The future of real estate investments in Romania

"To buy, or not to buy, this is the question"

Whether it's Romania or the USA, in the current context of global instability buying a home is an important step in many people's lives. Of course, this decision is made with difficulty because of the fluctuating real estate market in Romania and beyond. This leads many to wonder: when is the right time? Am I making the best choice by investing in this house? How will the real estate market evolve in the coming years?

People who want to invest and not just buy a home for themselves will also find themselves in this situation, but they may not know all the details involved - we're here to clarify them!

WHAT THE REAL ESTATE MARKET INCLUDES

"The real estate market includes all transactions aimed at acquiring a property, which can take the form of homes such as houses, apartments, industrial buildings, commercial spaces, land etc."

ROMANIAN CULTURE

The effects of post-communism are still present in the Romanian mentality of owning property and having the certainty of possession of a stable, non-volatile thing. It is possible that people's deprivation of goods may eventually become so influential that it determines a way of life for the culture of an entire country. Thus, Romania is a leader in Europe in terms of property ownership ahead of other Western countries.

BENEFITS

Nevertheless, this fact is not necessarily a bad thing because it can bring benefits through:

• Renting the property - both through the classic long-term concept and in the short term through a hotel regime
• Capital appreciation - which can be estimated based on the increase in real estate prices
• Resale - which materializes the capital appreciation.

The current trend in Romania shows that the most profitable cities for long-term investments are:

1. Cluj-Napoca - we all believe that you have heard how the real estate market has had an exponential growth in this city due to numerous university centers, modern infrastructure and the IT industry that has established its roots there.
2. Bucharest - the capital of Romania brings about 28% of Romania's GDP, so an investment here can never go wrong.
3. Brașov - this city is in continuous development on all levels. Its history of the Saxons in the area, the local tourist attractions and its geographical location in a mountainous region rank it as a top place in the so-called national tourist treasures.

Thus, real estate is one of the few goods that successfully withstands the passage of time and the power of inflation and certainly it brings a long-term profit in the future - A SECOND SALARY.

Of course, the flip side of the coin is present everywhere and in this context it can be highlighted by situations given by some problematic tenants, increasingly burdensome tax increases, as well as controversial and unpredictable global economic crises.

BRIEF HISTORY

Regarding the real estate market in Romania in the last 10 years, we can say that it has had periods of fluctuations due to global events.

One of the most significant events that the economic sector, and implicitly the real estate market, was subjected to was the crisis of 2008 from which banks, investors and developers made great efforts to emerge over the next 10 years.

The pandemic in 2019 caused a deadlock in the real estate market as transactions decreased. People became more hesitant to buy due to the turmoil of events. Moreover, bank loan payments were deferred, and credits were blocked at one point, only to be granted later with lower interest rates to stimulate recovery. What is surprising in this situation is that real estate developers continued their activity, even though demand was lower and conditions were more challenging. However, at the beginning of the pandemic, premium real estate paid in cash, such as houses and intravilan land outside cities, were at the opposite pole, which remained and then became sought after.

Later, in 2020, the post-pandemic effects showed us that the population started flirting with investments again and as a result studio apartments became popular in the field. We are in a period of gradual return to normalcy.

In 2021, the real estate market began to take an upward trend by buying 2 or 3-room apartments.

The year 2022 continued the growth of real estate sales, being the 3rd consecutive year when this happened driving a 54% increase in the last 3 years.

CURRENT - 2023

The border war and the energy crisis have left their mark on real estate prices, which have been steadily increasing since the start of the war. Among other factors that led to this increase are factors related to both investors and developers.

• As far as developers are concerned, they are facing: increasing construction costs and, consequently, more laborious completion periods than initially established, the crisis of materials that have become increasingly expensive since the pandemic and the workforce which is becoming less and less available but expensive. In this situation, it must be remembered that deficient Romanian bureaucracy does not help either, but, on the contrary, it is a potentiating factor.

• Regarding investors, they are divided into two categories:

1. The first category is facing the problem of loans, which in addition to increasing interest rates have become increasingly difficult to access, leading many to remain in rental housing. However, we predict a bleak future, calling 2023 the year of _ rentals_ .

On the other hand, those in the IT sector are opting for cash payments. Because of these factors, 2023 will create a marked distancing between the two categories, which is driving developers to take risks, as evidenced by the rate at which construction is taking place in the Bucharest-Ilfov region and beyond.

All of these factors could lead to a possible new crisis in the years 2023-2024, in which developers are no longer necessarily willing to negotiate prices due to obvious reasons of covering expenses and gaining profits to enable expansion. At the same time, the purpose of the real estate market is to transact, so a possible crisis can only be avoided if developers begin to be more flexible with property payments. Consequently, they have done so by supporting buyers with installment payments, which have continued the flow of transactions.

In conclusion, 2023 will be a year of adjustment, of relation between the demand of investors and the offer of developers, which will be based on reaching a consensus regarding the current needs of both parties. This could lead to a stabilization of prices and inflation in the second half of the year.

PREDICTIONS

However, in the next 2 years 2024-2025 we can still expect a price increase due to the growth of transactions based on higher demand caused by lower supply. This reduction in supply is somewhat influenced by the management of each city's municipalities, which are authorizing fewer and fewer construction projects, blocking city zoning plans and making it difficult to reconstruct historic properties. On the other hand, the 2024 election could be the key to alleviating this issue, as politicians' promises could have a positive effect.