Romania

Why buy property in Romania?

The new regime in Romania had to adapt a manufacturing process and industrial base that was completely unsuited to the needs of the country as an independent nation. This change in the fabric of the economy of the country has brought Romania into a Europe that was in need of its exports, resulting in high growth up to and since accession in 2007.

With a coast on the Black Sea that has yet to be exploited as a holiday destination, mountain resorts in the rugged Carpathians to the north of the country, and a pretty capital in Bucharest, the interest of overseas property buyers is beginning to grow.

Popular property locations in Romania

Romania’s capital city, Bucharest is the sixth largest city in the EU, and as with many of the ‘emerging’ markets of Central and Eastern Europe, it has been the focus of the early stages of the overseas property industry in the country.

The city lies on the banks of the Dambovita River and is full of beautiful belle-époque architecture and characterised by wide, tree-lined boulevards. It is these parts of the city that are being regenerated into more superior-quality housing stock, and which is attracting the overseas property investment specialists.

As well as being an important centre of commerce for Romania, Brasov is the gateway to much of the tourist and leisure activity in the country. The third area of interest for potential buyers of property in Romania to consider is the Black Sea coast.

In many ways, the Black Sea Coast could be the growth area that propels Romania’s property market into the spotlight of the overseas property investment world.

Legal issues

As a new entrant into the EU, the rules governing owning a property in Romania are likely to undergo changes in the coming years to make them more transparent and to increase access to the property market for foreigners. One of the conditions of EU entry is that property must be available for all EU citizens to buy, but there are currently other restrictions in place that add a caveat to the process.

While is it possible for foreign individuals to buy property in the form of buildings, the purchase of land by private foreign individuals is currently prohibited. For buyers to be allowed to own the land on which their property is built, most agents recommend that the easiest way is to form a private company through which to purchase the land.

Buying through a company offers the advantage of VAT savings as well, though the payment of corporation tax cancels out most of this benefit.

There is one situation by which a non-Romanian national is allowed to buy the land upon which their property is built. EU citizens are allowed to buy their land as well as their property if they are intending to use it as their primary residence. It is recommended that all purchases of a property in Romania are overseen by an independent, expert, English-speaking lawyer in order to make sure that the contracts are properly assembled and that the correct steps are taken to register the purchase with the authorities.

When buying an older, resale property, buyers should always make sure that they have an independent survey carried out to highlight any structural issue that may be present, or occur in the future.

The property buying process in Romania

You will need to supply a company address, which will usually be the address of the property you are buying, so the formalities may need to wait until you have found the property you wish to buy.

The initial contract commits both parties to the sale, and removes the property from the market. Generally, there will either be a staged-payment system in place, which is more common for new properties, or the full balance will be paid upon signing the final contract of sale, as is more often the case with resale properties.

The final sale contract for the property is drawn up by an official notary and signed in the presence of both parties, at which time the notary will also present the appropriate documents to the authorities to register the buyer officially as the new owner of the property.

Financing your property purchase

Mortgages are now available for foreigners looking to buy property in Romania, and with the freeing up of the buying process to come in the future, the process is likely to become much easier and the variety of products on the market more varied.

Typically, finance is available up to 75 per cent of the value of the property, with a minimum deposit of 25 per cent being paid up-front by the buyer. More common in emerging markets like Romania is the idea that people will finance their property purchase from the UK, re-mortgaging a property they already own in order to go to Romania as a cash buyer, or releasing some other form of equity to raise funds. Be aware that in Romania, as in many other countries overseas, that the process of applying and being approved for finance can be incredibly long and frustrating. This is true to such an extent that even local buyers find it difficult to cope with, so if you are going to use local finance in order to buy your property in Romania, make sure you are prepared for a long and frustrating wait.

Romanian property fees and taxes

A large proportion of the costs associated with buying property in Romania are to do with setting up a private company in order to buy the land upon which the property stands, but even with this added expense, the legal costs are unlikely to come to more than three per cent of the purchase price.

Once other fees and the cost of translators have been added in, purchase costs should not exceed five per cent of the price of the property.

On top of this, private individuals may have to pay VAT on property purchases of 19 per cent. VAT and Capital Gains Tax (CGT) have recently been increased to discourage too much property speculation and keep as much of the inward investment within the country as possible. For this reason, CGT is liable at a rate of 16 per cent on any gains made from the sale of property, unless the property has been owned for more than three years.

Visas, residency and work permits

As part of the unilateral agreement between member states, EU citizens are permitted to travel to any other member state upon production of a valid passport without the need for a specific visa. Should buyers be hoping to purchase their property as their primary residency, and therefore avoid the need to set up a private company, it would be a good idea to apply for permanent residency through the attractively-named Romanian Authority for Aliens as a first step.

Romania’s investment potential

The potential for growth in property prices in Romania is huge and can make quite exciting reading. Not only are property prices low at the moment across the country, but Romania is already an EU member state and the demand for property is increasing rapidly, a trend which looks set to continue.

Winter sports destinations and the new resorts along the Black Sea coast are providing a good progression from the initial flush of property that became available in the capital as soon as the property market opened up, and with careful planning and regulation, durable resort growth can be reached and maintained for some years, attracting tourists and property buyers alike.

The property market in Romania is immature to say the least, and a wise investor should make sure that they go into buying in Romania with their eyes open and aware of the potential pitfalls. Romania has also had a reputation for corruption in the past, and this was the biggest potential stumbling block for the country’s EU entry. In fact, when Romania and Bulgaria were granted accession to the EU, it was with strict conditions and targets to tackle the organized crime and corruption that runs through both countries. Risks are part and parcel of buying property in an emerging market like Romania, and these facts should not put off potential investors.

Health and education

This is one of the areas in which Romania need to improve drastically to serve its citizens better – quality healthcare is rare, and hospitals don’t have the best reputation for caring for their patients. In fact, this is one of the areas in which a certain degree of corruption exists and is openly accepted. It is common practise for patients to tip their doctor in cash to make sure they get the proper drugs and attention appropriate to their condition.

Any buyers considering spending large amounts of time in Romania will want to make sure they are covered for private healthcare.

Transport

The road system has suffered from a lack of maintenance since the fall of communism, and the rail system has also fallen behind in terms of technology and repair as a lack of investment has starved the system of innovation.

Bucharest is the only city in Romania with a metro system, which opened in 1979 under the Communist government and has a total of 45 stations spread across 63km of tracks.

And finally…

While there is a huge amount of potential for investing in property in Romania, it is important that potential property portfolio-builder does not rush into a deal with no idea of what the potential pitfalls are, or where there might be a need to be cautious. In developing new areas for property companies, the authorities need to demonstrate that they are continuing to fight corruption and protect individual, private investor.

Without any doubts, an interesting market to watch.