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Romania: Romania

Guide to the Risk and Opportunity Ratings

At the end of each country profile, we have given a risk rating and an opportunity rating. These ratings are a summary of our analysis indicating the levels of risk when investing in a market and the level of opportunity to profit from it.

The ratings themselves are simple. Both work on a scale of one to five. The opportunity rating is indicated by the $ symbol. A single $ equals a low opportunity whilst 5 of them ($ $ $ $ $) equals the highest opportunity ranking.

For risk we have used the * symbol. A ranking of * equals a low risk rating whilst * * * * * equals a high risk rating.

Introduction

With fairytale castles, majestic mountains, seaside resorts, traditional villages and cities full of architecture, Romania has been said to be where the Czech Republic was around a decade ago in terms of tourism status. Lying in south-eastern Europe, the country is bordered by Ukraine, Moldova, Bulgaria, Hungary, Serbia, Montenegro and the Black Sea. The Danube flows along the southern border and forms a beautiful delta. The Carpathian Mountains and Transylvanian Alps divide the country into Wallachia in the south and Transylvania, famous as the home of Vlad the Impaler (aka Count Dracula), in the north. Spring is pleasant, summers hot, autumns cool and winters regularly below freezing, when abundant snowfall provides ideal skiing conditions. The average annual temperature is 11°C in the south and 7°C in the north, but records of extreme temperatures range from 44°C to -38°C.

Since 2000, the Romanian government has been working towards EU accession, and has begun to pursue a programme of economic reform which is largely in line with IMF requirements for fiscal restraint and economic restructuring. The economy is now growing strongly – GDP growth was at 4.4% in 2003, 8.1% in 2004, and 5.2% in 2005 (a drop largely attributable to the heavy rainfall and flooding in the country as well as domestic currency appreciation, competition, rising energy tariffs and subsidy cuts). Inflation has fallen from astronomical levels – in 1997 it stood at 154%, but then plummeted until it reached 8.9% in 2005. There has been a rising demand for Romanian exports of machinery, textiles and furniture, and unemployment is low (6.5% in 2005). Foreign investment is on the rise and Romania’s economy is now one of the fastest-growing in Europe. With EU accession scheduled for 2007, much is expected from the country, and its growing popularity and potential raises great hopes for the property market.

Is this a good place to buy?

With a stabilising economy and foreign investment from multinational companies like Renault, Wrigleys, Delloite & Touche and Avon flooding in faster than in almost any other country in Europe, Romania has the potential to be the next economic miracle. As a result of this increasing interest, the entire real estate market has already altered beyond recognition – turnover is rapid and prices have risen significantly over recent years. This is likely to continue – interest rates in the country are dropping, which will open up the domestic market to hundreds of thousands of new borrowers (who were not permitted housing loans until 2002) and push prices up further. Demand is therefore currently strongly exceeding supply. Huge infrastructure spending is in the pipeline (on telecoms especially – and a number of new highways are also being planned across both Romania and Europe), and the country has a motivated and educated labour pool that is still incredibly cheap. The economic indicators therefore show that Romania is a country ripe for investment.

Due to the recent nature of these developments, prices are still surprisingly low, with some apartments selling for £15,000 ($25,000) and amazingly modern holiday homes at a mere £45,000 ($75,000). House prices are expected to rise four-fold over the next ten years, however, as Romania benefits from its entry into the EU in 2007. For this reason, and in terms of its status and potential as a tourist destination, Romania is currently one of the best countries in Europe to invest in.

Price history

Romania has registered some of the highest rates of property growth anywhere in Eastern Europe over the past few years, with annual rises of 30-45% in the price of flats and houses and a doubling or tripling of land prices. House prices in the country currently average just £17,000, but it has been postulated that £100,000 ($170,000) spent now could be worth £514,000 ($850,000) in ten years’ time due to the impact the EU membership is expected to have on the property market (see Chapter Two: Where to Buy Abroad for a discussion of the effect that EU accession actually has).

More pages

Page 1: Guide to the Risk and Opportunity Ratings
Page 2: Which type of property should you go for?
Page 3: Key risks and opportunities

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