The Romanian real estate market

Article published on Nov. 7, 2007
community published
Article published on Nov. 7, 2007
In the past few years the Romanian real estate market has seen a soaring growth in terms of prices and number of transactions. What seemed a dead market almost 20 years ago is now a huge magnet for foreign capital investment.
Only in the first quarter of 2007 real estate players have announced future investments of 22 billion Euro for the 2007 – 2013 period taking the total amount to a staggering level of 42.5 billion Euro to enter the market in the following 7 years.

But does this Eastern El-Dorado deserve its nick-name? Prices of apartments have grown in just three years with over 150%, this year alone the increase being of 60%. If we compare this with our neighbors the Bulgarians who’s market growth in terms of prices for the last year has been of only 5.4% we can see why people are rushing to get a slice of Romanian real estate. Let’s look also at Hungary who’s initial real estate development was mainly due to the European Union adhesion, the wave has passed and the market reached a consolidating period making it less interesting for the investors due to much lower rates of return.

In the United States comparable growth with the one Romania registered in the last three years was accomplished in 10 years, meaning a 127% increase from 1996 to 2006. The same thing can be said for the United Kingdom which registered a 144% increase from 1996 – 2007. However, these markets are on a bearish trend now as the crisis from the US has also heavily affected mature real estate markets beyond the borders of America.

Looking at the Romanian market, what exactly are the factors that determined this real estate boom? The demand-offer ratio is clearly tilted to the demand side, that could be easily explained by the lack of options the Romanian buyer has – either buy an old apartment (build in the communist era) or a new one located in a residential complex. The price is fairly the same ranging between 1100 and 1600 Euro/sqm considering an average apartment in both cases. Another factor is the low number of dwellings completed in a year . In 2006 only 1.8 apartments per 1000 persons were finished. Comparing this with our neighbors from the CEE the indicator is fairly small, Russia is at the top with 4.2, but also Hungary, Poland or Slovakia average around 3. Market players estimate a deficit of 700,000 to 1,000,000 dwellings in the next years that will be covered in the next 24 years if we consider the delivery rate from 2006.

All of the above underlines the potential of the Romanian real estate market even if analysts forecast a slowing down of market growth to 10 -15% for the next year and one digit growth rates for the following years.

Clearly this El-Dorado is somewhat of a promise land!

by Fraga Ghica