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Market overview Property in Romania remains extremely competitively priced, with prices 25-30% lower than in other Eastern European countries. The conclusion of a participant at International Real Estate - Madrid Real Estate Exhibition which took place from April 8th to April 12th, 2008 was that without any question, the leading actor from Eastern Europe was Romania. With a population of 22 million inhabitants it is the biggest country in the Balkans.
Because of its dimensions, it is widely accepted that this country is the best-positioned candidate to become a regional leader. It is the most remarkable business destination for investors because, among other reasons, its key location in the European map. The country has experienced steadily growing GDP and it is foreseen to continue growing possibly rising to 6.5% in 2008. This growth has had an impact on the declining unemployment which has been supported by vast, cheap and highly educated labour force. With 22 million people, Romania is the second largest market in central and Eastern Europe along with Poland. There is a huge potential of highly educated, highly motivated and cheap personnel. This is attracting large business investment increasing affluence among the local population and certainly pushing up property prices.
Romania is the biggest recipient of foreign direct investment amongst its immediate neighbours and this is a key driving force of its economy. This economic growth will push the wages which will put upward pressure on property prices. Large corporations including Orange, Oracle, Toyota, IBM and ING Bank already have a presence in the country.Another important factor is the fact that lots of Romanians are working outside Romania which has impacted upon the wealth of the population. Consequently there is a huge inflow of hard currency which is the reason why the RON is continuously appreciating. Land Buying agricultural land still remains one of the most favourite approaches for the current investors who want to develop residential, retail or logistics centres with much lower costs of acquisition than other transactions. Most of the agricultural land available on the market is still in the hands of the farmers who acquired them following the reconstitution or constitution based on the Land Law. In early '90s people were finally allowed to claim back the land that was taken away by the Communist regime. The lack of coherence in the legal measures have generated nothing but confusion, and led to illegal practices. Such was the case with the ownership Title whose process of reconstitution was often wrongly conducted.
Although the process of reconstitution of Ownership Title began in 1991, it is still pending. In some particular cases the land was granted by way of ''constitution of title'' to individuals who were not the initial owners or the heirs of such owners. Whilst the land acquired by way of reconstitution of title can be freely transferred, the land acquired by way of ''constitution'' may not be sold for 10 years. Due to restitution delays there were cases when the original owners obtained only ownership certificates and minutes for granting possession instead of the Ownership Title. They often sold the land without having an ownership title issued under the Land Law procedures. Such situations occurred especially for the land located in the outskirts of Bucharest.
In a significant number of cases the Supreme Court of Justice considered that the ownership certificates together with the minutes for granting possession do not represent a valid title but mere preliminary documents issued in the initial stages of the restitution proceedings. Without a valid Ownership Title issued under the Land Law, the title of the purchaser itself may become questionable and the buyer undertakes the risk of not being acknowledged as owner. And that is because anyone interested in the transaction, including persons claiming to be the rightful owners of the land sold, might challenge such transfers in court any time.
The Land Law provides a mechanism meant to limit the overlapping between the different parcels restituted to the original owners and sets out the obligation of the local authorities to determine precisely the location of each parcel restituted and include such parcels in plotting plans.In practice however, local authorities issued ownership titles in the absence of such plotting plans. Such ''lack of procedure'' created confusion and left open the possibility to “relocate” the restituted land. Therefore, it is advisable to conduct a cadastral survey every time an investor deals with a real estate property composed of land restituted under the Land Law. We introduce to our clients only land which has been registered with the Cadastre and with the Land Book.RESDIENTAIL REAL ESTATE MARKET
We count on a big potential in the RESDIENTAIL REAL ESTATE MARKET. 90% of Romanian people have considered purchasing a new home in the next ten years and it will be possible because of the salary increase especially in Bucharest and the improved mortgage system.Not only have mortgages become more available to the local population but an increasing range of flexible products have been brought to the market. Beginning of 2007 the central bank of Romania has approved a new regulation giving the possibility to applicants which have a certain range of income to acquire a property without depositing 30% of the value in advance. Furthermore foreigners have now the possibility to apply for a mortgage on the property they buy. In paying 40-50% of the price and based on a steady and for Romania high salary they can pay back the bank loan in 5-10 years. The access to the EU will bring many improvements and benefits to the country in terms of EU funding especially for infrastructure. Romania will have access to new trading partners and Bucharest will greatly benefit from this as major multinational companies will locate their overseas operations, encouraged by the stability that EU membership brings. Those factors have not only increased the demand but also the prices of property.
Development has tended to concentrate on the area to the north of the city around the airports, which has consequently become saturated and increasingly expensive. As there the master plan was designed only recently, the developments are often crowded, the developers using each possibility to increase the constructible surface. The result is that they are often disordered, of varying degrees of quality and lacking of infrastructure. For example the Pipera developments have no sewage, the evacuation of the used waters being done with individual depuration systems. Overall, modern houses and apartments of good design and standard are still in very short supply. REAL ESTATE PROSPECTS LOOKING GOOD FOR BUCHAREST As residential markets of the CE capitals are switching from short-term speculative investors to long term developers, Bucharest appears to hold an edge when it comes to demand potential at affordable prices. REAS, a Polish company specialized in residential consultancy, has recently published in cooperation with Jones Lang LaSalle a study titled "Residential Markets in Central European Capitals." The paper is one of the few comprehensive comparative analyses of investment opportunities in the region. According to REAS, compared to their Western counterparts (EU 15), the twelve Central European capitals (CE 12) "clearly lag behind in several indicators touching their housing market such as the average living space per person or the dwelling stock per thousand inhabitants." Nonetheless, "the GDP per capita, salaries and the development of the mortgage market also show substantial areas for growth" for the CE 12 group. As residential markets of the CE capitals are switching from short-term speculative investors to long term developers, Bucharest appears to hold an edge when it comes to demand potential at affordable prices. One interesting common feature is that the twelve Central European capital cities are the dominating markets in their countries and are, without exception, their countries' largest cities. While Budapest or Riga have registered an annual decrease in population, all the other cities, Bucharest included, have accounted for healthy positive net population changes. The Romanian capital also ranks high in terms of average household population (2.6 people per household). The authors of the study suggest that there is a large potential for the number of households to grow in the future by splitting into smaller households as the average household size for the EU 15 average was only 2.16 in 2006.
GROWTH OPPORTUNITIES The dwelling stock per 1,000 inhabitants, a measure used to quantify the housing need and, subsequently, the demand for housing, shows that Bucharest is in great need of new housing. Bucharest's average number of housing units per 1,000 inhabitants is substantially lower than the EU 15 average of 490, or even the CE 12's average of 435. Growth potential can be found in terms of quality not just quantity.
The average usable floor area in Bucharest, measured at about 25 square meters per person in 2006 was still under the 36sqm which the Western European dweller enjoys. Overall increases in average prices are visible throughout the region. Bucharest along with Prague, Warsaw or Budapest experienced growth of 20% between 2006 and 2007, but REAS considers that "given entirely different average price levels the best growth opportunities are forecasted for Bucharest." A very interesting comparison of the price levels of primary market apartments at the end of 2007 shows that Bucharest has one of the least developed price bands for newly built apartments, ranging between 1700 and 3,700 euros per sqm of usable area. Nonetheless, cross country conclude that the "real estate investment in the CE region has become a permanent place in many investors' long-term global investment strategies. A particularly large part of that capital in recent years was flowing into the region's residential markets."
One of the issues the long term investors have to deal with is assessing the potential of the various CE markets. Based on the different capital cities' demand potential, combining local economic and demographic factors and their affordability level, REAS has labelled Bucharest and Kiev as having the highest demand potential at the lowest affordability range.
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