Romania Property
Ten Fundamental Reasons Why Property Prices
Have to Boom in Romania –
For the Next 20 Years and Beyond.
Reason No. 1 – A Booming Economy
According to the National Statistics Office the economy grew an encouraging 8.2% in 2004, 5.3% in 2005, and growth of approximately 7% is forecast for 2006 and 2007. In fact, the Q2 2006 GDP growth rate was up 7.8% compared to Q2 2005, which makes Romania the fourth fastest growing economy in the EU after Estonia , Latvia and Lithuania .
Reason No. 2 - Falling Inflation
2005 also saw inflation fall to a record low of 7.5% from dizzying heights of 22% in 2002, and it is expected to fall to 3.8% by 2006. With inflation under control, this will inevitably lead to more confidence in the property buying market.
Reason No. 3 - Growing GDP
GDP (purchasing power parity) reached US$183.6 billion in 2005 and it’s projected to exceed the US$200 billion mark in 2006, that’s a 17% growth rate per annum since 1999. At this rate, Romania is set to become one of the largest economies in Eastern Europe .
Reason No. 4 – Increasing Employment
Unemployment fell to 6.2% in May 2006 (less than 3% in Bucharest ) which is lower than many more developed European economies. This is rate is still falling rapidly.
Reason No. 5 - Increasing Foreign Investment
Foreign direct investment (FDI) has accelerated fast since 2001, reaching over €5,000 million in 2005, and the prestigious Vienna Institute For International Affairs predicts it will exceed €8,000 million in 2006 – some of the most impressive figures in Eastern Europe. In addition, it's important to note that 55% of FDI stays in Bucharest.
Some of the larger foreign investors in Romania include Renault, Mittal Steel, Siemens, Colgate-Palmolive, Philip Morris, ABN Amro Bank, Bank Austria , Continental Automotive, Daewoo, McDonalds and Coca-Cola.
Key Romanian industries (and significant exports) include clothing and textiles, industrial machinery, electrical and electronic equipment, semiconductor fabrication, metallurgic products, raw materials, motor vehicles, military equipment, software, pharmaceuticals, chemicals, petrochemicals, foodstuffs, agricultural products. The service sector grew by 8.1% on average in 2005 (construction 9.9%).
FDI Inflow : Central, East And South East European Countries Compared
| |
2005 € Million |
2006 € Million (Forecast) |
| Czech Republic |
8,837 |
4,000 |
| Hungary |
5,356 |
4,000 |
| Poland |
6,132 |
7,000 |
| Slovakia |
1,694 |
2,000 |
| Slovenia |
427 |
5,000 |
| Estonia |
2,232 |
1,000 |
| Latvia |
503 |
500 |
| Lithuania |
807 |
1,000 |
| Albania |
209 |
200 |
| Bosnia & Herzegovina |
240 |
300 |
| Bulgaria |
1,789 |
2,000 |
| Croatia |
1,328 |
1,500 |
| Macedonia |
80 |
100 |
| Romania |
5,197 |
8,000 |
| Serbia |
1,196 |
1,000 |
| Montenegro |
375 |
200 |
| Belarus |
245 |
200 |
| Moldova |
181 |
100 |
| Russia |
11,731 |
12,000 |
| Ukraine |
6,263 |
2,000 |
Source : Vienna Institute For International Affairs
Romania has a leading role in attracting FDI Eastern Europe. In 2005, out of the total EUR 10.4 billion in FDI attracted by countries in the region, Romania received half of these inflows. The positive trend continues in 2006, where, in the first four months of the year, FDI increased 130% over the similar period of the previous year, up to EUR 2.3 billion. Comparatively, Poland reported EUR 2.7 billion as direct foreign investment over the same period, Bulgaria EUR 765 million and the Czech Republic , EUR 564 million.
Since the late 1990s, there have been several economic reforms (many instigated as part of the country’s bid to join the EU) including the liquidation of the large energy-intensive industries and major reforms in the agricultural and financial sectors. As of 2005, a significant amount of Romania’s major companies have been privatised, including the majority of banks, the largest oil companies Petrom and Rompetrol, energy distributors and telecommunications companies.
Reason No. 6 - Growing Tourist Industry
Tourism is also becoming increasingly important to the economy and incoming tourism receipts is expected to reach $8 billion in 2006 with a 7.4% annual growth forecasted over the next ten years (Source: World Travel and Tourism Council).
Reason No. 7 - EU Funding
Romania has been the biggest recipient in terms of EU funding per capita between 2004 and 2006. Romania will receive an additional €30 billion for the years 2007-2013, the highest allocation of all the new EU member states. This money will pumped into the local infrastructure such as road, hospitals, schools.
This will lead to more jobs and therefore more people who can afford to rent and buy their own property, and with the introduction of mortgages for Romanian nationals, which have only been around since 2004, this will all lead to a massive boom in real estate prices.
EU Funding For The Ten New EU Members
And Accession Countries 2004-2006 (EURO million)
Reason No. 8 - A mortgage market that’s about to go through the roof
Mortgage growth and debt comparisons worldwide
| Country |
Value of mortgage debt, € million |
Growth in mortgage debt |
Residential debt to GDP ratio |
Per capita mortgage debt, € |
| Belgium |
88,434 |
8.2% |
31.2% |
8,506 |
| Republic |
6,576 |
34.9% |
7.6% |
644 |
| Denmark |
174,300 |
6.0% |
89.7% |
32,292 |
| Germany |
1,157,026 |
0.1% |
52.4% |
14,019 |
| Estonia |
1,500 |
57.3% |
16.6% |
1,110 |
| Greece |
34,052 |
28.3% |
20.6% |
3,084 |
| Spain |
384,631 |
22.9% |
45.9% |
9,083 |
| France |
432,300 |
12.2% |
26.2% |
7,217 |
| Ireland |
77,029 |
29.8% |
52.7% |
19,125 |
| Italy |
196,504 |
13.4% |
14.5% |
3,395 |
| Cyprus |
2,182 |
4.6% |
17.6% |
2,988 |
| Latvia |
1,273 |
67.5% |
11.5% |
549 |
| Lithuania |
1,258 |
88.3% |
7.0% |
365 |
| Luxembourg |
8,797 |
12.3% |
34.3% |
19,480 |
| Hungary |
7,767 |
35.1% |
9.6% |
768 |
| Malta |
1,236 |
20.6% |
28.6% |
3,090 |
| Netherlands |
518,115 |
14.3% |
111.1% |
31,868 |
| Austria |
48,064 |
20.9% |
20.3% |
5,905 |
| Poland |
10,686 |
22.9% |
5.5% |
280 |
| Portugal |
70,834 |
6.9% |
52.5% |
6,762 |
| Slovenia |
387 |
30.3% |
1.5% |
194 |
| Slovakia |
839 |
82.3% |
2.5% |
156 |
| Finland |
56,522 |
10.8% |
37.8% |
10,829 |
| Sweden |
147,163 |
10.0% |
52.7% |
16,396 |
| Romania |
411 |
80% |
2% |
19 |
| UK |
1,243,261 |
11.1% |
72.5% |
20,835 |
| EU15 |
4,566,198 |
9.6% |
46.4% |
11,931 |
| EU25 |
4,670,736 |
9.7% |
45.3% |
10,223 |
| US |
7,568,200 |
13.8% |
64.5% |
25,772 |
Source: European Mortgage Federation 2004
As you can see from the chart above, Romania ’s mortgage lending compared to GDP is tiny in comparison to the other Western European countries. This will most certainly grow over the next 10-20 years.
Per capita living in Romania is 17 SQM (Source: HVB Bank), which is 32% the EU average.
The growth thus far has been fuelled by a growing domestic middle class sector who are earning good money, and they prefer, and can afford to buy new apartments. Foreign business people will also fuel the growth.
Reason No. 9 - Property prices will increase in-line with wages, which are increasing 13 percent a year.
At the moment Romanian wages are just 14 percent of EU average.
If Romanian wages and salaries continue to increase by an average 13 percent per year (as they have done during the previous five years), it will double around every six years.In order for wages to rise to the current level of the EU average, it will take 29 years. This is assuming the euro wages increase by four percent per year and Romanian wages increase by thirteen percent over the same period.
This is another very important indicator, in addition to the growing employment. Why? Because historically in the UK, house price inflation has consistently, over time, increased closely behind wage inflation. Average UK earnings growth have increased by 9.0 percent per year since over the last 30 years, compared to the 8.4 percent annual growth in house prices over the same period (Source: Halifax).
Using this as a sole indicator on its own means property inflation in Romania will increase at least in-line with wage inflation. (i.e. around 13 percent per year.)
The EU average wage is currently €2,335 per month.
Reason No. 10 - Lowest tax rate in the European Union.
Recent fiscal reforms to make Romania more competitive (and discourage the sizable black economy) have also served to boost the property market – and promote Romania as a modern low tax country. In January 2005 the Government introduced a flat rate of 16% for income and corporation tax, the same as Honk Kong’s and the lowest tax rate in the EU.
Flat tax is believed to:
- help reduce red tape and associated difficulties and confusion
- reduce inequity (same rate for all)
- counterbalance tax dodging and cheating
- provide incentives to work, save and invest
- generate increased tax revenue, and thus
- spark off a 'mini economic boom'
Comparison Of Personal Income Tax Rates in Europe
(Highest personal tax rate used for comparison.)
Source : World Taxes website
10 more no-brainer reasons why you should be investing your money in Romania
· The economy continues to grow. In every free market country this normally fuels a property boom.
· Foreign direct investment is expected to be the highest in central/eastern Europe, apart from Russia.
· EU membership is imminent. Experience of other countries joining the EU is that property prices rise.
· Introduction of the euro within five years approximately. This will lead to lower interest rates, makes prices easier to compare and making it easier for foreign buyers – encouraging more buyers.
· Strong domestic demand, plus interest from foreign buyers and investors.
· Easier access to mortgages. Favourable lending conditions (for Romanian citizens).
· Growing middle class, with growing incomes. These people have a greater tendency to buy/invest in property, and the means to finance it.
· Largely unexploited tourist potential/holiday home property market.
· Low-cost airlines will fly to Bucharest once they join the EU
· Bucharest's population is expected to double in 10 years (World Bank)
If you would like to use this article free of charge, please ensure you use the following signature:
'This article was written by property guru, Darren Goodson, author of 'How to profit from the NEXT biggest property boom in Eastern Europe'. For more information, please visit www.BucharestProperty.com.'
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