Romania’s house prices rising, buoyed by strong demand

Romania’s housing market proves to be resilient, despite rapidly rising interest rates and high inflation, coupled with a sluggish economy. House prices continue to rise, amidst robust demand and falling construction activity.

In January 2024, the average selling price of apartments in the country rose by 6.49% y-o-y to €1,510 per square meter (sq. m), based on figures from imobiliare.ro. However, when adjusted for inflation, nationwide apartment prices dropped slightly by 0.86% over the same period. The huge gap between nominal and real figures is mainly due to high inflation.

All major cities in the country saw an increase in residential property prices during the year to January 2024:

• In Bucharest, the capital city, the average selling price of apartments rose by 5.35% (but fell by 1.92% inflation-adjusted) y-o-y to €1,634 per sq. m, its best showing since September 2022.
• In Cluj-Napoca, Romania’s second most populous city, apartment prices were up by 10.18% (2.58% inflation-adjusted) y-o-y to an average of €2,640 per sq. m.
• In Brasov, apartment prices rose strongly by 14.09% (6.21% inflation-adjusted) to an average of €1,790 per sq. m.
• In Constanta, the country’s oldest city, apartment prices rose by 6.82% (dropped slightly by 0.55% inflation-adjusted) y-o-y to an average of €1,581 per sq. m.
• In Timisoara, the average selling price of apartments went up by a modest 4.12% (but fell by 3.07% inflation-adjusted) y-o-y to €1,518 per sq. m.
• In Iași, Romania’s third most populous city, apartment prices rose by 8.8% (1.3% inflation-adjusted) y-o-y to an average of €1,508 per sq. m in January 2024.

Romania’s house price annual change

Demand for residential dwellings remains robust despite rising interest rates. In Q4 2023, about 84,000 houses, land plots, and apartments were sold in the country, up by 6.3% from 79,000 sales in the same quarter last year, according to Analize Imobiliare’s Q4 2023 report. In Bucharest, however, which accounted for more than 46% of total sales, residential property transactions fell by 2.5% y-o-y to 38,870 units in Q4 2023.

Residential construction activity is plunging, causing supply to be limited which adds upward pressure on house prices. During 2023, the total number of residential building permits in the country fell sharply by 20.6% y-o-y to 34,646 units, after falling by 14.9% in 2022 and rising by 24.1% in 2021. All regions saw sharp declines in residential building permits.

Romania’s economy slowed during 2023, registering a real GDP growth rate of just 1.8%, a slowdown from expansions of 4.7% in 2022 and 5.9% in 2021, according to the European Commission (EC). Before suffering a 3.7% economic contraction in 2020 due to the Covid-19 pandemic, the economy had been growing by an annual average of almost 4% from 2011 to 2019.

The overall economy is projected to expand by a modest 2.9% this year and by another 3.2% in 2025, based on the forecast released by the European Commission. The International Monetary Fund (IMF) is more optimistic, projecting economic growth for Romania to exceed 3% this year.

Property sales in Romania increasing, except in Bucharest

In Romania’s six biggest cities, demand for residential dwellings remains stable. In Q4 2023, about 84,000 units were sold, up by 6.3% from 79,000 sales in the same quarter last year, according to Analize Imobiliare’s Q4 2023 report.

However, there were wide variations in demand in Romania’s major cities (figures from Analize Imobiliare):

• In Bucharest, which accounted for more than 46% of total sales, residential property transactions fell by 2.5% y-o-y to 38,870 units in Q4 2023.
• In Brasov, sales transactions were up by 11.7% y-o-y to reach 11,509 units in Q4 2023.
• In Timisoara, sales stood at 9,089 units, up strongly by 15.2% from a year earlier.
• In Cluj-Napoca, residential property sales reached 8,663 units in Q4 2023, up by 10.1% from the previous year.
• In Constanta, there were 8,014 units sold in Q4 2023, up by 12.7% from the same period in the prior year.
• In Iasi, sales soared by 36.8% y-o-y to 7,841 units in Q4 2023.

Moderate to good rental yields

Romania’s gross rental yields are moderate to good, averaging 6.16% in Q3 2023, according to a Global Property Guide research conducted in August 2023.

In Bucharest, apartments offer rental yields ranging from 4.03% to 8.98%, with the city average slightly higher than the national average, at 6.36% in Q3 2023. In other major cities:

• Cluj-Napoca produces rental yields ranging from 5.34% to 8.41%, with a city average of 6.46%.
• Timisoara can produce about 5.34% to 8.41% returns, with a city average of 6.46%.
• Craiova’s gross rental yields range from 5.1% to 6.95%, with a city average of 5.96%.
• In Galati, rental yields are higher at around 6.86% to 8%, with a city average of 7.54%.
• In Iași, apartments produce rental yields ranging from 6.38% to 7.11%, with a city average of 6.67%.
• Brasov’s apartment rental yields range from 5.93% to 7.92%, with a city average of 6.74%.
• Constanţa offers high rental returns ranging from 7.68% to 9.29%, with a city average of 8.18%.

Residential construction activity falling rapidly

During 2023, the total number of residential building permits in Romania fell sharply by 20.6% to 34,646 units as compared to a year ago, according to the National Institute of Statistics (INS) – after falling by 14.9% in 2022 and rising by 24.1% in 2021. Likewise, the total area of residential building permits dropped 23.9% y-o-y to 8.7 million sq. m. last year.

All regions saw sharp declines in residential building permits.

• Bucharest-Ilfov saw the biggest y-o-y fall in residential building permits of 31.2% y-o-y to 3,627 units during 2023.
• In the Southeast, permits dropped 21% y-o-y to 3,835 units over the same period.
• In the Central region, permits fell by 11% y-o-y to 3,672 units.
• In Southwest Oltenia, permits fell by 21.8% y-o-y to 2,681 units.
• In the Northwest, permits were down by 21.5% y-o-y to 5,488 units.
• In the Northeast, permits dropped 12.9% y-o-y to 6,877 units.
• In South Muntenia, permits declined by 22.9% y-o-y to 5,306 units.

Dwelling completions increased by a modest 2.7% y-o-y to 73,338 units in 2022 (the latest figure available), following annual rises of 5.3% in 2021, 0.5% in 2020, 13% in 2019, 11.9% in 2018, 2.2% in 2017, and 11.1% in 2016, according to the INS.

Dwelling stock reached nearly 9.7 million units in 2022, up slightly by 0.7% from a year earlier.

Mortgage interest rates remain high

In its February 2024 meeting, the National Bank of Romania (NBR) kept its policy rate unchanged at 7%, where it remained since January 2023. Before that, the central bank raised the key rate by a cumulative 600 basis points since the start of its tightening cycle in October 2021, in an effort to rein in inflationary pressures.

The deposit facility rate also remained unchanged at 6% and the lending (Lombard) facility rate at 8%. Moreover, the central bank decided to keep the existing levels of minimum reserve requirements on both domestic and foreign currency-denominated liabilities of credit institutions.

“The NBR Board decisions aim to bring the annual inflation rate back in line with the 2.5 percent ±1 percentage point flat target on a lasting basis, inter alia by anchoring inflation expectations over the medium term, in a manner conducive to achieving sustainable economic growth,” said NBR in its press release. “At the current juncture, the balanced macroeconomic policy mix and the implementation of structural reforms, also by using EU funds to foster the growth potential over the long term, are of the essence in preserving a stable macroeconomic framework and strengthening the capacity of the Romanian economy to withstand adverse developments.”

As such, mortgage interest rates remain high, following the level of key interest rates.

Interest rates on new RON-denominated housing loans:

• Floating rate and up to 1-year initial rate fixation (IRF): 7.55% in December 2023, up from 7.29% a year ago and sharply higher than the 3.56% two years earlier.
• Over 1 and up to 5 years IRF: 6.33% in December 2023, down from 7.1% in the previous year but up from 4.12% two years ago.
• Over 5 and up to 10 years IRF: 6.55% in August 2023, up from 5.81% a year earlier and 4.4% two years ago.
• Over 10 years IRF: 6.98% in December 2023, up from 6.4% in the previous year and 3.71% two years ago.

The interest rates for outstanding housing loans, by maturity:

• Up to 1-year maturity: 9.22% in June 2023, sharply up from 7.11% a year ago and 4.1% two years earlier.
• Over 1 and up to 5 years maturity: 7.04% in December 2023, up from 6.15% in December 2022 and 4.2% in December 2021.
• Over 5 years maturity: 7.83% in December 2023, higher than the 7.53% in the previous year and 4.34% two years ago.

For euro-denominated housing loans, the average interest rate for those with 1-5 years maturity was 6.81% in December 2023, up from just 4.37% a year earlier and 3.31% two years ago, based on figures from the BNR. Likewise, interest rates for housing loans with over 5 years of maturity increased to 7.9%, from 5.53% a year ago and 3.53% two years earlier.