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Cluj-Napoca, Romania – winning the battle to be number two – candidate for 200% club?
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Cluj Napoca, Romania – a city of 314,000 inhabitants plus a further 65,000 students - expects to grow in the next year to 500,000 by a simple sleight of hand.
The sleight of hand is that it will extend its city boundaries to create a metropolitan area that takes in neighbouring villages on the edge of the city and so boost the population towards 500,000.
However, there is logic in the sleight of hand, and more significant is the claim that the city will at least double in size to 1m population in the next 10 years (although the more optimistic figure is a quadrupling of size to 2m).
One reason for the new metropolitan area is that EU funds are handed out on the basis of population numbers. Therefore, expand your city and get more money! It seems it is that simple. A second reason is that there is a real battle going on between the different cities in Romania to attract the big investment money and private companies. Being bigger makes you a more obvious choice.
And of course, an expanding city population – coupled with a desire for bigger living spaces and better accommodation – will turbo charge property prices and returns for property investors.
Equally, Cluj-Napoca is proving successful at drawing more than just EU funds and is winning a whole list of battles to become Romania’s second city – as below:
i) The city major is a senior figure in the ruling national government and is proving successful at tapping government funds for the city
ii) The city (well actually the village of Jucu - just outside the city – but soon to be incorporated in the metropolitan area) has just won the Nokia mobile phone manufacturing plant. This was in the face of stiff competition from an existing plant in Hungary and Brasov – also in Romania.
iii) The European highway will pass close by to Cluj-Napoca and so free the city centre and residential districts from national and international traffic and trucks
iv) Cluj-Napoca keeps large numbers of its young graduates – as they like the lifestyle plus they can find good jobs and excellent opportunities in the city. Equally, the city is smaller and easier to navigate that the capital Bucharest (A bit like choosing Manchester or Edinburgh in place of a London career).
v) The large student numbers are guaranteeing Cluj a steady workforce of young people every year (this is not the case in many cities)
vi) Significant numbers of highly influential ex-pat Cluj residents are returning to the city and importing Anglo-Saxon capitalism and professionalism
vii) The city is building two large shopping centres – as either end of the town and has plans for a third centre in the town centre with a fourth mall a future possibility.
viii) The population growth of the city has moved it from 5th largest to 2nd largest city in Romania based on latest figures
Being a winning city in Romania is vitally important – because there are significant migration flows of people in Romania – and understanding those flows (and predicting their patterns and direction) are key to finding a 200% growth candidate vs a non-performing asset.
Here is why….
Essentially, property prices rise when the demand is greater than the supply. The supply is relatively easy to measure – how many building permits were granted and units completed in the past years.
However, demand is much more tricky to predict. However, once a country has a maturing financial system (offering mortgages and credit at reason terms for property purchase) then the simplest rule of thumb is to measure or track migration.
Essentially, when new jobs are created, this draws in workers from outside. For instance in Cluj-Napoca the unemployment level is currently 1.9% and there are significant number of construction workers who have been brought into the city to meet the work demand. (These have come from nearby Romanian villages as well as from as far as Turkey (alledgedly 1,000 are working on the motorway – and are housed in a temporary camp near the site). Equally, to meet the battle of the malls (ie two shopping centres are both competing to be the first mall to open in Cluj-Napoca and win the publicity battle) one constructor has employed a large construction team from China.
On another building site we found Romanians working – but interestingly, they were not from Cluj-Napoca but from the nearby village (where there is no work).
Clearly, the Nokia plant will also employ a large number of low cost workers – but the managers and senior managers (perhaps 20% of the total force) will quickly see their incomes rise to similar levels as managers and senior managers in other Nokia plant.
And, it is likely that many of these new Cluj-Napoca workers will come from outside Cluj-Napoca – or will have been drawn to Cluj by the university and persuaded to stay by an interesting and well paid job.
In addition, Ikea has situated its construction factory next to the Nokia plant and many component suppliers have agreed to move to Cluj as well to supply these two massive assembly lines.
Now, whilst FDI concentrates on the ‘big’ industrial investments – and the evidence of them can be seen in large shinny grey sheds appearing in new business parks – the real growth of a city is driven by services and service industries.
It is well know that service industries deliver higher wage growth than manufacturing (likewise, the managers in the offices of Nokia will be treated as white collar workers – earning salaries far, far higher than those on the assembly line).
Cluj-Napoca is building for itself a strong presence of banking and accounting services. For instance, the Transylvanian Bank has 25 branches in Cluj and at least 4 processing/ business offices. This is the largest bank in the town.
Retail and retail services are also key to a cities future. And whilst it is obvious that the new retail centres will drive consumption (with lower prices and more choice – many Cluj residents still travel to Germany for better and cheaper clothes) they will also create jobs and the need for distribution and supply chain management.
And guess what? Right next to the Nokia business park there will be a large leisure and cinema complex built.
One serving the needs of the other – and so on and so forth.
In fact, whilst many will concentrate on the headline figure of 15,000 jobs coming to Cluj-Napoca as a result of the Nokia decision (direct employment at Nokia and its suppliers) the real significance lies in the development of services to meet the needs of these businesses and new inhabitants plus the substantial infrastructural developments.
My understanding is that in order to secure Nokia’s signature the local government had to agree to an extension to the airport runway (from 1.8 to 3.2 kms – so that it can now land intercontinental planes) and a 4 lane (each way) highway connecting the airport with the Nokia plant.
And, as you’d expect, business parks are going to jump out of the ground around the airport and such a substantial highway. There is no reason to believe that they will have anything to do with mobile phones or furniture – simply that the proposition of such fabulous infrastructure will be unbeatable in the western side of Romania.
The real growth in Cluj will happen naturally now, it just needed a few kick starts and the Nokia decision will be key to drawing in new businesses and new jobs in non related sectors.
Let me also mention what has happened to retail in the city..
The first multi-storey car park opened two weeks ago (a sad day of course, but clear signs of increased shopping power and cars – ie the ability to carry away a lot of goods in one go)
At least two more multi-storey car parks are on the way
2 years ago there were only 10 high street brands in Cluj (the rest were cheap Chinese stores or 2nd hand shops – see my article on what second hand calculators told me about the property investment market in Brno, Czech Republic
Now, there are 200 to 300 high street brands in Cluj and the 2nd hand stores and Chinese shops have nearly disappeared (rents per m2 have risen from 75 to 250) and the new shops are thriving and making money. - The new city centre pedestrian area – Boulevard Eroilor – will open in Sept 07
Any new supermarket launched in Cluj-Napoca was swamped the day it opened its doors
There is something highly energetic about this city – even on a 37c day in late July when the students had gone home and many were on holiday.
I must say, I’d hate to see the traffic on a busy day – but this is one bustling and thriving city that is going places.
My view is that Cluj-Napoca will win the battle of the biggest city in Western Romania – and has an even chance (with Constanta) of becoming the 2nd city in Romania.
Either way, Cluj will deliver substantial growth in the coming years for smart property investors who can see beyond the present and foresee the potential.
The key is that this is a true free market – many people are behaving like entrepreneurs and new businesses are cropping up left right and centre. This compares with the (almost) stagnant feeling that I get when I visited a city like Vienna – which is highly regulated and over controlled.
In fact, a number of Europeans (Brits included) and giving up on life at home and moving to Romania because they see massive opportunity and the freedom to innovate.
Cluj-Napoca increasingly has the means to attract and keep the smart minds and entrepreneurial skills that will drive the city forward. If you can stand the traffic there won’t be many better places to launch a new business.
And that also means that there is very real energy AND action behind Cluj-Napoca’s claim to double (if not quadruple) its population in the coming years.
This will massively drive property prices – especially for those developments that are well or centrally located – and offers great opportunity to smart property investors.
So yes, Cluj-Napoca makes onto my 200% growth list.
Cheers
Neil
Ps. Next stop – Sibiu – city of culture 2007 – a stunning story of a town undergoing a historical and practically miraculous recovery. (I have the feeling my list might be filling up quickly…)
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POSTED BY
NEIL LEWIS
ON
FRI 27TH JULY
AT
21:13 GMT
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TAGS:
Romania Property, Property Price Growth, Property Investment, Cluj-Napoca Property, Cluj-Napoca Property
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 Neil Lewis, CEO and founder of Property Secrets, is an experienced property investor in his own right and author of two highly successful property investment books, Buy To Let Secrets and Property Developer Secrets.
Neil owns property in the UK, Spain, Poland, Romania and the Czech and Slovak Republics. He is a regular columnist for Property Week magazine and has been quoted in a number of UK and European broadsheet newspapers and magazines.
A regular speaker at property investment events, Neil has appeared at CEPIF in Warsaw and the Property Investor Show and the Homebuyer Show, both in London.
His business background is from publishing to a wide range of industries such as Finance, Music, Travel, Economics and Politics before setting up Property Secrets seven years ago. Neil studied Philosophy and speaks German, Spanish and a lot of English.
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