By the end of 2019, property developers will have delivered 40% more new housing units than 2018, according to data from consultancy firm Imoteca. There will be 14,000 this year, compared to 8,500 in 2018, according to property developer data.
There are currently more than 105 large and medium residential projects under construction in Bucharest and Ilfov, which are the areas with the most residential transactions in Romania, followed by smaller cities, according to Imoteca, who stated volume projects have reached almost the same share as mass-market projects, namely 45% compared to 50%, with the remaining 5% represented by luxury projects.
Many new small and medium volume projects were created in Bucharest’s residential areas, close to public transport, and with accessible prices aimed at medium to high revenue clients. Meanwhile, mass-market projects tend to be located at the city’s outskirts such as around the Centura (ring road) including new areas previously undeveloped or industrial areas such as West and South West Bucharest, which are aimed at clients with lower budgets
Property prices continue to rise, but the pace is definitely slowing, as is demand, amidst rising interest rates. Economic growth, while it remains robust, has decelerated from the previous year.
In 2018, the national average selling price of apartments in Romania rose by 6.44% (3.32% inflation-adjusted) to €1,239/ sqm, from 2017, based on the figures from imobiliare.ro. However, this is a market slowdown over 2017 (10.9%) and in 2016 (10.4%). 2019 figures are yet to be published but from our experience, it will be less % rise than in 2018.
I’m regularly asked “is 2019/ 2020 a good time to buy new residential property, as the market seems overheated?” I divide my buyer’s advice into 3 types
For a personal residence: since it should be for the long term, greater than 10 years (otherwise it is often better to rent), the risk of any downturn is reduced as recovery cycles are usually less than 10 years. Since it may be your only purchase…
· Avoid buying too early off-plan from unknown or unproven developers as some do not complete the build within budget due to lack of planning, rising borrowing costs, building errors, legal irregularities and so forth.
· Make sure you are happy with the quality, as many new builds have unacceptably thin floors, walls, ceilings, doors, and substandard finishes.
· Chose a location that suits your current and potential future location needs, avoiding run-down areas. This is not the purchase on which you should take risks, since it will be your prime property.
For investment purposes: here the key is to retain for at least 20 years to ride out at least 2 cycles of falling/ rising markets to eliminate any risk of losses. In such investment instances…
· Look for a property that gives between 5 to 6% rental return, meaning a year of gross rent income equals 6% of the sale value of the property.
· Avoid residential property with higher than 7% yields as it often suggests under-priced buildings such as those with seismic risk or hard to sell property, which will later impact you when selling, or has unsustainable rent expectations that may result in long-vacant periods, since there is plenty of alternative property a tenant can choose from.
· Location, Location, Location are the 3 keywords here. Avoid ‘bargain’ property in remote locations unless you want a risky portfolio. The safe zone is one in which your investment is always in demand, eg, near a Metro, University or business district.
· Do not over-invest on the interior. 10 to 15% of the new purchase price should be enough to equip a property well.
· Invest in good quality, medium-range fittings, not high specification budget brands as they do not age well.
For leisure purposes: This includes a weekend home, lakeside or mountain property.
· Plan ahead for your future needs, e.g. what would suit your family for optimum use, rather than what suits you as a single person now.
· Keep the investment to a bare minimum and avoid over equipping with contents that will receive little use.
· Consider your exit strategy well. Bargain property does not usually grow as fast as standard priced investments, and the same is true of remote locations or quirky or low-quality property.
This advice is simplified for space reasons but a good real estate agent should be able to expand on this advice.
Damian Galvin runs White Mountain Property, which is in its 14th year on the Romanian sales, rental and property management market, with experience in Bucharest, Ilfov county, Brasov County and surrounding towns.