Romania: Overview

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Last Updated: May 11, 2007

Significant house price growth in Romania

Property prices in Romania increased by an average of 8% to 10% in 2006. In some parts of Bucharest, the increases were much higher, with rates of return on investments among the highest in Europe.

The continued house price increases are attributable to increasing political stability, strong economic growth, increasing demand for housing, and the country’s accession to the European Union in January.

Foreign buying has been enormously important in pushing up house prices, as Romanian property is a significant bargain in trans-European terms, and Romania has become bracketed alongside Bulgaria as the land of opportunity for British and other foreign buyers.

The average selling price for apartments in the centre of Bucharest is around €1,667 to €2,300 per square meter (sq. m.), according to Global Property Guide research conducted in December 2006. Houses with grounds can be had less expensively, for around €1,100 to €1,500 per sq. m. But of course the foreigners are less interested in Bucharest, than in Romania’s beautiful countryside, where prices may be very significantly lower.

In addition, Romanian interest rates are falling rapidly. Lending rates were 45.74% per annum as recently as 2001. Now lending rates are down to 13.4% per annum.

There are no restrictions on foreign nationals acquiring dwellings, but foreign nationals cannot buy land. Despite Romania’s membership of the EU that restriction has not been lifted.

RENTAL YIELDS

Yields are high in Bucharest

Yields are generally high in Bucharest. Apartments in central Bucharest have yields of around 7.80% to 8.40%. Within the suburbs of Bucharest, yields are actually higher, at 8.10% to 10.60%.

Houses with grounds have yields of around 9.80% to 10.30%. A 350 sq. m. house can cost around €430,000 and rent for €3,500 a month.

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TAXES AND COSTS

Rental income tax is moderate

Effective Tax Rate on Rental Income
Monthly Income	€1,500	€6,000	€12,000
Tax Rate	12%	12%	12%
Click here to see a worked example
Source: Disclaimer

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

Capital Gains: No capital gains tax is levied on individuals pertaining to their earnings from sales of real estate properties.

Inheritance: Inheritance tax is imposed at regressive rates from 3% to 0.5% depending on the value of the inheritance.

Residents: Residents qualify for personal allowances amounting to RON200 (€57) per each month of the taxable period.

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BUYING GUIDE

Buying costs are moderate in Romania

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%.

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LANDLORD AND TENANT

Romanian law is pro-landlord

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.

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ECONOMIC GROWTH

EU accession in 2007

The largest of the Balkan countries, with a population of 22.2 million, Romania is one of the poorest countries in Europe (GDP/cap US$5,255). Romania joined NATO in 2004, and the EU on 1 January 2007.

Romania’s real GDP increased by 7.7% in 2006, according to the National Statistical Institute. Romania's average 6.05% real per capita GDP growth over the past five years makes it one of Europe's fastest-growing economies.

But economic growth has not ended widespread poverty, whilst corruption and bureaucracy still hinder business activities. Nevertheless, things are improving. Registered unemployment has dropped from 8.8% million in 2001, to 5.2 in December 2006.

RESIDENTIAL PROPERTY AROUND THE WORLD

Europe
UK house prices softening

Asia & Pacific
Bubble fears prompt foreign ownership limits in China

America & Caribbean
The slowdown of the U.S. housing market

Middle East and Africa
Bahrain is open to foreigners and sizzling hot

High yields in Bucharest
Pro-landlord rental market
Low to moderate transaction costs

Foreigners cant buy land
High inflation rate

RESIDENTIAL PROPERTY FACTS
Price (sq.m): €2,350 For a 120 sq. m. property, usually an apartment.	Rental Yield: 8.17% For a 120 sq. m. property, usually an apartment.
Rent/month: €1,920 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: 7.6% 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: 0.0 Assumptions: The property was bought for US$250,000 / €250,000, and sold 10 years later, after a 100% appreciation.
Landlord & Tenant Law: Pro-Landlord Rating is based on a detailed study of each country’s law and practice.