Romania

Romania Residential Real Estate Market Analysis 2023

Lalaine C. Delmendo

Romania’s housing market is now cooling, amidst slowing demand and residential construction activity. During 2022, the average selling price of apartments in the country rose by 5.59% y-o-y to €1,682 per square metre (sq. m), a sharp deceleration from an annual growth of 16.19% in 2021, based on figures from imobiliare.ro. However, when adjusted for inflation, nationwide apartment prices actually dropped 7.49% over the same period – the biggest decline since 2013.

Romania’s house price annual change

Quarter-on-quarter, apartment prices fell by 1.35% (-3.98% inflation-adjusted) in Q4 2022.

All major cities in the country saw decelerating property price growth during 2022:

  • In Bucharest, the average selling price of apartments rose by 5.19% (but fell by 7.84% inflation-adjusted) y-o-y to €1,704 per sq. m, a slowdown from annual growth of 13.68% during 2021.
  • In Brasov, apartment prices rose by 11.24% (fell by a modest 2.54% inflation-adjusted) to an average of €1,623 per sq. m, a slowdown from an increase of 18.04% in 2021.
  • In Cluj-Napoca, Romania’s fourth most populous city, apartment prices rose strongly by 14.49% (0.31% inflation-adjusted) y-o-y to an average of €2,410 per sq. m, at par with the annual growth of 14.4% seen in 2021.
  • In Constanta, the country’s oldest city, apartment prices rose by a meager 1.63% (dropped 10.96% inflation-adjusted) y-o-y to €1,431 per sq. m, following an annual increase of 13.55% during 2021.
  • In Timisoara, the average selling price of apartments went up by 5.52% (but fell by 7.55% inflation-adjusted) to €1,454 per sq. m, following a y-o-y growth of 6.65% in 2021.

Both demand and supply are now slowing. Nationwide, the total number of houses, land plots, and apartments sold fell by a modest 3.35% to 52,946 units in June 2022 as compared to the same period last year, following annual growth of 15.6% during 2021 and 11.6% in 2020, according to data published by the National Agency for Cadastre and Land Registration (NACLR). Likewise in Q2 2022, only about 107,700 potential buyers searched for housing in the country’s major regional centers, down by 23.3% from the previous quarter and by 29% from a year ago, according to the real estate intelligence platform Analize Imobiliare.

Romania average price apaprtments

In the first eleven months of 2022, the total number of residential building permits in Romania fell by 13.3% to 40,969 units as compared to a year ago, according to the National Institute of Statistics (INS) – after rising by 24.1% in 2021 and falling by 2.9% in 2020.

During 2022, Romania’s economy grew by about 5.8% from a year, according to the European Commission, following a y-o-y expansion of 5.1% in 2021 and a contraction of 3.7% in 2020. The International Monetary Fund’s 2022 growth estimate for the country is more conservative at 4.8%.

Though the Romanian economy is expected to slow in the medium term, with a projected real GDP growth of just 1.8% this year and 2.2% in 2024.

Moderate to good rental yields

Bucharest’s rental yields are moderate to good, ranging from 3.45% to 8.28% with a city average of 5.83%, according to a Global Property Guide research conducted in November 2022.

Rental yields are about the same or slightly higher in other cities and areas inside Romania.

  • Cluj-Napoca produces an average yield of 4.89%.
  • Timisoara can produce an average of 6.16%.
  • Craiova’s average rental return is 4.76%.
  • In Galati, you can expect an average return of 6.88%.
  • Iași produces on average 6.83%.
  • Brasov´s average rental yield is 6.65%.
  • Constanţa produces an average rental yield of 7.31%.

Round trip transaction costs are moderate in Romania.

Residential property demand is falling

In Romania’s six biggest cities, demand for residential dwellings is now falling. In Q2 2022, about 107,700 potential buyers searched for housing in the country’s major regional centers, down by 23.3% from the previous quarter and by 29% from the same period last year, according to Analize Imobiliare.

By major city, in Q2 2022 (figures from Analize Imobiliare):

  • In Bucharest, demand for houses and apartments was 61,100 units, down 23.5% q-o-q and 31% from a year ago.
  • In Timisoara, demand stood at 11,300 units, down by 19.7% from the previous quarter and by 21% from a year earlier.
  • In Brasov, demand was 9,400 units, lower by 23% q-o-q and by 28% y-o-y.
  • In Cluj-Napoca, residential property demand was 7,500 units, down by a huge 32.6%% q-o-q and by 41% y-o-y.
  • In Constanta, total demand was 9,200 units, down by 18% q-o-q and by 28% y-o-y.
  • In Iasi, demand was 9,200 units, down by 15.5% q-o-q and by 14% y-o-y.

Nationwide, the total number of houses, land plots, and apartments sold fell by a modest 3.35% to 52,946 units in June 2022 as compared to the same period last year, following annual growth of 15.6% during 2021 and 11.6% in 2020, according to data published by the National Agency for Cadastre and Land Registration (NACLR).

Residential construction activity slowing

In the first eleven months of 2022, the total number of residential building permits in Romania fell by 13.3% to 40,969 units as compared to a year ago, according to the National Institute of Statistics (INS) – after rising by 24.1% in 2021 and falling by 2.9% in 2020. Likewise, the total area of residential building permits dropped 4.4% y-o-y to 10.55 million sq. m. in Jan-Nov 2022.

Romania residential building permits

All regions saw a decline in residential building permits.

  • Bucharest-Ilfov saw the biggest y-o-y fall in residential building permits of 19.5% y-o-y to 5,026 units in the first eleven months of 2022.
  • In the Southeast, permits dropped 10.3% y-o-y to 4,520 units.
  • In the Central region, permits fell by 12.1% y-o-y to 3,899 units.
  • In Southwest Oltenia, permits fell by 11.8% y-o-y to 3,223 units.
  • In the Northwest, permits were down by 8.9% y-o-y to 6,506 units.
  • In the Northeast, permits dropped 13.4% y-o-y to 7,360 units.
  • In South Muntenia, permits declined by 14% y-o-y to 6,456 units.

During 2021, dwelling completions increased 5.3% y-o-y to 71,405 units, following annual rises of 0.5% in 2020, 13% in 2019, 11.9% in 2018, 2.2% in 2017, and 11.1% in 2016, according to the INS.

Romania dwelling stock completions

Dwelling stock totaled 9.59 million units in 2021, up by 4.7% from a year earlier.

Mortgage interest rates rising sharply

In its January 2023 meeting, the National Bank of Romania (NBR) raised its policy rate by another 25 basis points to 7%, adding to the cumulative 575 basis points rate hikes since the start of its tightening cycle in October 2021, in an effort to rein in inflationary pressures.

The deposit facility rate was raised from 5.75% to 6% and the lending facility rate was also increased from 7.75% to 8%.

Romania interest rates ron denominated housing loans

“The NBR Board decisions aim to anchor inflation expectations over the medium term, as well as to foster saving through higher bank rates, so as to bring the annual inflation rate back in line with the 2.5 percent ±1 percentage point flat target on a lasting basis, in a manner conducive to achieving sustainable economic growth,” said the central bank.

Following the key interest rate movements, mortgage rates are now rising dramatically.

Interest rates on new RON-denominated housing loans:

  • Floating rate and up to 1-year initial rate fixation (IRF): 6.82% in November 2022, sharply up from 3.57% a year ago.
  • Over 1 and up to 5 years IRF: 6.88%, up from 4.12% a year earlier.
  • Over 5 and up to 10 years IRF: 7.07%, sharply up from 4.26% a year earlier.
  • Over 10 years IRF: 6.96%, up from last year’s 3.84%.

For outstanding loans:

  • Up to 1-year maturity: 9.04% in November 2022, sharply up from 4.61% a year ago.
  • Over 1 and up to 5 years maturity: 6.03%, up from 4.2% a year ago.
  • Over 5 years maturity: 7.5%, far higher than last year’s 4.19%.

For euro-denominated housing loans, the average interest rate for those with 1-5 years maturity was 4.33% in November 2022, up from 3.3% a year earlier, based on figures from the BNR. Likewise, interest rates for housing loans with over 5 years of maturity increased to 5.21%, from 3.54% a year ago.

Romania interest rates eur denominated housing loans

Almost 84% of outstanding housing loans were RON-denominated as of November 2022, up from less than 81% a year earlier and 76% two years ago. From 2010 to 2013, RON-denominated housing loans accounted for just 5.5% of total housing loans outstanding. Euro-denominated loans accounted for 15% of outstanding housing loans in November 2022. The Central Bank has shifted homebuyers’ preferences to local currency by limiting the “Prima Casa” and “Noua Casa” programs to RON-denominated loans.

The mortgage market continues to grow

From 2008 to 2021, Romania’s mortgage market has been growing by an average of 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, 9.9% in 2020 and 12.9% in 2021.

Romania house loans

Then in November 2022, housing loans outstanding rose further by 6.2% y-o-y to RON 105.96 billion (US$23.62 billion), according to NBR. Over the same period:

  • RON-denominated: RON 88.76 billion (US$19.78 billion), up 10.3% from a year earlier
  • EUR-denominated: RON 15.92 billion (US$3.55 billion), down by 10.6% from a year ago
  • Denominated in other currencies: RON 1.29 billion (US$286.46 million), down by 10.7% from the same period last year

The mortgage market’s strong growth has been buoyed by the government’s “Prima Casa” (First Home) program, launched in May 2009, which was recently replaced by the “Noua Casa” (New House) program. The “Noua Casa” program supports first-home purchasers who have previously not had a mortgage.

Romania housing loans outstanding

Despite the continued growth, Romania’s mortgage market remains small by international standards, at just about 7.5% of GDP in 2022.

The “Noua Casa” (New House) program

The maximum amount of loan that can be granted under the “Noua casa” program for 2023 for new houses priced at €70,000 or below is €66,500, with a minimum downpayment of 5%. For new houses priced between €70,000 and €140,000, the maximum loan amount is €119,000, with a required downpayment of 15%.

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 EUR 70,000 and EUR 140,000. 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 2023, the Noua Casa program received a budget of about RON 1.5 billion (US$334.32 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.

“For the fifteenth consecutive year, the Ministry of Finance facilitates the purchase of a home, allocating a considerable ceiling for guaranteeing real estate loans within this Program, namely 1.5 billion lei. The ceiling allocation proposal for the year 2023 is based on the analysis of the behavior of banks and beneficiaries in 2022 and on the trends of the real estate market and mortgage loans forecasted for the year 2023”, according to a press release from the Ministry of Finance.

Robust economic growth; inflation soaring

During 2022, Romania’s economy grew by about 5.8% from a year, following a y-o-y expansion of 5.1% in 2021 and a contraction of 3.7% in 2020, according to the European Commission (EC). Though the economy is expected to slow in the medium term, with a projected real GDP growth of just 1.8% this year and 2.2% in 2024.

Romania gdp inflation

“After a strong 2022, Romania’s economy is set to slow down with real GDP growth at around 2% in the coming years due to higher inflation, tighter financial conditions, and the fallout from Russia’s war of aggression against Ukraine,” said the EC.

Before the Covid-19 pandemic, the economy had been growing by an annual average of almost 4% from 2011 to 2019.

Nationwide inflation stood at 16.37% in December 2022, from 16.76% in November and 15.32% in October, according to the INS. This was far higher than the annual average inflation rate of just 2.7% from 2011 to 2021.

Romania unemployment

Romania’s budget deficit was equivalent to about 5.7% of GDP in 2022, an improvement from shortfalls of 7.1% of GDP in 2021 and 9.2% of GDP in 2020. The government seeks to bring the deficit down to 4.4% of GDP this year and to below 3% in 2024. Likewise, the public debt is projected to fall slightly to 47.3% of GDP this year, from 47.9% in 2022 and 48.9% in 2021.

In November 2022, the seasonally-adjusted unemployment rate edged lower to 5.4%, from 5.5% in the previous month, according to INS.

Romania exchange rate

In the past four years, the Romanian Leu (RON) depreciated moderately against the euro by 5.5%, reaching an average exchange rate of RON 4.9258 per euro. The recent decline in the currency’s value is mainly attributed to domestic political instability, the Covid-19 pandemic, as well as the Russia-Ukraine war.

Corruption remains rampant

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 66th out of 180 countries for corruption, with a score of 45 out of 100 (0 being completely corrupt and 100 being clean), four notches higher as compared to its 70th rank in 2019.

Sources:

Romania - More data and information