Romania’s house prices rising, buoyed by strong demand

Romania’s housing market proves to be resilient, despite rapidly rising interest rates and high inflation, coupled with a sluggish economy. House prices continue to rise, amidst robust demand and falling construction activity.

In January 2024, the average selling price of apartments in the country rose by 6.49% y-o-y to €1,510 per square meter (sq. m), based on figures from imobiliare.ro. However, when adjusted for inflation, nationwide apartment prices dropped slightly by 0.86% over the same period. The huge gap between nominal and real figures is mainly due to high inflation.

All major cities in the country saw an increase in residential property prices during the year to January 2024:

  • In Bucharest, the capital city, the average selling price of apartments rose by 5.35% (but fell by 1.92% inflation-adjusted) y-o-y to €1,634 per sq. m, its best showing since September 2022.
  • In Cluj-Napoca, Romania’s second most populous city, apartment prices were up by 10.18% (2.58% inflation-adjusted) y-o-y to an average of €2,640 per sq. m.
  • In Brasov, apartment prices rose strongly by 14.09% (6.21% inflation-adjusted) to an average of €1,790 per sq. m.
  • In Constanta, the country’s oldest city, apartment prices rose by 6.82% (dropped slightly by 0.55% inflation-adjusted) y-o-y to an average of €1,581 per sq. m.
  • In Timisoara, the average selling price of apartments went up by a modest 4.12% (but fell by 3.07% inflation-adjusted) y-o-y to €1,518 per sq. m.
  • In Iași, Romania’s third most populous city, apartment prices rose by 8.8% (1.3% inflation-adjusted) y-o-y to an average of €1,508 per sq. m in January 2024.

Romania’s house price annual change

Demand for residential dwellings remains robust despite rising interest rates. In Q4 2023, about 84,000 houses, land plots, and apartments were sold in the country, up by 6.3% from 79,000 sales in the same quarter last year, according to Analize Imobiliare’s Q4 2023 report. In Bucharest, however, which accounted for more than 46% of total sales, residential property transactions fell by 2.5% y-o-y to 38,870 units in Q4 2023.

Residential construction activity is plunging, causing supply to be limited which adds upward pressure on house prices. During 2023, the total number of residential building permits in the country fell sharply by 20.6% y-o-y to 34,646 units, after falling by 14.9% in 2022 and rising by 24.1% in 2021. All regions saw sharp declines in residential building permits.

Romania’s economy slowed during 2023, registering a real GDP growth rate of just 1.8%, a slowdown from expansions of 4.7% in 2022 and 5.9% in 2021, according to the European Commission (EC). Before suffering a 3.7% economic contraction in 2020 due to the Covid-19 pandemic, the economy had been growing by an annual average of almost 4% from 2011 to 2019.

The overall economy is projected to expand by a modest 2.9% this year and by another 3.2% in 2025, based on the forecast released by the European Commission. The International Monetary Fund (IMF) is more optimistic, projecting economic growth for Romania to exceed 3% this year.

Romania Average Price of Apartments graph

Property sales in Romania increasing, except in Bucharest

In Romania’s six biggest cities, demand for residential dwellings remains stable. In Q4 2023, about 84,000 units were sold, up by 6.3% from 79,000 sales in the same quarter last year, according to Analize Imobiliare’s Q4 2023 report.

However, there were wide variations in demand in Romania’s major cities (figures from Analize Imobiliare):

  • In Bucharest, which accounted for more than 46% of total sales, residential property transactions fell by 2.5% y-o-y to 38,870 units in Q4 2023.
  • In Brasov, sales transactions were up by 11.7% y-o-y to reach 11,509 units in Q4 2023.
  • In Timisoara, sales stood at 9,089 units, up strongly by 15.2% from a year earlier.
  • In Cluj-Napoca, residential property sales reached 8,663 units in Q4 2023, up by 10.1% from the previous year.
  • In Constanta, there were 8,014 units sold in Q4 2023, up by 12.7% from the same period in the prior year.
  • In Iasi, sales soared by 36.8% y-o-y to 7,841 units in Q4 2023.

Moderate to good rental yields

Romania’s gross rental yields are moderate to good, averaging 6.16% in Q3 2023, according to a Global Property Guide research conducted in August 2023.

In Bucharest, apartments offer rental yields ranging from 4.03% to 8.98%, with the city average slightly higher than the national average, at 6.36% in Q3 2023. In other major cities:

  • Cluj-Napoca produces rental yields ranging from 5.34% to 8.41%, with a city average of 6.46%.
  • Timisoara can produce about 5.34% to 8.41% returns, with a city average of 6.46%.
  • Craiova’s gross rental yields range from 5.1% to 6.95%, with a city average of 5.96%.
  • In Galati, rental yields are higher at around 6.86% to 8%, with a city average of 7.54%.
  • In Iași, apartments produce rental yields ranging from 6.38% to 7.11%, with a city average of 6.67%.
  • Brasov’s apartment rental yields range from 5.93% to 7.92%, with a city average of 6.74%.
  • Constanţa offers high rental returns ranging from 7.68% to 9.29%, with a city average of 8.18%.

Residential construction activity falling rapidly

During 2023, the total number of residential building permits in Romania fell sharply by 20.6% to 34,646 units as compared to a year ago, according to the National Institute of Statistics (INS) – after falling by 14.9% in 2022 and rising by 24.1% in 2021. Likewise, the total area of residential building permits dropped 23.9% y-o-y to 8.7 million sq. m. last year.

All regions saw sharp declines in residential building permits.

  • Bucharest-Ilfov saw the biggest y-o-y fall in residential building permits of 31.2% y-o-y to 3,627 units during 2023.
  • In the Southeast, permits dropped 21% y-o-y to 3,835 units over the same period.
  • In the Central region, permits fell by 11% y-o-y to 3,672 units.
  • In Southwest Oltenia, permits fell by 21.8% y-o-y to 2,681 units.
  • In the Northwest, permits were down by 21.5% y-o-y to 5,488 units.
  • In the Northeast, permits dropped 12.9% y-o-y to 6,877 units.
  • In South Muntenia, permits declined by 22.9% y-o-y to 5,306 units.

Romania Residential Building Permits graph

Dwelling completions increased by a modest 2.7% y-o-y to 73,338 units in 2022 (the latest figure available), following annual rises of 5.3% in 2021, 0.5% in 2020, 13% in 2019, 11.9% in 2018, 2.2% in 2017, and 11.1% in 2016, according to the INS.

Dwelling stock reached nearly 9.7 million units in 2022, up slightly by 0.7% from a year earlier.

Romania Dwelling Stock and Completions graph

Mortgage interest rates remain high

In its February 2024 meeting, the National Bank of Romania (NBR) kept its policy rate unchanged at 7%, where it remained since January 2023. Before that, the central bank raised the key rate by a cumulative 600 basis points since the start of its tightening cycle in October 2021, in an effort to rein in inflationary pressures.

The deposit facility rate also remained unchanged at 6% and the lending (Lombard) facility rate at 8%. Moreover, the central bank decided to keep the existing levels of minimum reserve requirements on both domestic and foreign currency-denominated liabilities of credit institutions.

“The NBR Board decisions aim to bring the annual inflation rate back in line with the 2.5 percent ±1 percentage point flat target on a lasting basis, inter alia by anchoring inflation expectations over the medium term, in a manner conducive to achieving sustainable economic growth,” said NBR in its press release. “At the current juncture, the balanced macroeconomic policy mix and the implementation of structural reforms, also by using EU funds to foster the growth potential over the long term, are of the essence in preserving a stable macroeconomic framework and strengthening the capacity of the Romanian economy to withstand adverse developments.”

As such, mortgage interest rates remain high, following the level of key interest rates.

Interest rates on new RON-denominated housing loans:

  • Floating rate and up to 1-year initial rate fixation (IRF): 7.55% in December 2023, up from 7.29% a year ago and sharply higher than the 3.56% two years earlier.
  • Over 1 and up to 5 years IRF: 6.33% in December 2023, down from 7.1% in the previous year but up from 4.12% two years ago.
  • Over 5 and up to 10 years IRF: 6.55% in August 2023, up from 5.81% a year earlier and 4.4% two years ago.
  • Over 10 years IRF: 6.98% in December 2023, up from 6.4% in the previous year and 3.71% two years ago.

Romania Interest Rates in RON-denominated Housing Loans graph

The interest rates for outstanding housing loans, by maturity:

  • Up to 1-year maturity: 9.22% in June 2023, sharply up from 7.11% a year ago and 4.1% two years earlier.
  • Over 1 and up to 5 years maturity: 7.04% in December 2023, up from 6.15% in December 2022 and 4.2% in December 2021.
  • Over 5 years maturity: 7.83% in December 2023, higher than the 7.53% in the previous year and 4.34% two years ago.

For euro-denominated housing loans, the average interest rate for those with 1-5 years maturity was 6.81% in December 2023, up from just 4.37% a year earlier and 3.31% two years ago, based on figures from the BNR. Likewise, interest rates for housing loans with over 5 years of maturity increased to 7.9%, from 5.53% a year ago and 3.53% two years earlier.

Romania Interest Rates in EUR-denominated Housing Loans graph

More than 85% of outstanding housing loans were RON-denominated by end-2023, up from 83.8% a year earlier and 81.1% two years ago. From 2010 to 2013, RON-denominated housing loans accounted for just 5.5% of total housing loans outstanding. Euro-denominated loans accounted for 13.1% of outstanding housing loans in December 2023.

The central bank has shifted homebuyers’ preferences to local currency by limiting the “Prima Casa” and “Noua Casa” programs to RON-denominated loans.

The mortgage market continues to slow

From 2008 to 2021, Romania’s residential mortgage market has been growing by an average of more than 15% annually. It might have been expected that mortgage growth would have been stalled by the passage, in early 2016, of the “Legea darii in plata” law, allowing a borrower to close his mortgage debt by handing back his property to the bank, with no other obligations. However, mortgage growth has not stalled. Housing loans still rose strongly by 12.5% in 2016, 13.2% in 2017, 11.1% in 2018, 10.5% in 2019, 9.9% in 2020 and 12.9% in 2021.

The mortgage market’s strong growth has been buoyed by the government’s “Prima Casa” (First Home) program, launched in May 2009, which was recently replaced by the “Noua Casa” (New House) program. The “Noua Casa” program supports first-home purchasers who have previously not had a mortgage.

However, the mortgage market has noticeably slowed recently, which is not surprising given the surge in interest rates. The total value of outstanding housing loans increased by a modest 5.4% in 2022, far lower than the double-digit growth rates in the past decade. Then last year, the market started to contract.

Romania Housing Loans graph

In December 2023, housing loans outstanding fell slightly by 0.4% y-o-y to RON 105.77 billion (€21.24 billion), according to NBR. Over the same period:

  • RON-denominated: RON 90.68 billion (€18.21 billion), up by 2% from a year earlier
  • EUR-denominated: RON 13.9 billion (€2.79 billion), down by 12.9% from a year ago
  • Denominated in other currencies: RON 1.18 billion (€237 million), down by 7.4% from the previous year

Romania’s mortgage market is very small by international standards, and worse, is now shrinking further. During 2023, the size of the mortgage market as a percentage of GDP fell to 6.7%, down from 7.5% in 2022 and 8.5% in 2021.

Romania Housing Loans Outstanding graph

The “Noua Casa” (New House) program

The maximum amount of loan that can be granted under the “Noua casa” program for 2024 for new houses priced at €70,000 or below is €66,500, with a minimum downpayment of 5%. For new houses priced between €70,000 and €140,000, the maximum loan amount is €119,000, with a required downpayment of 15%.

The interest rate is variable, computed based on the Consumer Credit Reference Index (IRCC) plus a fixed margin of up to 2%.

The government guarantees 50% of the value of the loan, for loans up to €70,000, and 60% of the amount borrowed for loans between €70,000 and €140,000. There is no age limit for the beneficiaries. The credit period is 10-30 years. Accepted earnings are the standard accepted by banks: earnings from salaries, pensions, copyrights, life annuities, dividends, and earnings from independent activities, but not rental income.

During 20123, 1,940 guarantees were granted in the total amount of RON 245.7 million (€49.34 million), with a value of loans of approximately RON 485 million (€97.39 million). Since 2009 when the First Home Program was launched until December 2023, 333,219 guarantees were granted with a total amount of RON 31.57 billion (€6.34 billion), which supported loans worth RON 63.8 billion (€12.81 billion). 

In 2024, the Noua Casa program received a budget of about RON 1 billion (€200.79 million), in an effort to boost mortgage lending, especially to young families wanting to buy their first property. It is implemented through various banks, including BRD-GSG, BCR, Banca Transilvania, CEC Bank, ING Bank, Raiffeisen Bank, OTP Bank, Banca Romaneasca, Unicredit Bank, Garanti Bank, First Bank, Vista Bank, Intesa Sanpaolo Bank, and Alpha Bank.

Economic slowdown; easing inflationary pressures

During 2023, Romania’s economy slowed sharply, registering a real GDP growth rate of just 1.8%, a slowdown from expansions of 4.7% in 2022 and 5.9% in 2021, according to the European Commission (EC).

“Economic growth is estimated to have decelerated to 1.8% in 2023, a 0.4 pps. downward revision from the Autumn Forecast” said the EC. “High inflation and anemic private credit growth constrained domestic demand in 2023, while external demand was weak. A strong increase in gross fixed capital formation spurred by EU-funded investment in public infrastructure compensated for the slowdown in private consumption and lower inventories, while the negative contribution of net exports to growth subsided.”

Before suffering a 3.7% economic contraction in 2020 due to the Covid-19 pandemic, the economy had been growing by an annual average of almost 4% from 2011 to 2019.

The Romanian economy is projected to expand by a modest 2.9% this year and by another 3.2% in 2025, based on the forecast released by the European Commission. The International Monetary Fund (IMF) is more optimistic, projecting an economic growth for Romania to exceed 3% this year.

“In 2024, the economy is projected to recover, with growth close to 3 percent, as consumption—driven by rising real wages—and external demand are strengthening,” said the IMF in a separate report. “Headline inflation is expected to return gradually to the target band by the end of 2025. However, ongoing double-digit wage increases, among other factors, can obstruct the normalization of inflation.”

Nationwide inflation stood at 7.4% in January 2024, only half the prior year’s level, according to the INS. From an annual average inflation rate of just 2.7% from 2011 to 2021, it surged to 13.8% in 2022 and remained elevated at 10.7% in 2023.

Romania GDP Growth and Inflation graph

Romania’s budget deficit was equivalent to about 5.6% of GDP in 2023, an improvement from shortfalls of 6.3% in 2022, 7.2% in 2021 and 9.3% of GDP in 2020. The country’s 2024 state budget projects a deficit equivalent to 5% of GDP this year, which remains high as compared to the EU’s ceiling of 3%.

In November 2023, government debt increased to RON 769.91 billion (€154.59 billion), according to the Ministry of Finance. This was equivalent to about 49.7% of GDP, up from 48.6% in the previous month. The country’s public debt has been below 50% of GDP even during the pandemic.

In December 2023, the seasonally-adjusted unemployment rate stood at 5.4%, unchanged from the previous month and extending its lowest level since September 2021, according to figures from the INS. From an annual average of 7.8% in 2000-2017, the jobless rate fell to 5.5% in 2018-2023.

Romania Unemployment Percentage graph

In the past seven years, the Romanian Leu (RON) depreciated moderately against the euro by less than 10%, reaching an average exchange rate of RON 4.9758 per euro in January 2024. The recent decline in the currency’s value is mainly attributed to domestic political instability, the Covid-19 pandemic, as well as the Russia-Ukraine war.

Romania Monthly Average Exchange Rate graph

Corruption remains rampant

Romania is poised between the future and the past. Does Romania want to be a modern state, in which politicians are elected on the basis of policies and are prosecuted and imprisoned for corruption? Or does it want to be a clientelist state, in which politics is about who you accept money from?

The two most prominent voices of the progressive future are President Klaus Iohannis, elected in November 2014 and re-elected in 2019, and Laura Codruta Kovesi, former head of the country’s National Anticorruption Directorate (DNA).

Iohannis was elected President on an anti-corruption platform. After Iohannis’ election, there were a series of arrests for corruption, and increased support for the DNA, which charged many politicians, media moguls, judges, and businesspeople.

Despite some small successes and improvements, corruption continues to be a problem in recent years, with Romania still ranking among the worst-performing EU countries in the 2023 Corruption Perceptions Index. According to the reports by Transparency International, Romania is currently ranked 63rd out of 180 countries for corruption, with a score of 46 out of 100 (0 being completely corrupt and 100 being clean), three notches higher as compared to its 66th rank in 2021.

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