
Capital Gains: No tax is levied on the capital gains realized by individuals from selling real property; however transfer tax is levied on the transfer of immovable property in Romania.
Inheritance: Inheritance tax is imposed at regressive rates from 2% to 0.50% depending on the value of the inheritance.
Residents: Residents are taxed on their worldwide income. Residents may deduct personal allowances and allowances for dependents.
Tenant Security: The agreement automatically terminates at the end of the contract and no further notice is necessary. The landlord can terminate the lease before the agreed term only if the tenant did not pay rent for three consecutive months and if the tenant did not comply with the contractual provisions.
Romania is predicted have the highest economic growth in Europe this year, growing by around 5% in 2016, followed by Ireland (4.9%), based on the IMF's latest World Economic Report in October 2016. Then over the next two years the economy is expected to slightly slow, with growth rates of 3.8% and 3.3% in 2017 and 2018, respectively.
The country's budget deficit is predicted to decline to be 2.9% of GDP in 2016. During the first nine months of 2016, Romania's consolidated national budget had a deficit of RON 3.7 billion (US$ 896 million) (0.49% of GDP), down from a surplus of RON 6.16 billion (US$ 1.49 billion) (0.87% of GDP) in the same period last year, according to the finance ministry.
In September 2016, Romania's unemployment rate was 5.9%, significantly down from 6.9% in the same period last year, according to the NIS.
The country's annual inflation was -0.6% in September 2016, according to the NIS. In 2015, inflation was also at -0.6%, a decline from 1.1% in 2014. This was also a sharp drop from 4% inflation in 2013, 3.3% in 2012, 5.8% in 2011, and 6.1% in 2010, according to the IMF.
Political tensions remain, amidst anti-corruption drive
The fresh face in national politics is president Klaus Iohannis, elected in November 2014. Previously mayor of Sibiu, he turned it into one of Romania´s most popular tourist destinations. His popular appeal is as outsider to the country´s corrupt and warring political elite, although he briefly became president of the National Liberal Party during June-December 2014. Romania has a long history of corruption and of protests against corruption.
Former Prime Minister Victor Ponta resigned in November 2015 after some 20,000 people took to the streets in protest against a Bucharest nightclub fire. On November 17, 2015, Dacian Cioloș, replacing Ponta, became Romania's prime minister.
“In my opinion, it is much more than a mere government change," said Iohannis of Ponta´s resignation. "I believe we are talking about a paradigm change in the Romanian politics and I believe it is good..."
Since Iohannis' election there have been a series of arrests for corruption, and increased support for the National Anticorruption Directorate (DNA). In March 2015 former Finance Minister Darius Valcov was arrested (though in June the Supreme Court ordered his release to stand trial in conditions of freedom). In September 2015, prosecutors formally indicted Ponta on corruption charges. Ciolos is expected to remain prime minister until elections at the end of 2016.