Why is the Romanian Property Market Expanding?

The rest of the world is worried about the lack of credit available from mortgage lenders, the high levels of debt that many consumers and businesses have found themselves in, the gloomy economic prospects in the likes of the US and the UK and the fact that housing markets everywhere are starting to feel the pinch of all this negative financial energy…so why is the Romanian property market expanding?

Seriously – why?

And if you don’t believe us that it is expanding, all the news available at the moment in Romania relates to new developments that are beginning construction, new ventures that are in the planning stages, and new demand opening up where supply is so far restricted and where consequently, property price gains are increasing!

Is Romania immune to the global fiscal situation that’s squeezing everyone especially in the real estate industry?

Well no, but then again, if you read all the news about the nation’s property market this would seek to contradict negativity in any form!  So, let’s look at the facts and try and determine why the Romanian property market is expanding.

First up you have the negative aspects of the country’s real estate industry: –

According to The Diplomat magazine, in Bucharest the cheapest habitable apartment is available for sale from about EUR 160,000 and the best estimates put average wages at EUR 7,200 a year, so there is something of a discrepancy in affordability!

Next up you have the constructor RomReal advising that inflation in the construction industry is uncomfortably high with the price of cement and steel up around 10-12% since the beginning of the year and wage inflation having risen 15% in 2007 alone.

Added to this is talk that the Israeli investors who flooded the construction market in recent years, particularly in Romania, are finding times are tough when it comes to financing their projects.  In a report in Haaretz.com, Ephraim Shpitalni, chairman of Gamla Millennium Investments which invests in Eastern Europe, states that “nowadays the banks hardly ever approve financing for projects in Bucharest”

So these factors tend to suggest something of a sticky situation brewing in Romania.

But then if you look at the number of new starts under construction or at least in the planning stages you would think that there is nothing wrong.  The constructor Concefa intends to develop several residential projects within the next few years: “our short term development strategy entails the rapid development of our residential projects.  We have already acquired the necessary plots of land, i.e. around 40 hectares, primarily in Sibiu and Brasov.  The projects involve the construction of 4-5,000 housing units, which will retail at an average price of 75-80,000 euros.” That’s according to Horatiu Cercel, the company’s general manager.

Then you have the Spanish real estate group Martinsa-Fadesa which is planning to launch two residential developments this year in Ilfov and in Bacau and construct around 9,600 apartments.  The Romanian developer Bermo Group Arad is expecting to earn EUR 13 million from residential real estate sell off in 2008, another residential project in Bucharest is reported to have been given the EUR 20 million it needs in credit to begin construction, an Irish property developer is planning to build an EUR 591 million shopping centre in Romania, and Concefa Sibiu approved a EUR 28 million real estate development for 400 apartments.

So – far be it from us to say that ‘profiting from property in Romania‘ as a concept is deluded – but really, we can’t quite see what it is that’s supporting such expansion and confidence!

Special Reports: Property News for Romania

Romania Property Buying Process
After Romania joins the EU in 2007 its property buying process will become simplified

Romania Property Investment Potential
Romania has an exciting emerging property market sector that’s attracting growing levels of overseas investor interest and generating impressive growth

Romania Property Investor’s Introductory Guide
The real estate market in Romania is in its infancy but offers property investors stunning property at incredibly affordable prices.