Smart investors have known for some time that there are great opportunities in what Property Secrets dubbed the Eastern Eight – those eastern European countries – all of them former communist states – which joined the EU in May this year.

But already the net has spread to include the next wave of EU entrants.


Two important factors

One of those countries, Romania, the Property Secrets team believes, holds enormously attractive prospects for the investor prepared to factor two elements into an investment.

Firstly, they will need to accept the prospect of raising capital outside  the country – perhaps by remortgaging existing investment properties on their primary home - because finance is not yet available to foreigners.

This is likely to change rapidly after EU accession in January 2007, if not before.  At that time the idea would then be to mortgage the investment unit in order to free up your capital.

Secondly, the real estate market – while expanding fast – is still in its infancy.  This adds some complications when buying – to acquire land you need to form a Romanian registered company (buildings can be freely owned).  But, again, these impediments are expected to reduce as EU accession gets nearer.

But we also have to bear in mind that Romania is a country unused as yet to doing business the western way. A transaction in Romania does not have to be a nightmare – but it’s wise to bear in mind, for example, that corruption is part of everyday life there.

An expert to guide an investor is a must, in our view.  Failing that, you should buy through an established company offering deals in the country.  In short, going it all alone can be very dodgy.  Buyer beware!

However, there are a great many points in Romania’s favour that make the country a great opportunity.

Why Romania?

The most important factor is the rapidly growing domestic mortgage market – in effect an expanding middle class with aspirations to buy their own home – and this is a very attractive element, but this applies to just about every country you look at in the region. Except that Romania is starting from a very low base indeed.

In the medium term, though, perhaps top of my list for taking the view that Romania is going to be the next property hotspot is the fact that – along with Bulgaria – it has already convinced the European Commission that it is ready for EU entry in just over two years time.

But, don’t delay your research because property prices will start to rise long before then – during the anticipatory phase.

Just a couple of weeks ago the European Commission made a key announcement.

It said that it would,  "make every effort in order to meet the objective set by the European Council to successfully conclude negotiations with these two countries (Romania and Bulgaria) by the end of 2004".

The aim is to sign the Accession Treaty with both countries as early as possible in 2005.

'Romania can be ready for membership by January 2007', the EU Commission concluded.

It added that the Romanian authorities had 'established a track record in implementing their commitments.'

Opinions vary on what signing the Accession Treaty will do to property prices.

In other countries, leaps of 40% have been recorded at this stage. But whatever happens in the immediate future, there is good reason to believe Romania will see a significant rise in real estate prices, especially in Bucharest.

The great attraction of Romania is that prices and the property market in general are in its infancy.  As such, phenomenal growth can be anticipated.

Here’s a fact that surprises a lot of people:  Romania is the second largest country by population in Central and Eastern Europe, after Poland, with 23 million consumers.

One school of thought has it that prices can be expected to rise by at least 25% before the start of 2007 and accession. That’s just over two years from now.

These are modest predictions, we believe.  15%-30% growth a year is more realistic. And this kind of growth will go on long beyond accession.

According to Romanian property market expert, Octavian Bota, there is an imbalance in the market at all levels, even at the luxury end.

There are several factors already driving up prices and these will increase in significance.

The most important is the impressive growth of the economy.

Inflation has fallen from astronomical levels and is continuing to fall –from 154% in 1997 to 14% last year with a rate of 9% expected this year.

GDP continues to motor – with 5.6% predicted for 2004, up from 4.9%in 2003.

That means wages will rise, and this in combination with the wider availability of mortgages will drive the domestic market. Once again, we are looking at the emerging middle classes as the place to aim your investment.

New regulations have opened up the mortgage market domestically and it is expanding rapidly. Interest rates are still high by western standards – some 7 to 9% above base, but when you consider inflation (including wage inflation) this does not look so high.

And, of course, higher inflation always makes borrowing money more attractive because the loan gets cheaper faster with time.

Generally, prices in Romania increased by some 30% in 2003.

And, just to prove our point about aiming an investment not at the luxury end of the market, but at far more modest units suitable for the aspirant middle classes, Octavian Bota points out that the biggest rise – more than 50% - was for block apartments built before 1989, which usually sell for below 30,000 euros.

Bota puts it like this: “Probably the most important segment of the market, which is still in an incipient stage, will be urban developments to be built for middle-income families, with the support of the government, under the provisions of the mortgage law.

"Almost all municipalities have drawn plans for such developments, and it is hoped foreign investors will compete for their construction."

What is going to drive the economic engine of Romania, along with property prices - as it will those of other new members of the EU - is a massive influx of foreign investment.

In this regard Romania, now it has improved its fiscal and judicial systems and resolved property restitution problems, and generally come up to EU standards, really stands out.

Why?  Because huge infrastructure spending is in the pipeline - especially for telecoms - AND it has a motivated and educated labour pool that is still incredibly cheap.  The average monthly salary in Romania is 150 euros; in Hungary, by comparison, it’s 450 euros.

Romania, then, offers the kind of combination that is highly attractive to foreign business investors.

In the last seven years, the construction market alone has seen investments of around $20 billion.

In 2003, the country received $10,433 billion in FDI overall  - a 59% increase on 2002.   This kind of money in a country with such low labour costs is going to revolutionise the economy. And the property market will be pulled along in the wake.

Want to look into Romanian real estate further?   Try these links to start with:

http://www.e-realtor.ro/

http://www.viviun.com/Real_Estate/Romania/

http://www.realtors.ro/