THE PROPERTY MARKET

On the cusp of a real estate market boom, Romania is tipped as the next big investment market. However, just because the country looks set to see an explosion in prices doesn’t automatically mean you’ll make a killing – you need to invest your money wisely and, more importantly, you need to be an adventurous buyer.

Prior to EU accession, prices had been rising at around 30% per annum, with the country enjoying extremely good economic prospects, foreign investment and a strengthening of the currency. A fast-moving market since 2003, the turnover of property was rapid as buyers clamoured to take advantage of the spiralling appreciation rates. Land has seen price growth of between 300% and 1,000% in the last six years, while in the summer of 2004, prices increased by an incredible 80%. Massive regeneration and infrastructure investment are expected to provide future investors with massive returns, while the low prices, growing market awareness and the relaxed regulations and property legislation have encouraged a frenzy of buyer activity.

Currently, property remains cheap by Western standards, with country houses in need of renovation on sale for a mere £5,000. In Bucharest, prices for newly-built apartments start at £40,000, rising to £300,000, while in other towns and cities you’re looking at £45,000 to £150,000 for the same type of property. In rural areas, a three-bedroomed country house can be picked up for as little as £25,000. The average property price in Romania is £17,000.

Buyers tend to be buy-to-let investors, rather than permanent relocators. Permanent purchases are still predominantly focused around local buyers, with massive growth in the sales market in recent years. It’s expected that property prices will continue rising strongly following EU accession. A Place in the Sun magazine predict that the next decade will see price rises of an astonishing 414%. Romania should see increases of 20 – 30% in 2007, with many new developments and apartments being introduced into the market. It is estimated that a property purchased today for €175,000 could be sold for as much as €750,000 after 10 years. Long-term, the forecast is for a growth in demand as well as supply, as developers begin a flurry of newly-built complexes. Most experts believe that because of EU accession, soon there will be no restrictions on foreign ownership.

Where to buy

Bucharest

Bucharest is known as the ‘Paris of the East’ thanks to its sophisticated air and rich cultural scene, and it’s the biggest market for property investors. However, compared with Paris prices, Bucharest offers a whole lot more for your money. Close to the most attractive areas for tourists – the Black Sea coast and Brasov – Bucharest is still fairly isolated from the rest of the country, situated as it is down in Romania’s southeast. The city is the major entry point into the country, and as of January 2007, Wizz Air fly there from London Luton.

The ideal location for purchase of Romanian property, foreigners will generally be looking at buying a newly-built apartment in a development in the Bucharest suburbs. Prices start at around £80,000 for a newly-built city centre property, although one-bedroomed apartments can be picked up for £34,000 in the surrounding areas. Current annual appreciation growth rates are up to 20% in certain areas, a rate set to be sustained or even increased between 2007 and 2010. Knight Frank report average returns of 12.5% for 2007. While there is substantial growth in the market, thanks largely to massive investment into the capital, you still need to assess the potential very carefully as it is early days.

Rental potential is growing thanks to the influx of businesses and the local population looking for better quality property. You can generate €500 a month for a one-bedroomed apartment and you can purchase a property with a two-year guaranteed rental yield of 7%.

Timişoara

Located on Romania’s western boundary, Timişoara is known as ‘Little Venice’ and is the country’s fourth largest city. Full of historic buildings, it is rapidly developing as a cultural centre, attracting increasing numbers of tourists. There has been an increased demand for property since 2001, with the last two years seeing prices growing from €10 a square metre to €30, with forecasts that this will rise to €75 in 2007. A city which is labelled as being a safe bet for property investors, there is a lot of construction and development taking place due to the demand for better quality housing to replace the communist-style properties. The average price of a two-bedroomed property currently sits at less than €50,000.

Brasov

Situated in the heart of Transylvania, Brasov offers the best return on investment in Romania as an international airport is currently being built, as is a motorway between Budapest and Bucharest, which will pass through the city. Industry is developing at a rapid rate. Well located, Brasov is only a few minutes’ drive from Poiana Brasov, the main ski resort in Romania, and it’s close to the 2007 European Capital of Culture, Sibiu, which is also attracting an increasing number of buyers. There is excellent rental potential with long-term demand from the local market and increasing numbers of tourists fuelling the short-term market. You can expect to generate yields of 7%. There is a mix of buyers, with both investors and holiday makers purchasing here, yet prices remain affordable – a one-bedroomed apartment can be picked up for €40,000.

The Black Sea Coast

Running for 244 kilometres, the coast and its sandy beaches are popular with tourists, and this is the most well-known investment destination outside of Bucharest. Easily accessible, being close to the international airports of Bucharest and Constanta, Western Europeans have only just started discovering and investing in this area.

Prices here have risen by 100% in the last in the last few years, although you can still purchase a one-bedroomed apartment from €35,000. Generally, buyers are both investors and holiday makers, as this is an excellent location for family holidays, thanks to the gorgeous scenery and numerous activities on offer.

The main resorts are Mangalia; Mamaia, the coastline’s oldest resort; Constanta, Romania’s second largest city; and the spa town of Eforie Nord. While there is much interest from the local holiday market, there are still limited numbers of westerners renting here. Expect returns of 6% to be gained from the holiday let market.

Romanian countryside

The Romanian countryside offers some of Europe’s lowest prices, although don’t expect to experience the same level of price appreciation that you would in the towns and cities. Buyers will need to be prepared to spend some time renovating and bringing property in line with Western standards, but for €15,000 you can purchase a two-bedroomed house. Most buyers looking at these rural areas are doing so for relocation purposes.

What to buy

The best and safest investments in Romania are in the areas where there has been economic, commercial and tourist growth. These tend to offer the most market stability and also the least amount of corruption.

The most popular properties are those that offer the best chances for resale, and you can maximise your income by buying in a newly-built development. While there are plenty of renovation projects and older properties you can buy, there is limited demand for resale, and you will not be making as much money in terms of appreciation as you would for newly-built homes. Keep an eye on the construction market though, as if you buy a newly-built property, in order to maximise your income you will need to sell before demand and supply equalise.

While you will need to set up a company in order to buy land, there is money to be made by doing so, especially along the Black Sea Coast. This option will soon become more attractive as the legislation regarding land purchase is set to change within five years of EU accession, allowing foreigners to buy land as individuals.