A number of property investors are still a little shy of investment property in Romania.

Property Secrets members will be familiar that we have regarded this country as offering some of the most exciting (and admittedly ‘raw’) investment opportunities available anywhere in the world – but within a low risk (EU, stable, democratic, reform lead, mortgage based, booming country).

However, many British (and Spanish too) investors get hung up on one question – that is…

How can Romanians afford to buy property when the average wage is around 350
Euros per month?

The answer is simple – most Romanians either earn a lot less – perhaps 50 to 150 Euros per month – and a large number of Romanians living in big cities earn a lot more (600 to 5,000 Euros per month).

The average comes out at 350 per month – which, by the way, only a few people earn!

Still, low manufacturing wages are a key reason for companies investing in plants in Romania.

But it is not the only reason! Also, the IT skills of Romanians are second in the world market to only those of Indian expats.

And Romania is now a key logistics centre and a booming consumer economy (2nd largest of the recent accession countries after Poland) which is generating considerable internal demand for supermarkets to superbrands!

The truth is that Romania is a country of ‘haves’ and ‘have nots’ in a way that is not familiar to West Europeans unless they have spent some time travelling in Asia or similar countries.

This ‘have’ and ‘have not’ structure extends to cars (Audi Q7s to those who hitch-hike daily or walk many miles per day) and property too (4 people crammed in a 30m2 studio flat built in the 1960s according to a crumbling North Korean style vs modern 1 bed-roomed flats with 60m2 space and a balcony).

– I bet if you are still reading this you might still be thinking – ‘hmm… not sure I believe that…’

Well, let me give you a comparison.

As anyone living in a Latin country will confirm, Coffee is a staple food! More so that hamburgers, I believe.

In Spain, Italy and any other Latin country Coffee is consumed the way the Brits drink tea – only, it is always drunk in a bar (and not made at home).

That means it is bought and consumed by people who work in fields along side people who clean the streets and others who work in smart suits and shinny new offices.

(Actually, this is exactly the make up of the average coffee drinker in the coffee bar next to our Spanish Property Secrets office in Valencia).

Therefore, like the Economist’s famous hamburger test – if I compare the cost of a Café Con Leche/ Cappuccino / Milky Coffee – then I can see the actual spending power of the local population?

To carry out this test, I have tasted and bought a Cappuccino equivalent in the trendiest bar in town (Yes, it’s a hard life!). These are my results so far

Valencia, Spain, main square– 2.20€ (not long ago it was 1€)
Budapest, Hungary, main square – 2.90€
Cluj-Napoca, Romania, main square – 1.50€

Now, what is important here is to remember that the average wage in Romanian (remember ‘average’ is just a calculation – it doesn’t mean anyone actually earns it) is just 350 Euros per month.

So, those investors who fret about average wages and the ability to buy and sell and rent property would want to know that an average wage would buy 230 cups of coffee per month – that is just over 7 cups per day.

It is quite common to drink 3 or 4 coffees per day. This would, therefore, be the equivalent of half of a monthly way – before tax!

Add the taxes and you can see that on average wages you can drink about 6 cups per day! This is not allowing for food or shelter or clothes or transport or anything else!

What this shows – I hope – is that the average wage is a crazy way to judge the spending power of Romanians – because the country is so sharply divided amongst the ‘real earners’ and the ‘subsistence earners’.

The important point here is that the coffee shops I visited in the centre of Cluj-Napoca weren’t just surviving but thriving! They were creating a young trendy fashionable environment in which you could sip your Cappuccino, Moca, Shake or Cocktail of any variety or type. (Please see the photo above - note, there are a number of people sipping Cappuccinos - these are your likely property buyers and renters)

Such conspicuous consumerism is a clear sign of a booming middle class – of aspiration – and of people who want to move from rotten old north Korean designed 60s block architecture to something modern, clean, bright, functioning and new.

I am not denying that many people living in rural areas (still a large amount of people) are living a peasant / subsistence way of life. Nor that some people living the in the cities – perhaps 30% living in very poor conditions.

Not at all.

I am simply saying that this ‘average’ view of Romania does not help you understand what is really happening in the new and booming cities. Nor does it help you make wise property investment decisions.

However, there is a very important point about Romanian cities…

The trick – and it is a very important trick – is to figure out which cities are booming and which are not.

Bucharest, the capital, clearly is going through a massive boom phase.

However, where else? Well, I believe that Cluj-Napoca (on the wealthy western border of Romania) is positioning itself to become the 2nd city of Romania (perhaps challenged by Constanta at the opposite end of the country and on the black sea).

This is a city that is drawing jobs away from neighbouring Hungary as well as pulling in building and factory workers from nearby towns such as Bistrita and Dej.

Cluj-Napoca is also pulling more than its ‘average’ share of funds from central government and has an ambitious plan to tap a large share of EU funds too.

Either way, the road transport – the major European highway from Budapest to Vienna – will pass by the edge of Cluj Napoca and its population is (ambitiously) forecast to grow from 500,000 in the metropolitan area to 2m in the next 10 years.

Hence, Cluj Napoca is the best candidate I’ve seen so far for our 200% club – and I think it has many of the features that Valencia, Spain had 5 years ago. (Valenica’s property prices have grown 200% in the past 5 years – and we are looking for more of the same…).

And… in 5 years time… a coffee on the main town square of Cluj-Napoca will cost much more than 1.5€. I reckon it will be well past 3€ and average property prices will be 250,000€ and not 80,000€.

For Property Investors it is time to wake up and smell the coffee – while there is still time and a cappuccino costs just 1.5€.

Cheers
Neil

Ps. Tomorrow I am off to the smaller Romanian city of Sibiu – European capital of culture for 2007 and another city that is drawing investment and inhabitants away from other cities as it builds its position as the capital of the local Saxon area (strong cultural ties with Germany and a lot of German spoken).

Pps. After Sibiu, I’m off to Brasov, Bucarest and Constanta – all of which will be strong candidates…. (how on earth am I going to put these cities in an ordered list?)