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Last Updated: Nov 06, 2015

Romania has a long history of corruption and of protests against corruption, and Prime Minister Victor Ponta, who himself faces trial for corruption, has just resigned after some 20,000 people took to the streets in protest against a Bucharest nightclub fire.  But is this "same old, same old"?

Maybe not.  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.  Highly critical of Ponta, he is vocal about the need to curb Romania's endemic corruption.

“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..."

This potential sea-change in politics has coincided, largely by chance, with an economic upturn.

The Romanian economy is expected to grow 3.4% this year and by 3.9% in 2016, according to the IMF. Romania’s economy grew by 2.8% last year, after GDP growth of 3.4% in 2013.

“Romania is one of the CEE countries with the most notable growth rate in investment volumes and evidence of a shift in investor sentiment towards the country,” said Damian Harrington of Colliers International, Eastern Europe.

Romania’s housing market is growing strongly, with low interest rates and improving economic conditions. House prices are rising robustly. Demand is picking up. Residential construction activity is improving.

All the country's major cities saw an increase in house prices during the year to end-Q3 2015:
  • In Bucharest, the capital, the average selling price of apartments rose by 3% to €1,086 per sq. m.
  • In Cluj-Napoca, Romania’s second most populous city, apartment price soared by 12.4% to an average of €1,124 per sq. m.
  • In Timisoara, the average selling price of apartments surged by 10.8% to €923 per sq. m.
  • In Brasov, the average selling price of apartments rose by 2.5%, to an average of €861 per sq. m.
  • In Constanta, the country’s oldest city, apartment prices rose by 7.2% to an average of €907 per sq. m.

Cluj-Napoca's double-digit house price increases are due to strong demand from working residents, expatriates, and students. The city is becoming Romania's manufacturing and economic hub, and is home to the country’s largest university.

Romania house pricesThe average national selling price of apartments increased by 5.7% during the year to end-Q3 2015, to €964 per square meter (sq. m.), the highest increase in almost a decade, based on figures released by real estate firm On a quarterly basis, house prices rose by 3.2% in Q3 2015.

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

Analysis of Romania Residential Property Market »

Last Updated: May 28, 2015

The gross rental yield for apartments in Bucharest ranges from 6% to 6.6%, with medium-sized apartments fetching the highest rental returns.

Medium-sized but well-refurbished apartments in Bucharest, Romania’s capital city, cost less, per square metre (sq. m.) than larger apartments. A 120 sq. m. apartment costs around EUR 1,680 per sq. m. while a 200 sq. m. apartment costs around EUR 2,300 per sq. m.

This largely explains the difference in returns. Smaller apartments are less expensive to buy, per sq. m. - though it seems to us that the difference has narrowed over the past year.

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.

Rents on apartments in Bucharest range from EUR 7.69 per sq. m. to EUR 11.28 per sq. m. per month. One can rent a 75 sq. m. apartment for about EUR 530 per month.

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

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.

Read Rental Yields  »

Last Updated: Jun 11, 2015

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 0.50% depending on the value of the inheritance.

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

Read Taxes and Costs  »

Last Updated: Jun 12, 2015

Roundtrip transaction costs, i.e. the total cost of buying and selling a property, are around 7.44% to 16.20% 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  »

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  »

Last Updated: Nov 06, 2015

The economic outlook is good

Romania gdp inflationRomania (GDP/cap US$9,981 in 2014, population almost 20 million) is the country with the highest poverty levels in the EU. More than 30% of the population live on less than $5 per day.

Yet there is much good news. The economy is back on track, and is expected to expand by 3.4% this year, and by another 3.9% in 2016, according to the IMF.

The country’s budget deficit is projected to fall to 1.86% of GDP this year, from 2.2% of GDP in 2014. In September 2015, Romania’s national budget recorded a surplus of €1.3 billion (0.87% of GDP), up from a surplus of just €90 million (0.06% of GDP) in the same period last year.

Unemployment stood at 6.8% in September 2015, unchanged over the past six months, but slightly up from 6.7% in the same period last year, according to the NIS.

Inflation was -1.5% in September 2015. Inflation slowed sharply to about 1.45% in 2014, from 4% in 2013, 3.3% in 2012, 5.8% in 2011, and 6.1% in 2010, according to the IMF.

Political tension remains, amidst anti-corruption drive

Romania was under communist rule for almost four decades after the end of the World War II. The communist rule finally ended when Nicolae Ceausescu was executed in 1989.

A centrist government came to power in 1996, finally ending the dominance of the ex-communists. However, political tension hindered the centrist government's attempts at economic reform. In 2000, the left returned to power when Ion Iliescu was re-elected as president, but he also failed to initiate sufficient reforms to spur investment and fight the serious problem of corruption.

Centrist alliance leader Traian Basescu, elected president of Romania in November 2004, vowed to speed up EU-oriented reforms. The country joined NATO in late March 2004, and joined the EU in January 2007.   Yet despite Basescu's re-election in 2009, corruption remained a key issue.

Romania suffered severely during the global financial meltdown, with real GDP contracting by 7.1% in 2009, and by another 0.8% in 2010.   Basescu's imposition of austerity response to the crisis made conditions intolerable for many, resulting in many demonstrations and the collapse of his popularity. Real GDP grew by a meagre 1.1% in 2011.  In 2012 economic growth slowed sharply to just 0.6%.

In 2012, 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.

Thousands of laid-off workers took to the streets in protest against mass layoffs, and generally the country has been in ferment.

Somewhat of a cross-current to the anti-austerity demonstrations was an explosion of outrage against corruption targeting principally the beneficiaries of the anti-austerity protests, Ponta's Social Democratic Party (PSD).  In December 2013 public outrage was caused by MPs passing a new Penal Code giving themselves exemption from prosecution, primarily pushed by Ponta's PSD. The outrage was compounded in August 2014 by a law making it legal for MPs to switch parties ("Black Thursday"). 

The power struggle between PM Ponta and President Traian Basescu, known as the "War of the Palaces", sapped foreign investors’ confidence, and boosted borrowing costs.

In December 2014 Iohannis became president, the first ethnic German president of Romania.  Since his 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 June 2015, prosecutors questioned Ponta on suspicion of forgery, tax evasion and money laundering, prompting President Iohannis to demand his resignation.  In September 2015, prosecutors formally indicted Ponta on corruption charges.

  • 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
Price (sq.m): €1,537 For a 120 sq. m. property, usually an apartment.
Rental Yield: 7.76% For a 120 sq. m. property, usually an apartment.
Rent/month: €1,193 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: 9.55% 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.

Baltic Investment Market 2015 - Newsec
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