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10 Reasons to Invest (Now) in Romania

Summer 2008
Part I

It is almost summer time in Europe. In Romania, this period enjoys a special pastorally atmosphere.The Romanians are massively taking the yearly holiday, the sun is stronger than ever and the streets are empty… and despite all that, underneath the surface, the market power is continuously working.
The local elections are already behind us and we are now facing a very interesting era in the real estate investments.
The Romanian real estate market and especially the one from Bucharest is encountering a dilemma.On one hand, there is a feeling of “there was a buzz here, however it’s behind us” and on the other hand, it’s very clear there is a lot of work, there are many targets and goals to achieve. A professional western eye can see easily that there is much going on in this area for at least 20 years
As a following to our article published here 2 years ago (8 Reasons to invest in Romania) , we have decided to provide a summer contribution for our reader and to publish the recent edition of the “Investor” overview in Romania.

Reason 1 – A market of buyers

During the last 5 years, the landlords and the property owners were totally controlling the market. The rules were very aggressive - no negotiation, there was nothing to be discussed and if the investor blinked, another investor would immediately come and make a better offer. The ruling belief was that all should attract a big and fast profit.
The market was dramatically controlled buy a seller, coming at the meeting in his Dacia car, pricing his lands in a few millions of euro price tag and cashing out to his new life…well, these days are soon to be over, and the focusing is now on the investors and the developers.
Along with the fact, that its getting harder to identify central locations with lands for sale, and on-filed you see mostly serious developers (and not “flippers”- the ones that buy and sell immediately), has turned the whole atmosphere into a proportionate one, which put the landlords in a completely new position (of course we are talking here of a huge crisis for the average Romanian seller who doesn’t like to negotiate or barging at all).
A stable atmosphere is desired. Suddenly, it is acceptable and beneficial for the investor to think, to compare, to check and, who would believe, to actually lower the price.

Reason 2 – The renting apartment market

One of the strongest forces in the Romanian market is the renting apartments market.
Most foreign investors which are buying new apartments in the city (they mostly buy complete floors or buildings) are targeting it for the recently married couples, the thousand of students or young families which cannot afford to take private mortgage and to buy their own apartments.
Recently, we have whiteness in the press, the prices decrease for old flats in Bucharest, influenced by the growing demands for new apartments and the fact that buyers and renters prefer to live in a new apartment. This data is empowering the trend we are discussing here. The renting apartments market will become stronger and stronger simultaneously as the banks are preparing the next revolution of the mortgaging products. They will be able to offer them to young families and new-wed couples.
This market is also pushing positively the final clients and foreign investors to buy more apartments in order to rent it. Therefore, even if there will be eventually a slow down in selling new apartments to final clients (which will actually live in it), the demand for apartments for rent will only go up and so will the expectations of the renters that will prefer to live at higher standards, enjoy facilities and nicer neighborhoods.

Reason 3 – Low unemployment rates

The unemployment rate in Romania and especially in Bucharest is kept at good results. 4.1% is the local rate (in comparing to 5% in USA, German 8.8%, 5.2% in the UK).
The entering of so many retail companies in the last 2 years, the opening of new malls and the business growth of local service companies created a high demand for work force. The jobs market remains for now sufficiently large.
Since Romania entered the EU, the average wage is continuously growing, standing today at 550€-700€ / average salary per person. This week, we have been informed that the salaries will double until 2011. All these aspects are leading to a better financial situation for the citizens.
The average person has now a higher budget for him self and of course for investments.
The banks are also seeing opportunities and so they began launching huge campaigns to encourage people to take more and more credit.

The Romanian dream is now more popular than ever: a small apartment in the city and a small Vila for vacation in the mountains. The fact that the "simple man" is now earning more money will allow him to go further and cheerfully achieve his dream.

Reason 4 – High selling price € / sqm

The apartments selling prices remain stable, standing at 1500-2000€ / sqm the average for an apartment located in a semi central location in Bucharest.
This high pricing allows landlords, which purchased their plots a few years ago, to enjoy an enormous coupon from the margins created by the real estate boom in Romania. However, this still leaves also the ones that want to buy a land in these days, the option to join the party and gain money. Even though, there is competition between the real estate projects in the city, the rules are not necessarily changed, but improving the standards, gifts and gimmicks (pretty minor for western standards) on behalf of the developers.
The smartest thing will be, of course, to locate lands in special opportunities and prices…However, as all the apartments will still be sold at the end of day, there is no doubt that the market remains more attractive than ever.

Reason 5 – To tourists keep on coming…

Have you lately tried to book a room in Marriot Bucharest?
The probable answer would be - NO ROOMS.
Besides the decreasing of €/night prices witnessed last year, we have noticed an amazing tourist industry figure all over Romania, based on exterior and interior tourists.
Within last year, not too many hotels opened. Among the new ones, Novotel, the modernly designed and stylish hotel, located in the center of Calea Victoriei in Bucharest, immediately attracted business tourism and has already reached a high occupancy rate all over the year. Last week Radison launched their new hotel, same location as historical Bucharest Hotel in the city center. Forecasts for this hotel are not less higher, based on the wining location and the strong demand for more rooms in the city.

Considering all these aspects, there were noted high demands from investors, searching each possibility to enter the hotel market from Bucharest and secondary cities in Romania. This represents an important business sector, and having such valuable assets in your investor portfolio is a must. The financial market and banks, next to various funds are take a very positive approach to investments of this kind.

What about financing solutions, The EU and the office market?...

Another 5 reasons to invest NOW in Romania in the next issue.

For more information contact us - info@mg-holdings.com