Romania: The New Call for Investors

Says Pelle Langli, chief executive of Emerging Real Estate - one of the UK's leading emerging property investment consultancies - and agent for Basarabia Boulevard, a luxury investment opportunity in Bucharest.

Over the last 18 years, there's no doubting Romania has worked hard to shed its Ceausescu past. The whole country, led by its buoyant economy, is on the way up, but what is driving the property market and what are the options for potential investors?

Firstly, current demand heavily outweighs supply. There are over two million Romanians living in Bucharest, yet last year just 8,800 homes were built across all sectors and for all demographics. City planners and the National Housing Authority believe there is a need for some 200,000 extra homes specifically for the emerging middle classes.

Statistics show that there are now 100,000 Bucharest residents considered to be in the middle class bracket. This new social sphere is becoming ever larger and more powerful as international corporations such as KPMG, Orange, Oracle, Toyota, IBM, Alpha Bank and ING Bank open offices in the city. This type of foreign and large scale commercial investment has brought, and will continue to bring, re-generation, employment and increased wealth to the local population who are renowned for enjoying luxury goods and prestige sports cars.

In January 2007, Romania joined the European Union (EU) which prompted the kind of investment that had never been seen before. EU development funds are now pouring into the country to improve the general infrastructure and large scale private investment is attracted by the cheap labour market and the availability of hard working locals. According to the CIA Factbook, Romania now tops the table when it comes to growth in the emerging markets of Europe with 2004 seeing GDP at 8.5%, 2005 at 6% and 2006 at 7.7%.

After the revolution in 1989 and the fall of Ceaucescu, every Romanian citizen was given their home. This means that 89% of the population now owns their home without a mortgage, so they are equity rich and not afraid to spend it on more modern and luxurious properties - even though the Romanian mortgage market in is still in its infancy. There are also a lot of young Romanians who are taking advantage of this lending and are now getting on the property ladder ensuring a new wave of property owners are coming on stream. Mortgages have only been available since 2003 and account for only 1% of GDP compared to 49% in the UK, which leaves a huge potential for growth.

At the present time, foreign nationals are forbidden to directly own real estate in Romania. However, a Romanian company may own property even if that company is 100% owned by a foreign national. The process for creating these companies is not difficult for investors if a credible law firm is instructed to set up a limited company based in Romania.

There is an added bonus in that these companies will be exempt from the VAT that private individuals must pay - this currently stands at 16%. In most instances, the deposit is set at an amount equal to 20% of the overall purchase price of the property. Associated expenses, such as lawyers' fees, notary costs and state taxes will account for at least an extra 5% of the original purchase price.

One key investor opportunity is Basarabia Boulevard - situated in a popular city centre suburb of Bucharest. The development will comprise of 850 studios, one and two bedroom high specification apartments and has a selection of incentives designed specifically for the investor market with prices starting at GBP57,478.

Only 25% of the property is being released before construction begins in September 2007 and the other 75% will be sold to the local population when the project is completed in September 2009.

Pelle Langli, chief executive office of Emerging Real Estate, commented; 'Romania is quickly gaining recognition as one of the world's most exciting investment hot spots. For Basarabia Boulevard, we've worked hard to formulate an attractive payment plan of 20% on contract and 80% on completion, two years later. This offers investors two options; either to 're-sell' the assignable contract to another buyer and release a short term profit or, to complete the investment with 80% loan to value funding. This will allow an immediate release of equity following the expected capital growth over the two year build period. The developer will manage both these exit strategies as it will have sales and lettings agents based in Bucharest.'

Emerging Real Estate's Reasons to invest in Romania:

- Bucharest's economy is now expanding rapidly and is expected to have achieved over 9% GDP growth in 2006, making it Europe's fastest growing city economy (Source: BSL Experian, EIU, October 2006)

- Unemployment was estimated at 6.1% for Romania as a whole for 2006 (CIA Factbook)

- EU Accession has created considerable momentum for international business and has stimulated a significant upswing in Foreign Direct Investment which is forecast to continue for the remainder of the decade. (Jones Lang LaSalle)

- The population of Bucharest has a high disposable income relative to total incomes.

- There are over two million Romanians living in Bucharest and last year only 8,800 new homes were built across all sectors and demographics. City planners believe there is a need for 200,000 extra homes specifically for the emerging middle classes. (National Housing Authority, Romania 2006)

- The developers of Basarabia Boulevard, RI Investment Group, have delivered some of the largest investment projects in Romania.

- Capital growth in the residential sector of Bucharest is expected to increase by 20% to 30% in 2007 according to Channel4.com.

- Local demand among the emerging middle classes is currently high - Colliers International predicts "the middle income segment of the Bucharest market is entering its long expected boom."

- Unrivalled Foreign Direct Investment - Romania received nearly $11 billion USD in 2005. Romania attracts huge investment due to the cheap labour market and the availability of hard working locals.

- Large corporations already have a presence in the city including KPMG, Orange, Oracle, Toyota, IBM, Alpha Bank and ING Bank. This type of foreign investment brings employment and increased wealth to the local population, increasing salaries and the spending power of the locals.