Published on 09 January 2006 at 11:55 am
Filed in Property News for Romania » The Truth about Property Investment in Romania
With current media reports heralding the wealth of opportunity available in the Romanian real estate market place, does this stunningly beautiful but little explored eastern European country really have what it takes to create a long term viable property sector ripe for growth and development?
To answer this question fully it’s necessary to take a closer look at Romania, its economy, prospects for EU entry and the Romanian government’s commitment to making the laws associated with foreign freehold ownership of property in Romania more transparent.
According to Channel 4’s ‘A Place in the Sun’ program and a series of news items published in the British press this month, predictions from property investment industry experts show that base real estate prices in Romania could grow by up to four times in the next ten years. However, potential investors should take this information as merely a single factor in their entire assessment of the Romanian real estate sector - because for the country to achieve these levels of growth, its entry into the EU has to be assured.
Currently Romania is working towards a provisional 2007 entry date, but the Romanian government still has an awfully long way to go to meet the criteria for entry and it is far from assured that they will meet their targets and gain entry in 2007.
Unlike Bulgaria - with which many are now comparing Romania - which seems to be fully on target for accession in 2007, Romania seems to be less committed to adapting and its people seem less excited about the prospect of EU entry.
Therefore, for Romania to receive the envisaged levels of foreign direct investment and support upon EU entry to sustain the property market price increases being predicted by various media sources, the country, government and people of Romania need to further commit to the changes required by the EU for accession.
If Romania joins the EU then the prospects for its real estate sector really will begin to take shape. The question is, should property investors take the gamble now and buy into the predicted levels of substantial growth? This question can only be answered by an investor who has examined all factors relating to the sustainability of the Romanian economy.
The Romanian economy has generally gone from strength to strength since the country began the transition from Communism back in 1989; currently GDP growth rate is in the region of 8% annually and already the country is benefiting from high levels of FDI - but poverty, corruption and red tape are holding the country back.
A property investor needs to be fully aware that these facts will directly apply to any decision he makes to enter the Romanian property market place. The laws relating to foreign freehold ownership of real estate are far from transparent at the moment for example, non-Romanian purchasers are not permitted to own title to land in Romania and have to establish a Romanian ‘foundation’ to overcome this issue. There have been small moves made by the Romanian government to amend the constitution to allow for foreign freehold ownership of land but there have been no significant moves made to make the property market more accessible and less corrupt. Therefore finding a good lawyer in Romania is critical if the purchaser’s best interests are to be served and he is to successfully navigate the miles and miles of red tape that will restrict his path to property ownership.
The final consideration a property investor needs to make when mulling over the pros and cons of property investment in Romania is what may sustain the property market and lead to price growth and profits. It is therefore necessary to look at the levels of demand for certain types of property and to examine which areas of the country can promote a healthy property market.
In this sense it’s possible to compare Romania directly with Bulgaria. The countries share borders and each has a stunning coastline that already attracts tourism interest. In Romania the 225km of Black Sea coastline are currently largely underdeveloped and it is here that massive potential exists if Romania can develop an active tourism market.
Alternatively Romania can further develop its attraction as a winter sport destination, and in its ski resorts real estate investors may find a property market in demand from both tourists and those looking for a holiday home in the near future.
The other alternative currently open to an investor is the whole property market in Bucharest. There is a wealth of beautiful old property ripe for renovation and resale, there are new developments being constructed offering an investor the chance to buy pre-construction and flip on upon completion, and there is active demand for property from consumers in Bucharest which is critical to the sustainability of any property sector. Not only is there hunger for property to purchase in Bucharest, there is a strong and growing requirement for quality residential and commercial property to rent out.
There’s no denying Romania’s beauty - it is a country of stunning contrasts.
There’s no denying Romania’s appeal - the pace of life is so laid back and traveling around the country you get a feeling you’ve stepped back in time.
There’s no denying the fact that Romania’s property market has the potential to become at least as successful as Bulgaria’s and that property prices in Romania are currently so incredibly low and attractive.
Therefore, Romania has an exciting emerging real estate market that could return the investor up to four times his investment over the coming decade. But any property investor about to make a move on Romania needs to be fully aware of the country’s limitations as well as its possibilities and to be aware of the realities of property investment in a country with such an immature property market. Only those who have done the requisite research and secured the services of a reputable lawyer should proceed!
