Romania – an Undiscovered Gem Tipster’s # 1
It came as a surprise to a lot of people when A Place in the Sun, the popular Channel 4 television programme, chose Romania as its number one investment destination. A surprise to many, but not to us. Because when you look at this stunning country a little more closely, the reasons for its top investment ranking become only too clear. Amazingly cheap
More cautious investors are often drawn to better-known regions, where foreign investment in property has a long tradition. The Spanish coast, say, or the Algarve. And there’s nothing necessarily wrong with that. But it’s exactly because Romania is not yet well-known – a country with its mortgage and real estate industry still developing - that there are potentially huge profits to be made. The average property price in Romania is £20,000. (No, you don’t need new glasses, that’s £20,000.) And experts believe a well-chosen property investment made now could net you a 400% profit within ten years. For example, a £100,000 investment today could be worth over £500,000 by 2016. In our view, that’s not too shabby.
Perception gap
Part of the problem – or maybe from your point of view, part of the advantage – is that some investors have been put off by negative perceptions of the country that don’t correspond to the facts. This perception gap has been well described by Ian Herbison, of the Public Relations company Mmd. Those who actually bother to visit the country, he says, come away with a better impression than they expect, and the Romanian government, eager to attract foreign investors, is now striving hard to bring foreign perceptions up-to-date with reality. To quote Herbison, ‘as the case of the Czech Republic demonstrates, the perception gap in Romania can and should be closed.’
But things are changing. Most importantly of all, 2007 will almost certainly see Romania’s final entry into the EU. As with all the accession countries, this will definitely produce a sharp hike in property values. Even in 2006, in mere anticipation of membership, average values are set to rise by 30%. Foreign companies (Vodaphone, Carrefour, Tesco, Walmart, Renault, etc.) have already begun investing heavily in new plant and premises in the country, and the more ambitious private investors have not been far behind them. Once Romania is in the EU, and once word really begins to get out about some of the astonishing bargains on offer, the stream of individual investors will become a flood. What’s more, EU membership will make it even easier for foreigners to buy up real estate without dealing with tiresome bureaucracy. Boom economy
In terms of Romania’s economic performance, however, EU membership is just the icing on the cake. The country’s improvement since 2000 has been remarkable, and the figures speak for themselves.
2000 2001 2002 2003 2004 2005 2006* Inflation (%) 40.7 30.3 17.8 14.1 9.3 8.6 6.9 GDP growth 2.1 5.7 5 4.9 8.3 4.1 4.8 Unemployed 10.5 8.8 8.4 7.4 6.3 5.9 5.5 Sources: National Bank of Romania, Romanian Institute of Statistics, Economist Yearbook 2006
The crucial figures for economic growth, one of the main drivers of real estate prices, are better than most of the other eastern European states, and make western Europe look positively pathetic by comparison. Remember, too, that current property prices in Romania are absurdly low, even by east European standards. Spoilt for choice
As you’d expect of a big country, with a population of 21 million, Romania has a lot of choice on offer when it comes to property investment. For example, there’s certainly good money to be made in buy-to-let office space, and even in tourist accommodation around resorts such as Mamaia and Neptun-Olimp, or the dozens of pretty medieval towns such as Brasov and Sighisoara. (And don’t forget the positively stunning Carpathians, recently given a welcome boost by the Anthony Minghella film ‘Cold Mountain’.) Romania’s long ski season, combined with the fact that its ski resorts can be delightful in both winter and summer, means that you can often avoid the worst effects of seasonal downturn, usually the big pitfall of ‘holiday’ investment.
Your best investment prospect, however, is probably quality buy-to-let property, in Bucharest and the other major cities, for the country’s burgeoning middle class. Just as in the Czech Republic, Hungary, etc., economic boom times mean that local people, with much more money in their pocket, are looking for a better class of place to live. A quality apartment in a good location in Bucharest, for example, will cost round £50,000, and there’ll be no shortage of potential tenants. For the more ambitious investor, a truly luxurious villa or penthouse, in a prime location, will set you back about £350,000. In this case, of course, you’d be aiming for the crème de la crème of Romania’s emerging business class. We can help you
As always, a good solicitor and/or estate agent is a must. (Don’t worry, we can find one for you.) The buying process in Romania is a bit bureaucratic – but then, anyone with a holiday home in France knows that Romania has no monopoly on red tape. At present, it’s necessary to set up a Romanian ‘foundation’ to purchase property, but your solicitor will manage this for you. (Anyway, this will change after EU accession.) Getting a local mortgage might still be tricky for a while, as the market is in its infancy, but you can get around this by using a local branch of one of the west European/British banks.
Overall, you should allow about 5% of the overall purchase price to cover all the fees and taxes involved in the sale. When the starting price is so low, there’s no question that this is a massive bargain. And as a bonus, for those whose cashflow is a bit tight, there’s the option of off-plan developments, for which staged payment is often possible.
A hot future
To sum up, this is a stunningly beautiful country of mountains, lakes, medieval towns and unspoilt coastline. Its booming economy is quickly being supplemented by a booming tourist industry. It may not be as well-known as some of its neighbours to the north, but it arguably has even better opportunities to offer. We think you could do a great deal worse than to invest in this rising star of the south, and we’re not surprised that it’s the current tipsters’ favourite. As far as Romania’s concerned, you ain’t seen nothing yet. |
