Romania's real estate market is experiencing a surge in demand for residential properties due to increasing interest from foreign investors. Let's discuss the pros and cons of investing in Romania today for buy-and-hold investors aiming for the highest cash flow.

Pros:

  1. Strong Demand for Housing

Romanian law sets the projected lifespan of residential buildings at 50 years. With most urban houses in Romania built by 1989, they are rapidly exceeding this lifespan, making banks unwilling to finance such properties. This creates more demand for newer housing eligible for loans.

  1. Stable Houses Prices Increase

In early 2024, Romania saw an average increase in apartment selling prices by 6.49% compared to the previous year. However, when adjusted for inflation, prices actually dropped by 0.86%.

YoY Raise of Prices in Major Cities:

  • Bucharest: 5.35% increase (-1.92% inflation-adjusted), €1,634 per sq.m.
  • Cluj-Napoca: 10.18% increase (2.58% inflation-adjusted), €2,640 per sq.m.
  • Brasov: 14.09% increase (6.21% inflation-adjusted), €1,790 per sq.m.
  1. Affordable Prices

Cluj-Napoca is the most expensive city with €2,640 per sq.m., showing a 22% increase compared to the previous year. Bucharest remains more affordable relative to the average wage and it accounts for more than 46% of total sales. Romania has the lowest housing prices per sq.m. in the EU, after Greece, indicating potential for price increases.

  1. Falling Construction Activity

Residential construction activity is declining, causing limited supply and rising demand and house prices. In 2023, the number of residential building permits fell by 20.6% compared to 2022.

  1. Modest to High Rental Yields

Romania’s gross rental yields averaged around 6% in 2023, according to a Global Property Guide.

Rental Yields by Major Cities in 2023:

  • Bucharest: 4.03% - 8.98%, average 6.36%
  • Cluj-Napoca: 5.34% - 8.41%, average 6.46%
  • Brasov: 5.93% - 7.92%, average 6.74%
  1. Low Demand from Local Home Buyers

The National Bank of Romania (NBR) has kept the interest rate unchanged at 7% since January 2023, leading to decreased housing loans and fewer local home buyers in the market.

  1. Decreasing Unemployment Rate

The unemployment rate has been steadily decreasing since 2018. By the end of 2023, the seasonally-adjusted unemployment rate stood at 5.4%, down from an annual average of 7.8% in 2000-2017.

Cons:

  1. Less Demand for Rentals from Locals

With over 95% home ownership, Romania has the highest home ownership rate in Europe. It also ranks high in the number of people living in overcrowded homes, leading to potentially lower rental demand from locals.

  1. Sluggish Economy

Romania’s economy slowed in 2023, registering a GDP growth rate of just 1.8%, down from 4.7% in 2022 and 5.9% in 2021. The economy is projected to grow though by 2.9-3.0% this year and by another 3.2% in 2025, according to forecasts from the European Commission and the IMF. The average GDP per capita has increased by 13.9% over the last 5 years, well above the global average.

  1. Corruption

Despite some improvements, corruption remains a significant issue. Romania still ranks among the worst-performing EU countries in the 2023 Corruption Perceptions Index.

Conclusion:

Investing in Romania’s real estate market offers several advantages, such as strong housing demand, affordable prices, and good rental yields. However, investors should be aware of the potential drawbacks, including less demand for rentals from locals, a sluggish economy, and persistent corruption issues. Overall, careful consideration and due diligence are essential for making informed investment decisions in this market.