Romania

After three years of severe house price declines, Romania’s housing market is still in deep trouble in 2012.

The average selling price of apartments in Romania fell by 6.21% to €967 per square meter (sq. m.) during the year to August 2012, the biggest annual price decline since September 2011, based on figures released by real estate firm, imobiliare.ro.

Residential property prices evolved differently across the country’s big cities but all of them showed house price falls during the year to end-August 2012.

• In Bucharest, the capital, the average selling price of apartments dropped 4.6% to €1,128 per sq. m.
• In Cluj-Napoca, Romania’s second most populous city, the average selling price of apartments fell 6.1% to €903 per sq. m.
• In Constanta, the country’s oldest city, apartment prices plunged by 9.5% to an average of €864 per sq. m.
• In Iasi, apartment prices dropped 4.9% to an average of €855 per sq. m.
• In Brasov, apartment prices fell 2.3% to an average of €850 per sq. m.
• In Ploiesti, the average selling price of apartments fell by 5.8% to €812 per sq. m.
• In Timisoara, the average selling price of apartments dropped 1.1% to €790 per sq. m.

From 2002 to early-2007, property prices and demand for Romanian properties rose in anticipation of EU accession in January 2007. But investors were disappointed, not least by non-implementation of promised economic and political reforms. Corruption is rife in Romania, and largely ignored (or tolerated) by the government.  Then came the Euro-crisis.

• In 2009, house prices plunged by 20.62% (-16.86% inflation-adjusted) from a year earlier.
• In 2010, house prices plummeted by 15.88% (-9.19% inflation-adjusted) from a year earlier.
• In 2011, house prices dropped again by 4.07% (-1.05% inflation-adjusted) from the previous year.

The construction sector declined by 39.2% to €9.3 billion in 2011 from €15.3 billion in 2008, according to the Romanian Contractors’ Association (RCA). The crisis of the last three years is expected to continue in 2012, according to local property experts.

“This is a deadlock. Right now a lot of assets are in the ownership of banks, and those assets need to be liquidated. We feel an attitude that inhibits the development of the real estate market, especially in terms of small scale projects. Until personal homes, be they finished or under construction, get sold under proper contracts, any other developments on the real estate market will most likely be very modest. And since the banking sector still has great reservations in giving housing loans, we can expect the sector to continue to be deadlocked, just as it has been in the last two and a half years”, says to Laurentiu Plosceanu, Chairman of RCA.

The National Bank of Romania (BNR), the country’s central bank, has long kept its benchmark policy rate unchanged at 5.25%.

There are no restrictions on foreign nationals acquiring dwellings in Romania, but ownership of land is tricky. Companies incorporated in Romania as well as resident foreign nationals can acquire land. Non-resident EU citizens will be able to own land starting 2012.

Real GDP rose by 0.5% in Q2 2012 from the previous quarter, following modest contractions in the previous two quarters, according to the National Statistics Institute (INS). Romania’s economic growth is projected at 0.9% in 2012, according to the IMF.

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Romania (GDP/cap US$8,863 in 2011) has a population of 21.4 million. The country joined NATO in late March 2004, and joined the EU in January 2007.

Average annual GDP growth was 6.3% from 2001 to 2008, making Romania one of Europe's fastest-growing economies. However, it suffered severely during the global financial meltdown, with real GDP contracting by 6.6% in 2009 and by another 1.6% in 2010. Real GDP grew by 2.5% in 2011, fuelled by an expansion in agriculture (up by 11.3%) and the industrial sector (up by 5%).  The economy expanded by 1.2% y-o-y to Q2 2012, according to the National Statistics Institute (INS). On a quarterly basis, real GDP grew by 0.5% in Q2 2012, following modest contractions in the previous two quarters.

The IMF cut its GDP growth forecast for Romania to 0.9% in 2012 while Banca Comerciala Romana (BCR), the country’s largest lender, expects economic growth to slow to about 0.7%, amidst weak agricultural production, domestic political turmoil and the ongoing eurozone debt crisis.  Romania’s unemployment rate was 7.2% in 2011.

The annual inflation rate jumped to 3.9% in August 2012 from 3% in the previous month, driven by a sharp increase in food prices. The National Bank of Romania (BNR), the country’s central bank, has set an inflation rate target for 2012 at 3.2%, plus or minus one percentage point.

The BNR has kept its benchmark policy rate unchanged for the fourth consecutive time at 5.25% despite inflationary pressures, as external and domestic economic outlook remains depressing.

During the first eight months of 2012, the country’s budget deficit was unchanged at 1.2% of GDP compared to the same period last year. Romania has currently sovereign debt levels of around 35% of GDP, up from just 13% of GDP in 2008.

Domestic political instability is also exacerbating the not-so-rosy outlook for Romania. This year alone, the country has gone through three governments. Prime Minister Victor Ponta replaced Mihai-Razvan Ungureanu, who in February 2012 succeeded Emil Boc, who was forced to resign amid violent protests at his government's drastic public spending cuts. In addition, the power struggle between PM Ponta and President Traian Basescu has dragged foreign investors’ confidence down, pushed currency to record lows and boosted borrowing costs. The feud of the country’s two top leaders is expected to continue before parliamentary elections to be held in December 2012.