Why invest in Romania?
Romania is a stunningly beautiful country of sharp contrasts offering UK and Irish investors the potential for massive growth and the chance to own some stunning property.
The real estate market in Romania is in its infancy and there is incredible room for growth and the commitment of the government to maximizing their country’s economic expansion as a result of EU accession
Romania is gently but determinedly awakening from a long history of neglect and the harsh realities of life endured throughout the Ceausescu era. The emerging middle class now numbers 100,000 in Bucharest and the residential property market has yet to fulfill the growing demand.
After the fall of Communism, every resident was gifted their home leaving the majority of the population with substantial equity in their homes. This dormant wealth will be used to kick start the residential boom. The capital city of Bucharest offers the more traditional property investment opportunities with high specification rental accommodation always in demand. Developers have only started building luxury residential complexes which are up to three years away.
What type of Investments should you consider?
The property investment potential in Romania is unrivalled across all of the European emerging markets because property prices in Romania are currently low and the demand for residential and commercial property in Romania is increasing rapidly with IKEA and Carrefour already firmly established.
The best investments are currently to be found in the higher end residential property market of Bucharest.
In terms of opportunities Bucharest offers the property investor two angles to target. An investor could consider either prime residential property in the best city locations or new suburbs popping up near the new ring road.
Property investment opportunities are diverse in Romania and the potential for capital appreciation is huge. The Romanian property market is a genuine emerging property market built on very solid foundations and currently enjoying a huge level of foreign investor interest. Romania offers real long term gains and high yields.
What are the main factors driving the market?
Demand heavily outweighs supply
There are two million Romanians living in Bucharest and last year 8,800 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)
This demographic demands very large luxury new build apartments and the limited supply is creating a market that is growing and capital appreciation is expected to be between 20% and 30% in 2007. (Source – Country Guides- Romania from Channel4.com)
EU accession
Romania’s accession took place in January 2007 and is predicted to set off a gold rush like never before. EU development funds are coming into the country and there will be a huge reactionary jump in house prices as a result.
Equity rich locals
The fall of communism in 1989 has had lasting effects on this beautiful country. Every Romanian citizen was given their home and the main benefit of this is that 89% of the population own their homes without any mortgages. This means that most people in Bucharest have equity in their old communist block homes allowing them to trade up to new luxury apartments.
Emerging middle class
There are now 100,000 Bucharest residents considered to be in the middle class. They enjoy luxury goods and prestige sports cars. Porsches and Range Rovers are astonishingly common. There is a strong capitalist spirit among Romanians and this will drive the economy over the coming 10 years.
Your investment strategy should reflect this indicator and your exit should be provided by this demographic group.
Emerging mortgage market
The market in Romania is in its infancy. Mortgages have only been available since 2003 and account for only 1% of GDP compared to 49% in the UK. As you can imagine this means that there are a lot of young Romanians who will be taking advantage of lending and getting on the property ladder. These first time buyers are the group we expect to give you an exit strategy from your investment.
Unrivalled Foreign Direct Investment
Romania received nearly $11 billion USD in 2005 and this will be dwarfed by the rush to invest now that EU accession has been guaranteed. Romania attracts such huge investment due to the cheap labour market and the availability of hard working locals.
EU development funds are coming into the country improving telecommunications and infrastructure creating a positive cycle attracting more foreign direct investment.
The stronger the economy, the greater the confidence in the property market.
Builders focused on commercial
Up until 2005 Romanian developers had been focusing on commercial developments as the demand from multinationals such as IKEA and Carrefour had been great. As a result the commercial aspect of Bucharest is quite advanced offering huge hypermarkets that are kick starting the redevelopment of the city.
The developers aim to take advantage of this and have located their sites next to these new and exciting developments.
Economic Growth factors
Romania tops the table when it comes to growth in the emerging markets of Europe. 2004 saw GDP growth of 8.5%, 2005 was 6% and 2007 was 7.7% (CIA Factbook). The EU average is approximately 2.2%.
RI Investment Group: the developers
Trust is essential when investing in any project and is probably more acute when investing in an emerging market like Romania.
The developers - RI Investment Grup, have among their directors founding member Gerard Cosgrave, Alan Torpey, an Irish accountant with four years experience on the ground in Romania, also a founding member along with Eduardo Doandes, a Romanian national with unrivalled knowledge in Romanian property investment.
RI Investment Grup has delivered some of the largest investment projects in Romania and work in partnership with internationally renowned architects, construction groups and lawyers.
What Investment strategy should I choose?
All the market predictions point to the fact that Bucharest is about to explode and if you look at the markets in Ireland and Poland after EU accession and the way the property values increased, then Romania’s property prospects look very exciting.
A property in Romania can be purchased through a limited company saving VAT and also reducing capital gains tax to 16%. The developers predict the market will grow by 40-60% within 24 months in the areas they have chosen, offering a huge return on investment. When your investment is ready to complete you have two options available
1. Re-sell the assignable contract to a local Romanian and release a hefty short term profit in the region of €60,000.
2. Complete the investment with 80% loan to value (€128,000) funding allowing you to release equity (€43,000) immediately from the project.
The developers will manage both exit strategies as they will have sales and lettings agents based in Bucharest.
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