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Last Updated: Sep 09, 2013

Romania's housing market remains depressed



After four years of severe house price declines, Romania’s housing market is still in deep trouble, despite its slowly improving economy.

The average selling price of apartments plunged 5.89% during the year to end-August 2013, to €910 per square meter (sq. m.), based on figures released by real estate firm imobiliare.ro. House prices dropped 3% quarter-on-quarter during August 2013.

During the year to August 2013:
  • In Bucharest, the capital, the average selling price of apartments dropped 6.6% to €1,054 per sq. m.
  • In Brasov, the average selling price of apartments fell 4.2%, to an average of €814 per sq. m.
  • In Timisoara, the average selling price of apartments increased 1.5% to €802 per sq. m.
  • In Constanta, the country’s oldest city, apartment prices rose by 0.6% to an average of €869 per sq. m.
  • In Cluj-Napoca, Romania’s second most populous city, apartment price increased 0.1% to €904 per sq. m.

From 2002 to early-2007, property prices and demand rose in anticipation of EU accession, which took place in January 2007. But investors were disappointed by non-implementation of promised economic and political reforms. Corruption is rife, and largely ignored (or tolerated) by the government.

Then came the Euro-crisis:
  • In 2009, house prices plunged by 20.62% (-24.22% inflation-adjusted) from a year earlier.
  • In 2010, house prices fell by 15.88% (-22.08% inflation-adjusted) from a year earlier.
  • In 2011, house prices dropped again by 4.07% (-6.99% inflation-adjusted) from the previous year.
  • In 2012, house prices fell by 1.31% (-5.96%) from a year earlier.

The construction sector remains depressed. In June 2013, the total number of residential building permits dropped by 7.6% to 3,564 units from the same period last year, according to the National Institute of Statistics (NIS). Likewise, the total useful area of residential building permits plunged by 15.8% to 629,364 sq. m. over the same period.

In 2012, the country’s total dwelling stock increased by 7.6% to about 8.5 million housing units from 2000, according to the NIS.

Romania’s housing market is expected to remain down for the rest of 2013, according to local real estate experts. House prices are projected to continue falling, albeit at a slower pace.

Romania house pricesThere 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 can acquire land, and non-resident EU citizens will be able to own land starting 2012.

The policy interest rate was cut by 50 basis points to 4.5% in August 2013 by the National Bank of Romania (BNR), in an effort to buoy the economy.

Romania’s economy expanded by 0.5% quarter-on-quarter and 1.5% year-on-year in Q2 2013. The economy is expected to grow by 1.6% for the whole year of 2013, after annual growth rates of 0.3% in 2012 and 2.2% in 2011 and declines of 1.1% in 2010 and 6.6% in 2009, according to the International Monetary Fund (IMF).




RENTAL YIELDS
Last Updated: May 21, 2013



Old but well-refurbished, small apartments in Bucharest, Romania’s capital city, cost less, per square metre (sq. m.) than larger apartments. A 50 sq. m. apartment costs around EUR1,650 per sq. m. while a 120 sq. m. apartment costs around EUR 3,190 per sq. m.

We 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, he buys only 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, according to Ilias Papageorgiadis, CEO of MORE Real Estate Services and author of the blog 190

Rents on apartments in Bucharest range from EUR9.94 per sq. m. to EUR12.49 per sq. m. per month. One can rent a 50 sq. m. apartment for about EUR500 per month.

The gross rental yield for apartments in Bucharest range from 4.69% to 7.30%, with small apartments fetching the highest rental returns.

The apartments included in the survey are located in the prime residential areas of Aviatiei, Aviatorilor, Baneasa, Calea Victoriei, Cotroceni, Domenii, Dorobanti, Floreasca, Kiseleff, Primaverii, Pipera and Scoala Herastrau.

Read Rental Yields  »



TAXES AND COSTS
Last Updated: Mar 20, 2013



Rental Income: Net rental income earned by nonresidents is taxed at a flat rate of 16%.

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 0.5% depending on the value of the inheritance.

Residents: Residents are taxed on their worldwide income. Residents may deduct personal allowances and allowances for dependents.

Read Taxes and Costs  »



BUYING GUIDE
Last Updated: Mar 20, 2013



Roundtrip transaction costs, i.e. the total cost of buying and selling a property, are around 7% to 12% of property value. The greatest cost is the real estate agent’s commission of 6%, half paid by the seller and the other half by the buyer. Stamp duty can reach up to 3%.

Read Buying Guide  »



LANDLORD AND TENANT
Last Updated: Jul 20, 2006



Rent: Rents can be freely negotiated. Progressive annual increases can be stipulated in the lease contract.

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.

Read Landlord and Tenant  »



ECONOMIC GROWTH
Last Updated: Sep 09, 2013


Romanian economy improving slowly

Romania gdp inflationRomania (GDP/cap US$7,935 in 2012) has a total population of 21.35 million. The country joined NATO in late March 2004, and joined the EU in January 2007.

Romania’s economy is expected to grow by 1.6% for the whole year of 2013 and by another 2% in 2014, according to the International Monetary Fund (IMF).

Last year, the country went through three governments. Prime Minister Victor Ponta replaced Mihai-Razvan Ungureanu, who in February 2012 had 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.

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 1.1% in 2010.

Real GDP grew by 2.2% in 2011, fuelled by an expansion in agriculture (up by 11.3%) and the industrial sector (up by 5%).  However in 2012, economic growth slowed sharply, with a real GDP growth rate of just 0.3%, mainly due to the adverse impact of the eurozone debt crisis.

The country’s ESA budget deficit is projected at 2.4% of GDP this year, down significantly from 2.9% of GDP in 2012. The deficit is expected to shrink further to 2% of GDP in 2015.

The nationwide unemployment rate stabilized at 7.5% in July 2013, unchanged from the previous month.

The policy interest rate was cut by 50 basis points to 4.5% in August 2013 by the National Bank of Romania (BNR), in an effort to buoy the economy.

Inflation fell to 4.4% in July 2013, down from 5.4% the previous month, according to the National Statistics Board.  The country’s inflation rate is expected to slide to 3% in 2014, according to the IMF.






  • Moderate yields in Bucharest
  • Pro-landlord rental market
  • Low to moderate transaction costs
  • Foreigners cant buy land
  • High inflation rate
  • Property is expensive relative to GDP
RESIDENTIAL PROPERTY FACTS
Price (sq.m): €2,371 For a 120 sq. m. property, usually an apartment.
Rental Yield: 6.09% For a 120 sq. m. property, usually an apartment.
Rent/month: €1,444 For a 120 sq. m. property.
Income Tax: 12.00% Assumptions: Owners are a non-resident couple drawing US$ / €1,500 per month in rent, with no other local income.
Roundtrip Cost: 7.58% The total cost of buying and then reselling an apartment. Includes:

* all transaction taxes and charges:
* lawyers' and notaries' fees
* agents' fees

Assumptions: The buyers are non-resident foreigners. The apartment cost US$250,00 / €250,000.
Cap Gains Tax: n.a. Assumptions: The property was bought for US$250,000 / €250,000, and sold 10 years later, after a 100% appreciation.
Landlord and Tenant Law: Pro-Landlord Rating is based on a detailed study of each country’s law and practice.

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