According to a Reuters report this week, the Romanian Leu has had dropped 20% against the Euro, based on January 2008 figures over the previous 6 months! Currency exchange rate fluctuations are always a potential problem and the weakening pound is not helping UK investors in Europe at the moment either. In terms of the overall risk for UK investors buying property in Romania what does this latest news mean in reality?

The Romanian base rate also took a huge leap this week by a whole percent to 9%! Are we likely to see a Latvian style boom and bust or is this something which can be kept under control?

I would be interested in other peoples opinions who are more knowledgeable in this area. For those of us who are newer investors the fast changes which are happening at the moment make the crucial first decision of where to invest a real challenge! We all have to adopt a risk profile we are happy with and therefore need to understand how all these factors affect the overall risk of a particular investment.

Your thoughts please....

Many thanks,

Marcus P

Hi Marcus

I think the following articles will make good bed time reading. The last one hits the nail on the head in my opinion.

Regards

Charles

Prudent national bank raised foreign currency interest rate
http: / /www .nineoclock .ro /index .php?page=detalii &categorie=business &id=20080205 -511804

Bank Governor warns against inflationary spiral: increase in wages must be justified by increased productivity
http: / /www .mediafax .ro /engleza /ctrl -bker -warns -against -danger -of -inflationary -spiral .html?6966;2364331


Credit: dangerous and expensive
http: / /www .informatiacluj .ro /index .php?id=12 &tx _ttnews[tt _news]=5105 &tx _ttnews[backPid]=7 &cHash=a1b6d5840d

Net average monthly salary up 12.9% to 1266 RON (£253) http: / /www .mediafax .ro /engleza /romania -s -dec -net -avg -salary -up -12 -9 -on -mo -to -ron1 -266 .html?6966;2363714

A ‘Must Read’ : foreign investments are the source of economic growth obtained in Romania. But, this economic growth is based on imports
http: / /www .nineoclock .ro /index .php?page=detalii &categorie=business &id=20080205 -511806

Hi Charles,

Thanks for your great input as ever! I have found all your posts very informative, please keep up the good work.

The last article is indeed very interesting and relevant.

I note with interest in another post that your home town is not far from Cambridge, I live near Huntingdon, so maybe not too far away!


By the way I am very interested in Cluj.

Thanks again,

Marcus P

Dear Marcus

Thank you for your kind words....and what a small world it is. Here am I on the other side of Europe and you are ten miles or so from my UK home.

My brain's working again. Cluj has twinning arrangments with 16 cities but has no partnerships with the UK. Both Cluj and Cambridge are international centres of education and then of course there is the IT link. London Luton is 30 mins from Cambridge.... Cambridge has only two twinning arrangements, Heidelburg and Szeged, Hungary.

I'll run the idea past the Vice-Mayor here. You never know, somehting might come of it!

Kind regards


Charles

Hi Charles,

Love the idea about twinning with Cambridge! Let me know how you get on.


Best of luck,


Marcus P

Guys

Interest rates go up - and currency falls?

It isn't supposed to be like this in the economic text books.

The pound has fallen because it's interest rates have fallen.

If Romanian interest rates go up - then the currency should strengthen!

This is the most likely mid-term outcome - but at the moment markets are behaving oddly.

Still - the bit to really notice here is that the central bank has no problem raising interest rates to cool the economy.

Therefore, the problem is the boom (hey, that's why we are there in the first place) the solution is a strong central bank who will put up interest rates (even tho' politicians might not get re-elected).

Therefore, this is how you'd want your emerging market economies run, isn't it?

Cheers
Neil

ps. This doesn't stop Foreign investors taking out CHF mortgages at 3.99% or Euro mortgages at 5.95% - so it is a perfect solution, isn't it?

Not really a perfect solution for those of us who bought in Romania through PS as the prices quoted and contract prices were in euro and i presume resales will be in local currency thus effectively wiping 20% off the investment.

I think Neil's got it right on this one...nothing wrong with strong budgetary management. The RON/Lei strengthened when interest rates were increased and is expected to continue to do so.

What I have said and will say again is that monitoring exchange rates is all part of this game...and that applies to ANY currency that is involved in your transactions.

I've also pointed out previously ambiguities concerning changes in the fiscal code viz a viz TVA ( wrote about the distinction between primary legislation and methodological norms). I've just had a conversation where it has been suggested that these may be applied retrospectively. That may mean that if you are in the middle of an off the plan transaction you face a hefty bill at the end to meet TVA due on the total purchase price.

Retrospective legislation flies in the face of principles of natural law so maybe this is one that will have to go to court but in any case it needs checking out as part of any due dilligence process.

has anyone looked into this in detail?

regards

Charles

Hi Pag

Not sure how you calculated this.

If you bought at 1.50 Euros to the pound - and you calculated the Euro value - it would have gone up by 10.67% (because now you only get 1.34 Euros to the pound).

A lot of property in Romania is sold in Euros - if it were converted into RON/ LEI - then I'd expect it to be converted at the current day exchange rate.

I'm not sure quite what this means - but I don't see it follows that you've lost out (and as I point out above - you might just as well have added an extra 10% growth on top of the price growth you've already seen).

Unless I am missing something?

Cheers
Neil

Hi Pag

I've just checked the yahoo finance page - and it shows me that in March 07 the exchange rate of 1 GBP to Ron/ Lei was about 5.

Today it is 4.9.

So, I think the Euro change in the middle has just equalled itself out from a Sterling point of view.

Therefore, from a sterling point of view - there has been no change!

Cheers
Neil