With low interest rates and an improving economy, Romania´s housing market has grown robustly over the past year. And there´s lots of construction.
"If I want to develop residential, it is a safe bet. The good news is that banks are financing such developments with good terms, so I might have quite a high return on my investment," says Ilinca Paun, Managing Director of Colliers International.
The average selling price of apartments rose by 8.40% (8.56% inflation-adjusted) to €1,045 (US$ 1,155.98) per square metre (sq. m.) during the year to September 2016, based on figures from imobiliare.ro. On a quarterly basis, house prices rose by 2.45% (2.81% inflation-adjusted) in Q3 2016.
All major cities in Romania experienced rising house prices during the year to September 2016:
The Romanian economy grew by 3.8% in 2015, and growth of 5% is expected in 2016. In 2017, the economy will still expand but at a slower pace of 3.8%, according to the IMF.
"Both residential supply and demand are gathering steam as a result of the favourable economic outlook and the newly introduced fiscal regulations," say Knight Frank.
Romania´s new Fiscal Code was introduced on January 1, 2016. Most notably, it reduces the standard VAT rate from 24% to 20%, but also simplifies the tax collection process, to boost investment and economic growth.
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 and non-resident EU citizens can acquire land.
The country´s largest bank, Banca Comercială Română (BCR), has generating new loans worth RON 3.8 billion during the first nine months of 2016, primarily driven by the government´s "Prima Casa" (First Home) programme which since 2009 has aided first-time buyers.
Knight Frank notes that although most residential demand during the first half of 2016 came from the "Prima Casa" programme, the middle class sector is also "increasingly active". The luxury residential market is attracting investors due to average gross yields ranging from 6% to 7%. An estimated 25% of new luxury apartments are bought to rent out.
2016 has been more active than 2015, which was more active than 2014, notes Colliers International. In 2015 Colliers observed a 60% rise in new apartment absorption in its monitored projects as compared to 2014, due to rising wages and to the return of small investors to the market. Land deals rose too. "2015 marked the second post-crisis year with large residential deals closed on Bucharest land market."
Romania´s economy grew robustly from 2001 to 2008, with an average annual real GDP growth rate of 6.5%, according to the IMF. 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 economic and political reforms which had been promised as part of EU accession conditions. Corruption remained rife, largely ignored (or tolerated) by the government.
Then came the Euro-crisis. GDP plunged by 7.1% in 2009 and fell by another 0.8% in 2010:
Property prices fell by more than 56% from 2008 to 2013 due to the adverse impact of the global economic downturn and the ensuing Euro-crisis.
The National Bank of Romania (BNR) policy rate has been unchanged since May 2015, at a record low of 1.75%.
RON-denominated loan interest rates are at historic lows. In September 2016:
Euro-denominated housing loan interest rates, 48% of total outstanding housing loans, also fell. In September 2016:
In September 2016, housing loans rose 16.2% y-o-y to RON 56.67 billion (US$ 13.88 billion), according to the National Bank of Romania. From 2008 to 2015 housing loans outstanding surged by 18.1% annually.
Around 47.2% of outstanding housing loans were RON-denominated in September 2016, up from just 5.5% from 2010 to 2013. The Central Bank has shifted homebuyers´s preferences to local currency by limiting the "Prima Casa" or "First Home" programme to RON-denominated loans ("First Home" loans are almost 50% of total outstanding housing loans).
Gross rental yields for apartments in Bucharest are moderately good, ranging from 6% to 6.24%, with smaller apartments having the highest rental returns, according to the Global Property Guide research dated May 2016.
A 70 sq. m. apartment in Bucharest can be rented for around €550 (US$ 608) per month, while a 120 sq. m. apartment can be rented for just under a thousand euro per month.
Romania is a nation of homeowners, with a homeownership rate of over 80%. Government policies encourage families to buy their own houses:
In 2015, Romania´s total dwelling stock rose by 12.3% from 2000 to around 8.88 million units, according to the National Institute of Statistics (NIS).
Bucharest´s residential stock reached around 30,000 units in 2015, with over 3,000 newly built units, according to Colliers International. Some new deliveries came from multi-phase projects such as Greenfield, Cosmopolis, or Confort Urban, others from new completely developments such as Mihai Bravu Residence 3, and Plazza Residence. There were a lot of new launches in 2015, with plans to build around 7,000 new apartments over the next two years.
In 2016 residential building permits fell by 1.61% during the first three quarters to 30,047 units, but this is somewhat deceptive as total useful area permits rose by 10.52%. In 2015, the total number of residential building permits had risen by 3.82% y-o-y to 39,112 units, according to the National Institute of Statistics (NIS), and total useful area was up 9.80% y-o-y.
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. Romania has a long history of corruption and of protests against corruption.
Former Prime Minister Victor Ponta resigned in November 2015 after some 20,000 people took to the streets in protest against a Bucharest nightclub fire. On November 17, 2015, Dacian Cioloș, replacing Ponta, became Romania´s prime minister.
“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..."
Since Iohannis´ 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 September 2015, prosecutors formally indicted Ponta on corruption charges. Ciolos is expected to remain prime minister until elections at the end of 2016.
Romania suffered severely during the global financial meltdown, with real GDP contracting by 7.1% in 2009, and by another 0.8% in 2010. Centrist alliance leader Traian 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. But now, Romania´s economy is growing fast again.
In Q2 2016, Romania posted 6% y-o-y economic expansion, its highest GDP growth since Q3 2008, according to the National Institute of Statistics (NIS), beating an earlier growth forecast of 4.1%. The rise of private consumption, as a result of the tax cuts and the 25% public sector wage hikes, have powered recent growth.
Romania is predicted have the highest economic growth in Europe this year, growing by around 5% in 2016, followed by Ireland (4.9%), based on the IMF´s latest World Economic Report in October 2016. Then over the next two years the economy is expected to slightly slow, with growth rates of 3.8% and 3.3% in 2017 and 2018, respectively.
The country´s budget deficit is predicted to decline to be 2.9% of GDP in 2016. During the first nine months of 2016, Romania´s consolidated national budget had a deficit of RON 3.7 billion (US$ 896 million) (0.49% of GDP), down from a surplus of RON 6.16 billion (US$ 1.49 billion) (0.87% of GDP) in the same period last year, according to the finance ministry.
In September 2016, Romania´s unemployment rate was 5.9%, significantly down from 6.9% in the same period last year, according to the NIS.
The country´s annual inflation was -0.6% in September 2016, according to the NIS. In 2015, inflation was also at -0.6%, a decline from 1.1% in 2014. This was also a sharp drop from 4% inflation in 2013, 3.3% in 2012, 5.8% in 2011, and 6.1% in 2010, according to the IMF.
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