Costina Petrescu
Costina Petrescu, real estate expert and CEO of one of the largest portals dedicated to this field – Titirez.ro, returns to the pages of our magazine with a new up-to-date radiography of the Romanian real estate market, on which occasion we have also tackled topics such as the increase in VAT rates and the impact on the market, the price trend in the residential area, the opportunity to invest in real estate in the year 2024, or the impact on the real estate market of the planned increase in property taxes put in the pipeline by the Romanian Government, but not yet seriously discussed in the public debate.
Many “specialists” were singing the real estate praises this year…It seems that the market, so far at least, has not shown the -20% or even -30% price adjustments that some were predicting in the late last year, early 2024. What does the real estate market look like in 2024? Has the increase in VAT rates been felt?
I think that the “prologue” of the real estate market, especially the residential market, has been sung periodically for years – ever since we experienced the recession of 2008-2009, to be more precise, which seems to have left a strong imprint on our minds, economically and socially. As we have seen, however, since 2014 housing prices in Romania, whether houses or apartments, have continued to rise steadily, every year. Of course, sooner or later, the economy will probably go through another recession, which will also have an impact on real estate – given that, according to analysts, the economy has a cyclical development over time, with ups and downs. We must be aware, however, that falls of 20%-30% in one year are unlikely, as they are a sign of very serious (socio)economic problems, both locally and perhaps globally. If prices were to fall that much, there is a very good chance that solvent demand would suffer an even greater decline in parallel, so that very few people would actually be able to afford to make a purchase. I do not think that such a situation would be preferable to the current one, where, although many people think that house prices are quite high, there are still buyers for them.
The number of real estate transactions is slightly down lately, but nevertheless prices are still high. Why?
Fluctuations in the appetite for transactions, up or down, are natural from month to month. The residential market is not closed to outside influences, but is sensitive to a number of factors, including seasonality. And during the winter period, as is well known, the appetite for house purchases tends to be lower, especially after the autumn months, when it increases noticeably. In the winter of 2023-2024, however, an additional influence has entered the equation, namely the increase in the minimum VAT rate applicable to the purchase of a new home from 5% to 9%. This government measure produced an increase in the number of transactions by the end of last year, but this effect was partly offset by a decrease after 1 January 2024. The market is now in the process of finding a new equilibrium point between supply and demand, with most buyers managing to “absorb” the price difference caused by the VAT increase. As this is a temporary drop in demand – or rather the adoption (or prolongation) of a wait-and-see attitude – it has not been sufficient to produce a noticeable fall in prices.
There has been a lot of talk about investment lately. More and more Romanians are being encouraged to invest in the stock market, in various businesses, in various financial instruments, etc. But what is so special about real estate that Romanians prefer to keep investing in it? Real estate vs stock market. Which is the best decision?
The answer is, in my opinion, a very simple one: because they represent a type of concrete, tangible, long-lasting asset, real estate offers a much greater degree of security to buyers. And, given the deep-rooted owner mentality of Romanians, this preference for real estate investments is doubly motivated. Of course, there are also small and large investors in Romania who are interested in quick and large wins (relative to the capital injected) and who will prefer, for example, investments in the stock market or in cryptocurrencies. More conservative investors with a lower tolerance for risk will favour real estate – provided they have the funds for such purchases. Professional investors, on the other hand, will opt for a mix of investment assets, adopting an “and…, and…” attitude rather than an “or…, or…” one. The natural desire to diversify the portfolio was also the reason why Titirez.ro partnered with cryptocurrency platform TOKERO last summer – the first such collaboration by a local real estate portal.
Real estate investment opportunities have arisen abroad, the South Coast of Spain, Dubai, more recently Albania. What do you think, should we invest in real estate at home or abroad? What would be the advantages? What risks might there be?
Opportunities to buy abroad have been around for a long time, with tourist destinations in general attracting the attention of potential investors, especially when purchase prices are comparable to those in the home market. In my opinion, both types of investment are viable, provided the pros and cons are thoroughly analyzed in each case. Emerging markets such as Albania, for example, offer the advantage of more affordable purchase prices coupled with a higher margin of appreciation over time – making such properties very attractive in the event of resale. Very popular tourist destinations, on the other hand, which have stood the test of time, are particularly recommended when it comes to rental exploitation, even though purchase prices may be higher. Local market properties generally offer the advantage of ease and flexibility of operation, including when it comes to personal use. The main risk for assets with tourism potential is the failure to achieve satisfactory long-term occupancy – which will also affect their market value.
We have noticed that Romanians have caught the taste for “luxury real estate” investments, especially in Bucharest. One drawback is the high level of taxation, especially VAT. Is it worth the effort? Will their value increase in the next 5-10 years? What annual rate of return could they offer?
If we are talking about (truly) “luxury” real estate, we are also automatically talking about a much narrower target audience of clearly higher income earners. For these people, the higher rate of VAT applied to the transaction will not be a real obstacle to buying a property, as they tend to focus on the overall price. I believe that, if well designed and ”calibrated” for the target audience, luxury properties are a good investment in the medium to long term. Resale may not be a recommended strategy for making a significant win over the next two to three years, but a landlord can hope to achieve an annual rental return of over 10%.
The government has been threatening for some time now to raise wealth taxes considerably, especially on real estate. Could this be an impediment to field development? Could the number of transactions fall after the adoption of such measures?
I believe that the increase in property taxes may have an impact on trading activity in the real estate market, but this will be more difficult to quantify, as it will be more likely to manifest itself in the medium to long term. I doubt that those buyers targeted by such measures, who have obviously higher incomes, will immediately give up the idea of a new purchase just to avoid higher property taxes. We need to bear in mind that the burdensome effect of taxes is cumulative and is felt over time, and especially by those on lower incomes.
How do you see the real estate market evolving in the short to medium term, 1-3 years?
Barring the intervention of external or internal factors capable of producing a new economic recession, I believe that the real estate market in general (and the residential market in particular) will continue to grow, fuelled by the population’s fundamental need for housing, as well as by Romanians’ preference to be owners rather than tenants. I estimate that, under the pressure of inflation and, implicitly, the increase in construction costs, house prices will continue their upward trend, especially in the large regional centres, but the growth margin will be moderate, at 5%, maximum 10% per year.
