• EU farmers can buy agricultural land with no restrictions.
• Foreigners with legal residence in Romania are allowed to buy land.
• There are no restrictions for foreign controlled companies registered in Romania to own land.
• A foreign citizen can form a company in Romania and then buy every type of property, including land

This will change from 2013, when EU citizens will be aloud to buy and own land in the country.

• wooden floors in living area and bedrooms
• marble or granit in the hallway
• natural stone tiles on the terases
• aluminium window frames
• air conditioning in living and bedroom

Offered amenities include:

• parking
• security
• children playground
• kindergarten
• swimming pool
• gym

Services like cleaning, babysitting, house shopping are although available.

Prices are around €1700-2500 (plus VAT) per sqm. An additional €10,000-20,000 is required for parking space.


Top level projects:

Green Lake (in Straulesti, on shore of Grivita Lake), offering both villas and apartments

• My Dream
• Greenfield
• Ibiza sol
• Liziera

• Laminated or wooden flooring in living and bedroom
• Ceramic tiles in kitchen, bathroom, hallway
• Ceramic tiling for terraces
• PVC window frames
• Air-conditioning in living area

Facilities will include:

• Car parking
• Security
• Playground

Apartment are offered with good quality fit-out, including equipped bathroom but no furniture and, with some exceptions, no kitchen.

Price: €1,000-1800 per sqm (plus VAT).

Parking space will cost around €10,000.

• Many Romanian buyers opt to buy unfinished houses for a higher degree of personalization and reduce expenses. Some projects may offer the possibility for the buyer to choose the finishing within a price.
• Is not common for Romanian market to buy houses fully furnished, although a furnished kitchen can be part of an attractive offer.
• Location and access road are very important. Many areas in the city or close by are currently a construction yard. For a fast sale this could be a minus, but this means that the site will have a positive trend. Romanian infrastructure is still poor but has many investments underway. Having a decent route of access is vital for the success of every investment so you have to check if there is one in place or at least in work.

IMPORTANT: Traditionally Romanians have a predilection for concrete houses despite some advantages offered by wooden houses.

A property in a big residential project will sell better. There are a few reasons:

• The place will be all set. Inner roads, green space, everything will be done.
• You will profit from the publicity that big developers usually do. A big residential project will attract the attention of a big number of people with many selling opportunities.
• A big developer is usually more confident and efficient that a smaller one.

PRICES:

For a medium town house (attached) in a project close to Bucharest price starts from €180,000.
A 4-5 bedroom independent house will start from €300,000 in a complex close to Bucharest.
In medium cities prices are 30%-40% under the Bucharest market.

In first part of 2007 alone prices increased with 20-30%.

Price depends of various factors:

• Location (North Bucharest is more expensive)
• Size: for a medium income targeted property size is 120-250 sqm. Luxurious houses have from 200 to 400 sqm.
• Backyard area (backyards are usually very small. A bigger one will be a strong selling point but will increase the price as well)
• Closeness to parks, forest, lake.
• Access road and traffic. In some areas close to big cities traffic is impossible at high hours. Good access will be a very important selling evaluation point.

MEDIUM AND SMALL CITIES

In medium and small cities private buyers can still buy land and build their own houses. There are some small investors who develop 5-20 houses residential projects. The success is given by location and competitive price.

Medium size residential projects are just starting to be developed but are offering some very good investment opportunities.

The contract will be written in Romanian. Ask for a full legal translation performed by a authorised translator. Read and understand all the contract. Ask your lawyer or agent if you have any doubts about terms in the contract and sign only if you are entirely satisfied with it.

Setting up a company

According to the law foreigners can’t buy and own land in Romania (this will change for EU citizens in 2012).

The most common solution to this problem is to form a Romanian company.  This will usually cost you €500-1000.

There are other ways for foreigner citizens to buy land in Romania:

• EU farmers can buy agricultural land with no restriction
• You can buy land if you have legal residence in Romania

Romania is affected from time to time by minor earthquakes and once in a while by a sever earthquake. The last big one was in 1977, with important life and property loses.

Bucharest, the capital of the country is especially exposed, so a property investor must look for solid buildings when buying there.

Some important things to know:

• After the 1977 earthquake new construction regulations were imposed in order to prevent the collapse of the new buildings. So properties build after this year are considered safer from this point of view.

• Buildings from the 1950 up to 1977 may present a few problems, but are still built quite strong in order to resist a medium-high earthquake.

• What was built before 1950 presents some serious problems. There are high rise apartment blocks that are not solid and resistant right in the Bucharest center, in very expensive locations. In the case of old individual houses usually there are not resistance issues, but a professional check is recommended.

Strong advice: don’t buy apartments build before 1950 if the building was not recently restored in order to resist strong earthquakes. Always be careful when investing in old houses. Professional advice from a civil engineer is strongly recommended.

• Furnished the property to a highly-luxurious standard. Make it look modern, stand out from the others. Use modern, contemporary wooden furniture and neutral earthy colors.
• Fit-out the apartment with TV (plasma for top level apartments), DVD player, surround audio system.
• TV cable is a must
• Internet connection is cheap and will increase the demand for your apartment. Wireless network is a plus.
• Kitchen must be fitted to a high standard.
• Air conditioned is highly demanded since the temperature exceeds 30° Celsius in summer.
• Buy sofa beds in living area. Is common thing to share the apartment for short time so sofa beds are essential for guest or those sharing the apartment.

•     Check developer’s background. This is a very important aspect. You want your apartment to be ready on time and everything in place.
•     Check constructor’s background. Is crucial for the property to be delivered in good lasting conditions.
•     Take a close look at the living area. This is different from the total area that you will pay (including common areas like stairs, roof, road inside the development, common garden, etc). It is possible for the real estate agent to present you the total living area of the property without telling you that the property itself will be considerably smaller. Sometimes they only mention the living area to make the apartment's price per square meters look cheaper.
•     Developer’s partnership with a bank is a big plus. Some small developers rely the project’s finance only on buyers’ deposits. This can be risky and could cause unwanted delays.
•     Ask both the agent and the developer if it’s possible to resell before completion. Also ask who will handle the reselling process.
•     Check with the agent or the developer if is possible to rent the apartment for commercial use. Is common for small companies in Romania to have their head office in residential apartments and you don’t want to miss this lucrative rental market. From a legal point of view you need permission from wall on wall neighbors to settle office in an apartment.
•     Ask about maintenance cost. In some cases maintenance is very expensive making the property hard to rent and sell. Is common for new developments to have highly monthly cost, owners paying for common areas like inside road, pool, gym etc.

• Interest are pretty high, offering some considerably profit margin for banks, and competition in this sector will only get tougher. More banks from EU countries will try to take advantage from the new EU member country with a 22 mill people population.
• Credit conditions are still intended to sustain buyers looking to live in the properties they buy, being quite hard to take credit for pure investment purpose.
• The vast majority of potential buyers still don’t qualify for a zero down payment mortgage. They usually have to make a down payment up to 25-30% from the purchase price.

These are the main characteristics of Romania property market that are making it different from other EU countries, including other recent members like Estonia or the Czech Republic.

Conclusion: The mortgage credit sector is not overheated and has plenty of room for further development.

During the next decades most privately owned houses in cities were demolished and the population was forced to live in block apartments. These apartments were small, bad finished and were offering poor living conditions.

In late 90’s the state owned all the apartments. A political decision allowed tenants to buy the apartments for small prices. Nowadays 90% of the residential properties in Romania are owned by their inhabitants.

After 1990 many Romanians tried to regain the properties confiscated from them or their relatives. The restitution was not well regarded by political regimes in late 90’s so the process was long and many owners had to fight in court for their rights. Because of the unclear juridical regime many buildings are still in poor condition.

Restitution is now a well established process.

Only in 2002-2003 the mortgage legal framework has been improved and mortgage law became applicable. Since 2002 the economical progress, bigger income and relaxed credit conditions have allowed a growing number of people to by properties.

Present

The good news is that today housing situation in Romania is not good. Romanian society has seen some radical structural transformations, with many political, psychological and economical changes.

There is a great need for new houses and economical growth in late years has provided the means to satisfy such needs. So everything is set to profit from Romanian real estate market.

Most part of the urban population is living in old communist apartments especially because there is no real alternative. Until this year, 2007, no medium price apartment project was delivered. We expect close to 1,000 new apartments on the market in the second part of 2007 (in Bucharest).

Houses are in short too, with few residential projects in suburb close to Bucharest and other big cities, they are really like a drop the in ocean compared to actual demand.

Until now the market was dominated by individuals building their own houses and investors developing small luxurious apartment buildings in top of the market location.

Many transactions were made with big land properties, investors trying to secure land for further residential projects. Commercial and industrial land is in great demand to, in direct connection with strong economical growth.

Future

Looking on Bucharest streets 5-6 years ago you would saw many old, improper cars. Today streets are full with new, modern cars, auto industry and auto trading being one of the most profitable economical sectors in the country.

The same will happen with the real estate. Of course, there are differences between real estate market and the auto market, but the psychological and economical factors that will bring the change are the very same: people don’t like their old communist houses and they have increasing access to economical resources.

With many foreign investments and increasing productivity, income in Romania is on a very positive trend. EU integration has brought the opportunity for millions of people to work abroad. These people are sending 6 billion euro annually and most of the money are invested in real estate properties.

With expanding demand and increased medium income the properties prices are set to appreciate at least for the next 10-15 years.

1 EUR = 3.3238 RON (september 5, 2007)

• Under current legislation foreign investors can’t buy land until 2012.
• In respect to building structures, the relevant law does not provide any special conditions for the acquisition of ownership rights there on. Foreign citizens may freely acquire ownership rights over building structures, whereas for the appurtenant land a superficies right can be established (the right to use the land) as long as the building structure exists.
• Farm land and forest can be bought by foreigners only after 7 years from EU accession
• A foreign citizen can buy land if obtains residency.
• A Romanian registered company own by foreign a investor can buy and own land and other properties.
• The non-EU-foreign-citizen is able to own real estate properties in Romania in conditions of reciprocity based only on international treaties between the countries; however they cannot acquire ownership of Romanian land in more favorable conditions than citizens of the European Union.

So it is possible for any foreign citizen to form a Romanian company and own every type of real estate properties.

The most common type of company is the Limited Liability Company (“Societate cu raspundere limitata” SRL)

The minimum social capital of a SRL company in Romania is 200 RON and there is a maximum of 50 shareholders. One other characteristic is that any person or legal entity (Romanian or foreign company) can only be sole shareholder in one company.

First of all you have to understand the difference between "living area" and "total area":

• Living area is what you will really get, the surface of your apartment.
• Total area is what you really pay and it will include the living area plus the common property of the building like stairs, entrance, roof and sometimes inside rodes in the residential development, etc

Example: If you buy a one bedroom apartment with 65 sqm living area you will pay 87 sqm of total area.

Why is this important?

There are a few tricks used by estate agents in order to fool you:

• Telling you the total area of the apartment in order to make it look bigger then it really is. The living area will be written somewhere in the contract, but will not be honestly revealed during the negotiation.
• Telling you the living area and the price per sqm for the total area to make the property look cheaper.

How it works: The agent will tell you the price per sqm and the living area so you will think the apartment will be cheaper. This will happen especially in the early phase of negotiation. Latter you will discover that you have to pay more for the property because the total area you'll pay is in reality bigger that you've been told.

Strong advice:
Always ask about the "living area" and "total area" of the property especially when you're investing off plan.

This is not always true!

Why they do that?
First of all because they make some money from that. You’ll be charged between €800 and €2000  for company formation. You will need an office, accountant, manager. The agent will probably arrange for you with the office space for your new company and will find you the accountant. This will mean more commission for him.

Another reason for the agent to advice you to invest using a company is that, in some cases, the property will look 19% cheaper. As a company there won’t be necessary to pay VAT when investing in a real estate property.

A company can be more expensive in long term.

VAT. As mentioned earlier you will not pay VAT when buying, but you will pay VAT when you’ll sell. And you’ll pay 19% from the selling price which will be presumably higher.

Taxes. Taxes on property owned by companies are higher the taxes paid by private persons. Capital gain tax will be 16% of the profit for a company, which can be considerably higher than taxes paid by a private person investor (around 2-3% of the selling price).

Mortgage

If you intend to finance your investment with a Romania mortgage you have to consider that it is hard to obtain one for a company with no business history.

When you need and when you don’t need a company?

General law is that foreign investors can’t buy and own land. This will change for EU citizens in 2012. So in this case a foreign investor need to form a company in order to invest in Romanian land.

Exceptions:

• EU farmers can buy agricultural land with no restriction.
• Foreigners with legal residence in Romania can buy land with no restriction.

There are no restrictions for foreigners to buy or own apartments. But a foreigner will not be allowed to buy the land surface on which the building is standing, having instead the right to use it as long as the building exists. So in this case a company is not absolutely necessary.

Economical point of view

From an economical point of view o company will be more profitable when your virtual exit is rather another investor or a business owner, like in the case of commercial properties. He will buy using a company too, so you will not have to pay VAT on the selling price.

If your exit will much probably be a private person looking for a place to live he will be regarded by the law as final buyer so you will have to charge him 19% VAT diminishing your profit.

Professional legal advice is highly recommended.

  • age: 25-50 years
  • income: €500-2000
  • owns a property or has €20,000-40,000 from savings and family
  • active life

Property they look for:

  • Old apartment (communist apartment) in good position.
  • New built apartment in modern complex. There is a limitate number of new apartments on the markets. Only off plan apartments are available for purchas at the moment, with some of them to be delivered by the end of 2007.

Price:

This type of buyer will be able take €60,000-120,000 mortgage, with an additional €20,000-60,000 from savings and their spending limit is €160,000.
Is common for banks to cumulate family income (wife, parents) when appling for mortgage.

Income grow and more flexible price conditions will alow this buyer to take a €130,000-170,000 mortgage within 2-3 years. This will increase the maximum spending limit to €230,000 in 2010.

IMPORTANT: Because this buyer is looking for a house to live in he will be tempted to buy a new project apartment in a final stage of execution, rather than in an earlier one.

In medium cities property prices are 30-40% lower and is usual to build your own house.

Medium-high income buyer

  • 28-50 years old
  • €2000-8000 monthly income
  • works in an international company on a middle management position or is a lawyer, doctor, or medium size business owner.
  • Active life
  • Lives in major cities
  • Owns at least one property, probably an old apartment in medium-god location.

This type of buyer is looking for a house to speak his social position. He will prefer a suburb villa in a new residential development or a new top location apartment.

This property will cost from €180,000 to €350,000. Recent low changes allow to people with over €2000 monthly income to take credit in less restricted conditions. This will increase pressure on top level properties.

Is common for high income buyers to invest in a second property, usually a holiday house or a buy to let property.

Economical boom in recent years resulted in a consistent number of highly paid people especially in Bucharest and major cities. This is the reason for the very big demand in upper real estate segment with many investors ready to cater this very profitable segment.

Rich Buyer

  • Local and international businessman
  • top politician
  • top management in multinational company

They are forming a very particular class of investors. Owning big land properties they profit from price grow in this sector. They are also the buyers of old representative villas in top location. Is normal for them to spend €1-4 mill for a property.
Investors are targeting this type of buyers, with luxurious developments in best location. In Bucharest the upper segment is concentrated in north area, with places like Primaverii on top of the property market.

When buying for investment, ask yourself who is going to buy form you. Is it going to be another investor? Is it going to be a local buyer in search for a house to live in? Well, if the answer is another investor you’re probably in the wrong place. A solid investment market is sustained buy natural demand and not buy speculative investments.

Romania Property Market is sustained by local demand.

This is undoubtebly the strong argument for investing in Romania: there is a strong need for houses. According to official data the market is 1,000,000 units short and there is a new middle class that can afford to buy new properties.

There are 4 types of buyers on the market, with the middle class counting for 75% of the sells.

1. Middle class buyers. They are the new developing class in Romanian society, profiting from economical revival in last years. They have access to high incomes, mortgages and own properties (mainly from family) that they can sell. They will look for new, better properties to correspond to their new social and economical status. This category is actually counting for 75% of the market.
2. Small Investors. They count for 15% of the market. They buy in order to rent the property and to make a profit from increasing prices in the Romania property market.
3. Rich buyer. In past years a new social class has emerged. With access to big resources, this buyer will need to buy luxurious properties in top of the class location. Old renovated villas in Bucharest north area, new luxurious apartments close to Herastrau Park, big houses in green suburbs like Corbeanca, this buyer will pay anything from €1mil to 4 mill. For some super-rich the limit for a property goes beyond €10 mil. This category accounts for 7% of the market.
4. Multinationals and Embassies. These institutions own a permanent portfolio of luxurious properties used by their foreign staff or as offices. They count for 3% of the market.