Romania's Real Estate Market and Price Analysis
Lalaine C. Delmendo | January 20, 2022
Property prices in Romania are rising
Both the European Commission and the International Monetary Fund (IMF) predicted that Romania’s economy would grow strongly by 7% in 2021, fully offsetting the 3.9% decline seen during 2020 amidst the coronavirus pandemic. In fact, Romania’s economy grew by 5.9%.
However, in 2022, the expected growth is only 2.9% according to the World Bank, due to the uncertainty caused by the war.
Due to the economic growth, yet despite the unstable situation, property prices in Romania are rising rapidly, amidst the country’s strong economic rebound.
In November 2021, the average selling price of apartments in Romania soared 14.8% y-o-y (7.56% inflation-adjusted) to €1,551 (US$ 1,764) per square metre (sq. m), a sharp acceleration from an annual growth of 2.35% in November 2020, based on figures from imobiliare.ro.
All major cities in the country saw accelerating property price growth during the year to November 2021:
- In Bucharest the average selling price of apartments rose by 13.9% (6.7% inflation-adjusted) y-o-y to €1,594 (US$ 1,813) per sq. m, following a minuscule growth of 0.85% during 2020.
- Brasov saw the biggest y-o-y increase in apartment prices of 17.4% (10% inflation-adjusted) to an average of €1,445 (US$1,643) per sq. m, a strong acceleration from an increase of 4.9% during 2020.
- In Cluj-Napoca, Romania’s fourth most populous city, apartment prices rose by 11.5% (4.4% inflation-adjusted) y-o-y to an average of €2,051 (US$2,333) per sq. m, up from a growth of 7.5% in 2020.
- In Constanta, the country’s oldest city, apartment prices rose by 10.5% (3.5% inflation-adjusted) to €1,384 (US$1,574) per sq. m, sharply up from an increase of 2.5% during 2020.
- In Timisoara,the average selling price of apartments went up by 6% (-0.7% inflation-adjusted) to €1,364 (US$1,551) per sq. m, following a slight growth of 1.5% in 2020.
“The fact that the local residential market managed to register 12 months of sustained increase in housing prices, in spite of the COVID-19 epidemic, proves that it capitalizes on the population’s solid demand,” said real estate intelligence platform Analize Imobiliare.
Residential construction is also increasing again. In the first ten months of 2021, the total number of residential building permits in Romania rose strongly by 25.3% from a year earlier to 43,374, according to the National Institute of Statistics (INS) – after falling by 2.9% in 2020 and 0.4% in 2019. Likewise, the area of residential building permits issued increased 14.1% y-o-y to 10.09 million sq. m in Jan-Oct 2021.
Residential sales transactions surging
In Q3 2021, the total number of real estate transactions in Romania soared 31% y-o-y to about 186,000 units, following growth of 11.6% during the whole year of 2020, according to the National Agency for Cadastre and Land Registration (NACLR).
Yet in Romania’s six biggest cities, demand for residential dwellings has been more or less steady. In Q3 2021, about 152,200 potential buyers searched for housing in the country’s major regional centres, up 0.4% from the previous quarter but down 1% a year earlier, according to the real estate intelligence platform Analize Imobiliare.
Over the same period (figures from Analize Imobiliare):
- In Bucharest, demand for houses and apartments was 85,500 units, down 2.8% q-o-q but unchanged from a year ago.
- In Timisoara, demand stood at 14,600 units, up 1.4% q-o-q but down 5% y-o-y.
- In Brasov, demand was 13,700 units, up 5.4% q-o-q but unchanged from a year earlier.
- In Cluj-Napoca, demand was 13,500 units, up 5.5% q-o-q and 3% y-o-y.
- In Constanta, total demand was 12,800 units, down 0.4% q-o-q and by 12% y-o-y.
- In Iasi, demand was 12,200 units, up 14.7% q-o-q but down 2% y-o-y.
The number of residential constructions rising again
In the first ten months of 2021, the total number of residential building permits in Romania rose strongly by 25.3% from a year earlier to 43,374, according to the National Institute of Statistics (INS) – after falling by 2.9% in 2020 and 0.4% in 2019. Likewise, the total area of residential building permits issued increased 14.1% y-o-y to 10.09 million sq. m in Jan-Oct 2021.
- Bucharest-Ilfov saw the biggest y-o-y rise in residential building permits of 46.5% y-o-y to 5,669 units in the first ten months of 2021.
- In the Southeast, permits rose by 16% y-o-y to 4,625 units.
- At the Central region, permits rose strongly by 31% y-o-y to 4,059 units.
- In Southwest Oltenia, permits increased 24.1% y-o-y to 3,363 units.
- In the Northwest, permits were up by 16.6% y-o-y to 6,538 units.
- In the Northeast, permits rose by 16.6% y-o-y to 7,890 units.
- In South Muntenia, permits surged 30.7% y-o-y to 6,903 units.
During 2020, dwelling completions increased slightly by 0.5% to 67,816 units, following annual rises of 13% in 2019, 11.9% in 2018, 2.2% in 2017 and 11.1% in 2016, according to the INS.
Dwelling stock stood at 9.16 million in 2020, up slightly by 0.7% from a year earlier.
Key rate rising, but mortgage rates continue to fall
The National Bank of Romania (NBR) raised its policy rate by 25 basis points to 1.75% in November 2021, amidst increasing inflationary pressures. The deposit facility rate was kept at 1% while the lending facility rate was raised by 50 basis points to 2.5%.
Despite this, mortgage rates continue to fall.
Interest rates on new RON-denominated housing loans:
- Floating rate and up to 1 year initial rate fixation (IRF): 3.57% in November 2021, down from 4.81% a year ago.
- Over 1 and up to 5 years IRF: 4.12%, down from 5.27% a year earlier.
- Over 5 and up to 10 years IRF: 4.26%, slightly up from 4.18% a year earlier.
- Over 10 years IRF: 3.84% in November 2021, down from last year’s 4.9%.
For outstanding loans:
- Up to 1 year maturity: 4.61% in November 2021, slightly down from 4.64% a year ago.
- Over 1 and up to 5 years maturity: 4.2%, down from 4.99% a year ago.
- Over 5 years maturity: 4.19%, down from last year’s 4.77%.
For euro-denominated loans, the average interest rate for those with 1-5 years maturity was 3.3% in November 2021, sharply down from 4.27% a year earlier and 5.42% two years ago, according to the BNR. Likewise, interest rates for loans with over 5 years maturity fell slightly to 3.54% from 3.65% a year ago.
Almost 81% of outstanding housing loans were RON-denominated in November 2021, up from 76% a year earlier and a huge increase from just 5.5% from 2010 to 2013. Euro-denominated loans accounted for 17.8% of outstanding housing loans in November 2021. The Central Bank has shifted homebuyers’ preferences to local currency by limiting the “Prima Casa” and “Noua Casa” programmes to RON-denominated loans.
The mortgage market continues to grow
Romania’s mortgage market remains small by international standards, at just about 8.4% of GDP in 2021. However, from 2008 to 2021 housing loans outstanding have grown by 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 and 9.9% in 2020.
And despite the coronavirus crisis, housing loans outstanding increased 13.1% y-o-y to RON 99.74 billion (US$ 22.84 billion) in November 2021, according to the National Bank of Romania.
The mortgage market’s strong growth has been buoyed by the government’s “Prima Casa” (First Home) programme, launched in May 2009, which was recently replaced by the “Noua Casa” (New House”) programme. The “Noua Casa” programme supports first home purchasers who have previously not had a mortgage.
The maximum amount of loan that can be granted under the “Noua casa” programme for 2021 is EUR 66,500. For new houses priced below EUR 70,000, the minimum downpayment is 5% while for houses priced between EUR 70,000 and EUR 140,000, a downpayment of at least 15% is required. 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 EUR 70,000, and 60% of the amount borrowed for loans between EUR70,000 and EUR140,000. 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.
In 2021, the Noua Casa programme received a budget of about RON 1.5 billion (US$343.25 million) – an amount that could benefit 18,000 beneficiaries – in an effort to boost mortgage lending, especially to young families wanting to buy their first property. It was implemented through fifteen banks: 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..
Romania’s economy recovering; inflation soaring
In Q3 2021, Romania’s economy grew by 7.4% from a year earlier, following a y-o-y expansion of 13.9% in Q2 and a slight contraction of 0.2% in Q1. As a result, both the European Commission and the International Monetary Fund (IMF) projected Romania’s economy to grow strongly by 7% in 2021, fully offsetting the 3.9% decline seen during 2020 amidst the coronavirus pandemic. However, in 2021, Romania’s economic growth was 5.9%.
The economy grew by an annual average of almost 4% from 2011 to 2019.
Romania’s budget deficit surged to 9.4% of GDP in 2020 – a sharp increase from a shortfall of 4.4% of GDP in 2019 and the biggest deficit in the country’s recent history. The deficit was expected to fall slightly to 8% of GDP in 2021 and to 6.9% in 2022, according to the European Commission. Public debt was projected to increase further to about 49.3% of GDP in 2021, from 47.4% in 2020 and just 35.3% in 2019.
In October 2021, the seasonally-adjusted unemployment rate was 5.3%, unchanged from a year earlier, according to INS. Inflation soared to 7.94% in October 2021, far from the average of 2.8% in 2010-2020 and the highest level recorded in over a decade.
In the past two years, the Romanian Leu (RON) depreciated again against the euro by 3.5%, reaching an average exchange rate of RON 4.9506 per euro. The recent decline in the currency’s value is mainly attributed to domestic political instability and the continued fears on the global financial markets caused by the pandemic.
Political uncertainty: widespread corruption
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 2022, with Romania still ranking among the worst-performing EU countries in the 2021 Corruption Perceptions Index.
According to the reports by Transparency International, Romania is currently ranked 70th out of 180 countries for corruption, with a score of 44 out of 100 (0 being completely corrupt and 100 being clean).
- Real estate index (imobiliare.ro): https://www.imobiliare.ro/indicele-imobiliare-ro
- Dwellings (National Institute of Statistics): http://statistici.insse.ro:8077/tempo-online/#/pages/tables/insse-table
- Romanian Residential Market Report Q3 2021 (imobiliare.ro): https://www.analizeimobiliare.ro/wp-content/uploads/2021/11/report_q3_2021.pdf
- Moderate to good rental yields in Bucharest, Romania (Global Property Guide): https://www.globalpropertyguide.com/Europe/Romania/Rental-Yields
- Romania Home Ownership Rate (Trading Economics): https://tradingeconomics.com/romania/home-ownership-rate
- NBR Board decisions on monetary policy (National Bank of Romania): https://www.bnr.ro/page.aspx?prid=20137
- Deposits and credits by institutional sectors - Credits by institutional sectors (National Bank of Romania): https://www.bnr.ro/Statistics-report-1124.aspx
- First time home-buyer program “Noua Casa” officially on the market: a review of banks offers and of much these credits really cost (Economedia.ro): https://economedia.ro/first-time-home-buyer-program-noua-casa-officially-on-the-market-an-review-of-banks-offers-and-of-much-these-credits-really-cost.html#.Yc79jxNBxQI
- Economic forecast for Romania (European Commission): https://ec.europa.eu/info/business-economy-euro/economic-performance-and-forecasts/economic-performance-country/romania/economic-forecast-romania_en
- EU Commission lowers Romania´s 2021 economic growth f´cast to 7% (SeeNews): https://seenews.com/news/eu-commission-lowers-romanias-2021-economic-growth-fcast-to-7-760875
- Romania At a Glance (International Monetary Fund): https://www.imf.org/en/Countries/ROU
- Romania country profile (BBC News): https://www.bbc.co.uk/news/world-europe-17776265
- Romanian PM Ludovic Orban resigns after poor election result (BBC News): https://www.bbc.com/news/world-europe-55222276
- Romanian parliament elects Nicolae Ciucă as prime minister (Politico): https://www.politico.eu/article/nicolae-ciuca-romania-prime-minister-national-liberal-party-social-democratic-party/
- Romanian Prime Minister Florin Citu toppled in confidence vote (DW): https://www.dw.com/en/romanian-prime-minister-florin-citu-toppled-in-confidence-vote/a-59411189
- Romanian property market rising fast; yields still good - December 02, 2016
- Another East European sizzler - Romania’s housing market is heating up strongly, despite the political crisis - November 06, 2015