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ABSOLUTE gUIDE sERIES to Investment Property

Romania


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Date of Publication: September 2008 © Obelisk 2


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Contents 5. Welcome to Romania

Dedicated to providing impartial information.

6. Economic Growth & Stability

Romania’s economic growth continues to impress.

7. Currency & Banking

Exchange rates against the euro continued to appreciate in August 2008.

8. Foreign Investment

Investors believe Romania to be the most

14 - 15. Secondary Market

3 to 5 years before supply meets current demand.

16. Mortgage Market

One of the EU’s lowest mortgage debt to GDP.

17. Market Risks

Romania presents few issues for foreign

attractive country in the CEE.

investors.

9. Political Situation & Stability

18. Purchase Process

Politically stable having returned to

Buyers may need to sign a preliminary

democracy in 1989.

contract.

10. Tourism

19. Investment Costs

Tourism authorities have created a bold, new

Capital gains tax for individuals is levied at rates

Master Plan.

between 2% and 3%.

11. Infrastructure

20. Summary

Construction of the new €2 billion

Romania has one of the fastest growing

Transylvanian Highway.

economies in the EU.

12 - 13. Property Market

21. Verdict

House prices expected to increase between 15% and 25% in 2008.

Romania has experienced a remarkable transformation.

22. Obelisk Advantage

Obelisk approaches its projects purely from an investment perspective.

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Botosani

Santa Mare Oradea

Arad

Lasi

Cluj-Napoca Tirgu Mures

Sibiu

Brasov

Timisoara Tirgu Jiu

Buzau

Galati Braila

Ploiesti

Craiova

Bucharest

ROMANIA 4

Bacau

Constanta


ABSO LUTE GUID E SE R IE S - ROM ANI A

Romania forms part of the Obelisk Absolute Guide Series, dedicated to providing impartial information about numerous property investment destinations worldwide.

Welcome

to Romania

As the market leader for overseas investment property,

you with in-depth and clear-cut knowledge on the most

we are committed to providing cutting edge information

important factors influencing you property investment

for property investors, which has earned us the award

decision in Romania.

of ‘International Property Specialist 2008’ by Business Britain Magazine.

In this guide you will find recent economic performance and predicted growth, a profile of the current

We are thereefore pleased to present the latest Property

property market and its future potential, along with

Investment Guide to Romania, an essential tool for the

tourism trends and infrastructure improvements. The

investor planning to buy property in this country. This

guide also includes information about Romania’s

guide forms part of the Obelisk Absolute Guides Series,

mortgage market, the buying process and buying costs.

dedicated to providing impartial information about numerous investment destinations worldwide.

Obelisk’s Absolute Guide to Romania offers investors objective and authoritative information to facilitate an

At Obelisk, we are only too aware of the importance of

informed decision about investing in Romania. We trust

extensive research into an investment destination and as

that you as an investor will find this guide indispensable.

part of our policy to offer investors the definitive service, this guide has been rigorously researched to provide

Here’s to successful investing!

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GDP Growth (Q1 2008): 8.2% GDP Growth (2008 predicted): 6% GDP Per Capita (2007): US $11,419 Unemployment (Q1 2008): 6.4% Inflation (2007): 4.8%

Economic Growth

& Stability Romania’s economic growth continues to impress the

As is common in many countries, Romania has seen

rest of Europe and is the envy of many other more

inflation rates increase recently and according to the

mature markets. According to figures from the

Economist, Romania will experience inflation of around

Economist, GDP growth in 2007 was 6% with the

7.5% during 2008 from 4.8% in 2007.

same figure predicted for 2008. However, in Q1 of 2008, the country outstripped all predictions and

Reflecting Romania’s promising economic figures,

achieved a staggering 8.2% growth. Despite

Standard & Poor, the financial ratings agency, have

turbulence on international markets, this growth was

awarded the country the rating BBB-. This rating

4 times higher than the EU average and the Romanian

reflects a stable economy and the balance between

National Statistical Institute said it was the highest Q1

Romania’s low public sector debt, high growth

jump since 1990.

potential and good long-term prospects for structural reforms.

Unemployment figures remain low at 6.4% during Q1 2008 and the labour shortage in many areas of the country suggests that unemployment levels are likely to stay low for the foreseeable future.

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Currency

& Banking Romania’s currency is the leu (plural lei) and is currently strong – exchange rates against the euro continued to appreciate in August 2008. In 2006, the leu was the world’s best performing currency with increases of 20% against the US dollar. In May 2008, Romania’s President announced that Romania has set the target of adopting the euro in 2014 with a leu-euro transitional period of 2 years between 2012 and 2014. Romania’s banking system is developing at a good pace with Standard and Poor’s, the financial evaluation agency, lowering the country’s investment risk and reducing the country’s probability of an economic recession from 35%-50% to 25%-40%.

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Foreign Companies Investing in Romania Carrefour, Coca-Cola, Emerson Electric, Nokia, Novartis, Orange, Procter & Gamble, Renault, Siemens

Foreign Investment Investor sentiment towards Central and Eastern

Membership of NATO in 2004 and the EU in 2007

European (CEE) economies has significantly improved

has increased Romania’s attractiveness to foreign

during recent years. A survey conducted by the Centre

investors. Membership of both organisations provides

for European Economic Research (ZEW) reveals that

a solid guarantee for investors. According to Ionut

37% of investors canvassed believe that Romania

Dumitru, Head of Research at Raiffeisen Bank, “NATO

is the most attractive country in the CEE, while 61%

and EU membership provides geostrategic stability,

regard Romania as the most active market for mergers

which induces strong security for foreign investors.”

and acquisitions in the region. Since joining NATO, the country has attracted 8 times Romania is attracting a major share of foreign direct

more foreign investment than during the period before

investment (FDI) in the CEE region and was ranked as

accession. In the 5 years since joining NATO,

the top investment location in the Ernst & Young South

Romania has attracted foreign investments worth

East Europe Attractiveness Survey 2008, ahead of

€28.1 billion, equal to an annual average of €5.6

Turkey, Bulgaria and Greece. Not surprisingly, FDI has

billion. This has fundamentally changed the Romanian

contributed significantly to Romania’s economic

economy and the value of GDP has tripled from €48.5

success during the first half of 2008 and the Economy

billion in 2002 to an estimated €133.8 billion in

and Finance Minister, Varujan Vosganian, estimates that

2008.

by the end of 2008 FDI levels will reach €8 billion.

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EU Member: Since 2007 NATO Member: Since 2004 WTO Member: Since 1995 Political System: Parliamentary democracy Ruling Party: Democratic Liberal Party and the Social Democratic Party (coalition) Next General Election: 2012

Political Situation

& Stability Romania has been politically stable since the fall of communism in 1989. The current president is Traían Basescu. The next presidential election is 2009. The country held important general elections in November 2008. The contest saw the centre-right Democratic Liberal Party (PD-L) winning over the Social Democratic Party (PSD). Both parties received roughly one-third of the vote with the ruling National Liberal Party (PNL) finishing a distant third. President Basescu has proposed Emil Boc as prime minister after the previous nominee, Theodor Stolojan, decided to step aside for a younger man. Boc will lead a coalition of the two largest parties. “Our objectives still stand, namely the chance to give Romania a stable, efficient, performing government,” said Boc in acceptance.

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Visitor Numbers (2007): 7.7 million Tourism Expected Contribution to GDP (2008): 5.8% Tourism Expected Contribution to Employment (2008): 6.9%

Tourism The Romanian tourism authorities have created a new Master Plan with impressive objectives including the target to attract 10 million visitors annually up to 2016, growing to 15.5 million by 2026. 7.7 million visited Romania in 2007. According to the World Travel and Tourism Council (WTTC), tourism in Romania will contribute 5.8% to GDP in 2008 and is expected to rise to 7% by 2018. The industry’s contribution to employment is expected to rise from 6.9% of total employment (600,000 jobs) in 2008 to 8.4% (705,000 jobs) by 2018. Romania ranks as 6th in the world for long-term forecast growth of the travel and tourism sector. It is one of Romania’s fastest growing sectors of the economy and the WTTC claims there is tremendous potential for growth in the country’s tourist attractions – numerous ski resorts, 200 spas, the Black Sea coast, Bucharest and the famous Transylvanian region with its Dracula legend and spectacular castles. The sub-sectors of Romania’s tourist industry offer huge potential for rental accommodation with a year-round season in the city-break sector and around 5 months in ski resorts.

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Infrastructure EU funding of €19.7 billion Transylvanian Highway - largest highway project in Europe Expansion of Cluj - Napoca International Airport Romania will receive €19.7 billion of EU funding during

Other infrastructure improvements include the expansion

the period 2007-2013. Romania’s contribution of at least

of Cluj-Napoca airport, which has seen air traffic

€5.5 billion will mean a total investment of €25.2 billion.

increase by over 125% in the last year, and is now

So far Romania has spent its funding wisely, upgrading

served by a range of budget airlines including Wizz

roads, railways, and social and public infrastructure.

Air with direct flights from the UK and Lufthansa offering flights from Germany.

The most impressive infrastructure project is the construction of the new €2 billion Transylvanian

Infrastructure improvements are not limited to transport.

Highway – a 4 lane, 415 km long motorway, the

In June 2008, the Health Minister, Eugen Nicolaescu,

largest motorway project in Europe. On its completion in

announced a €2.7 billion investment to build 32 new

2012, travel time between Bucharest and major

hospitals throughout Romania. Education has also seen

European cities will be reduced significantly as well as

an impressive amount of investment reaching a record

benefiting several Transylvanian cities including

6% of GDP for 2008, 27% higher than in 2007.

Cluj-Napoca, Fagaras and Zalau.

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“During the first 6 months of 2008, total property transactions worth €815 million were traded in Romania with Q2 showing a major increase - 18.6% more than the same quarter in 2007”. Predicted Price Growth 2008: 15% Average Annual Rental Yield: 5.5%

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Property

Market

Romania has seen considerable property price growth

The construction industry showed impressive growth

since joining the EU and house prices are expected to

of 30% during the same year. The same pattern is

increase between 15% and 25% during 2008.

expected in 2008 and according to officials from the National Union of Notaries Public in Romania

th

A CB Richard Ellis report places Romania in 5 place

(UNNPR), Romania’s property market will be worth

in Central and Eastern Europe (CEE) for the value of

€23 billion in 2008.

property transactions completed during the period 2003 and the first half of 2008. Romania’s property

Within the global market, Romania still qualifies as an

market has been particularly strong recently,

emerging property market with prices at around 40%

attracting 10% of the value of transactions in the CEE

lower than some other Eastern European countries. In

region as a whole during 2007. According to

November 2007, The Telegraph cited Bucharest as the

Cushman & Wakefield, total property transactions

top city in which to make money from property since

worth €815 million were traded in Romania during the

although prices are rising fast in the capital, they are

first 6 months of 2008 with Q2 showing a major

still cheap by Western standards. As an alternative

increase – 18.6% more than the same quarter in 2007.

to Bucharest, the Financial Times revealed in March 2008 that Cluj-Napoca in Transylvania is fast

The real estate market in Romania is one of the key

becoming Romania’s newest investment destination.

engines driving the economy forward in 2007 with the volume of investment in property exceeding €2.5 billion.

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Secondary

Market

A fundamental factor behind the growing Romanian

Romania as a whole is experiencing high demand for

property market is the country’s fast-increasing salaries

homes with estimates claiming that it will be 3 to 5

due to strong economic growth over recent years.

years before supply meets current demand. Population

According to Mercers, wages are expected to rise by

increases in some areas, for example, Cluj-Napoca,

11.5% during 2008, the highest growth in Europe

and the influx of foreign companies into Romania is

and fourth in the world. Romania’s National Institute

putting further strain on housing supply.

of Statistics figures are higher and show year-on-year increases from March 2007 to March 2008 of 17.7%.

The rental market within Romania is strong and there is

Furthermore, the government predicts a massive in-

high demand for quality properties in areas where the

crease of 75% in salaries by 2013.

population is growing because of increased employment opportunities. The capital, Bucharest and

Increased purchasing power within the domestic

the Transylvanian city of Cluj-Napoca are 2 such areas

market adds to the resale market potential and to the

and rental yields here are around 5.5% annually.

burgeoning demand for housing.

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Within Romania, the capital, Bucharest and the Transylvanian city of Cluj-Napoca offer some of the best buy-to-let opportunities and annual rental yields here are around 5.5%.

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Mortgage

Market Although Romania’s mortgage market is currently small – banks have only offered housing loans since 2001/2002 – it is one with huge capacity for growth. The country currently has one of the EU’s lowest mortgage debt to GDP and mortgage debt per capita ratios, both indicators of the mortgage market’s potential for growth. Isolated from the global credit crunch, Romania’s mortgage market is expected to see one of the fastest growth rates in Central and Eastern Europe (CEE). GE Money’s regional mortgage leader, Bill Schaub, expects the CEE mortgage market to see a 30% annual increase with Romania being the main engine behind this growth. Reflecting Romania’s small mortgage market, the choice of mortgage products is currently limited. Repayment mortgages are the main option with interest-only periods granted for 12 or 24 months. Mortgages are available for up to 35 years depending on your age at the end of the mortgage lending period. Amounts available to borrow depend on affordability or around 70% of the property valuation. Interest rates usually follow the Euribor and Libor rates. Generally, interest rates start from 7% with low start, fixed rates available. In addition, mortgage lenders levy a monthly ‘tracker’ or ‘spread’ from 1.4% on top of the interest rate, depending on the mortgage product and lender.

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Romania showed the second largest improvement in the world (behind only Dubai) in real estate transparency during the period 2006 to 2008. Source: Jones Lang LaSalle Global Real Estate Transparency Index

Market

Risks

Property investment into emerging markets may carry

Transparency within the Romanian real estate market

some degree of risk. However, the degree that market

has already seen results. According to the latest Jones

risk in a particular country affects a property

Lang LaSalle Global Real Estate Transparency Index,

investment depends largely on thorough due diligence

Romania showed the second largest improvement in

conducted prior and during the purchase process.

the world (behind only Dubai) in real estate transparency during the period 2006 to 2008.

Romania presents few issues for foreign investors and there are no problems regarding political violence.

The ECFIN Country Focus for Romania (February 2008)

Romania is currently ruled by a minority government,

warns of overheating in the economy citing growing

which is expected to stay in power until the next

labour shortages, strong wage growth and increases in

parliamentary elections scheduled for autumn 2008.

inflation as some of the main obstacles. Although a shortfall in the workforce and rising salaries may put

One of Romania’s main problems is high-level

strains on the economy generally, both factors add hugely

corruption, an issue that has resulted in several EU

to property investment potential. According to the Romanian

warnings. However, according to the Commission of

National Institute of Statistics, inflation in July 2008 was

European Communities report (July 2008) on

7.6% (inflation in the eurozone was 4.1%). However,

corruption in the country, the extent of projects

with the Romanian economy reporting GDP growth of

undertaken by different Romanian institutions to

8.2% in Q1 of 2008 and an annual forecast of 6%,

combat local corruption is “encouraging”.

there are currently no signs of overheating in the economy.

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Purchase Process Romanian laws and legal processes may be very different from what you are used to and Obelisk strongly recommends that independent legal advice be taken during a property purchase. Below is the standard purchase process in Romania and issues that may affect a property purchase: Regulations regarding property purchase by foreigners in Romania depend on whether the property is land or a building. Foreigners are permitted to buy buildings in Romania regardless of nationality or resident status in Romania. The purchase of land by foreigners is currently only permitted if they are resident in Romania. This restriction is expected to be lifted in 2012 – 5 years after Romania’s accession to the EU. Before the purchase process begins, the vendor will need to provide a fiscal certificate (‘certificat fiscal’) confirming the property is properly registered with the fiscal authorities and that all due taxes are paid. The vendor will also provide a ‘certificat de sarcini’ to confirm that the property belongs to the vendor and that it has no mortgages or other legal encumbrances attached to it. The buyer may need to sign a preliminary contract as an agreement to purchase the property and then pay a holding deposit through their lawyer. The final contract will be signed by the vendor and purchaser in front of a public notary, who will legalise the transaction and submit the necessary documents for title transfer to the land registry.

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Investment Costs Romania has a double taxation treaty with the UK and Ireland . Taxation is complex and subject to change, and expert advice is always recommended for purchase and ownership of Romanian property. The costs of a standard property purchase in Romania may include the following: VAT is 19% - following the EU VAT Directive. Stamp duty is between 0.5% and 3%. Notary fees are between 0.5% and 2%. Registration fees are between 0.1% and 1%. Capital gains tax for individuals is levied at rates between 2% and 3%. For companies the rate is 16%. Rental income earned from property owned by non-residents is taxed at 16%, with approximately 25% of the gross rental income from immovable property deductible. When the landlord is a foreigner, the tenant pays the tax directly to the state. Property/Building tax is payable annually and based on the taxable value (calculated on the size and type of property). Properties owned by individuals are liable for between 0.25% and 1.8% of the property value and those owned by legal entities attract between 0.5% and 1%.

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Summary The following summary provides key highlights to consider when investing in Romania’s property market: Romania is one of the fastest growing

Property prices are expected to rise

economies in the EU with predicted GDP

between 15% and 25% during 2008 with

growth of 6% for 2008.

the Romanian property market predicted to be worth €23 billion at the end of the year.

Foreign investment in Romania is firmly encouraged and supported by the

Romania qualifies as an emerging market

Romanian authorities and Romania is

with prices around 40% lower than some

widely regarded as one of the most

other Eastern European countries.

attractive regions in south east Europe for foreign investment.

Demand for housing – resale and rental – is currently higher than supply, a situation

Foreign investment is expected to reach

that is expected to continue for the next

€8 billion during 2008.

3-5 years.

Tourism is a fast expanding sector of the

The mortgage market has huge potential

Romanian economy and the Master Plan

for growth and in 2008, was isolated from

for tourism is expected to ensure annual

the effects of the global credit crunch.

visitor figures of around 10 million. Romania’s currency is strong and Romania Infrastructure is receiving a major boost

expects to join the euro in 2014.

from EU funding with the Transylvanian Highway currently the largest highway project in Europe.

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Buying costs are generally low.


ABSO LUTE GUID E SE R IE S - ROM ANI A

The Absolute Guide Series Rating

Based on our extensive research, Obelisk has introduced a 5 star rating system to summarise the investment potential of a country. The availability of finance, economic stability, political stability, the strength of the local market to provide an exit strategy and the potential to earn from investment are the key criteria that determine the investment grade of each country.

Verdict Since its escape from the shackles of communism in 1989, Romania has experienced a remarkable transformation. With democracy, the Romanian population has discovered a new-found freedom with shopping at the top of their preferred leisure activities. The arrival of credit in the country means that new cars, top of the range televisions and designer fashion are now sought-after commodities. Excellent standards of education are widespread throughout the country – one of the better legacies of communism – and as a result, the labour force is highly skilled. This has encouraged numerous large multi-national companies to set up in Romania, a process that has resulted to a decrease in unemployment and huge increases in salaries. Better employment opportunities and wages have in turn led to a demand for quality housing from the local population. We have already seen property prices rise dramatically in Bucharest and in employment hot spots in the rest of the country, for example, Cluj-Napoca, the property market should follow suit. Based on thorough research we have carried out on Romania, we at Obelisk believe that Romania is a good option to explore for overseas property investments.

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Obelisk

Awards Obelisk ‘International Property Specialist 2008’

Advantage

Voted International Property Specialist of the Year 2008 by Business Britain magazine, Obelisk has been recognised as the authoritative voice within the industry and its clients benefit from the company’s uncompromising high standards and professionalism. Obelisk has identified a simple and transparent purchase process for its clients as a simple, four step process: 1.

The client chooses and reserves the unit that best suits their investment requirements, and Obelisk takes the client through a compliance procedure.

2.

An independent lawyer, sourced and appointed for the client by Obelisk, will have already carried out full due diligence on the project. They will issue all purchase contracts and paperwork to the client.

3.

On receipt of this contract, the client will sign and make the first payment. The lawyer will notify the client of all further payments when required.

4.

The appointed lawyer will also represent the client in all aspects legally required within the country of purchase, ensuring that clients of Obelisk enjoy the benefits of simple and hassle-free real estate investment.

For more information about Obelisk’s investment opportunities in Romania, contact us now on info@obeliskinternational.com, visit our website at www.obeliskinternational.com or call us FREE on 0808 160 0670 (UK) or 1800 932 514 (IRE).

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Disclaimer The material contained within this document has been prepared for information purposes only. Information contained herein is not to be relied upon as a basis of any contract or commitment. The information is not to be construed as an offer, invitation or solicitation to invest and opinions expressed are based on market conditions at the time of print and may be subject to change without prior notice. Information contained herein is believed to be correct, but cannot be guaranteed. In case of queries or doubt you should consult an independent investment adviser. No personal recommendation is being made to you and the past is not necessarily a guide to the future. The brochure in its entirety – text, images, marks, graphics, logos, buttons, combinations of colours, and the structure, selection, ordering and presentation of its content – is protected by the legislation on intellectual and industrial property, it being forbidden to reproduce, distribute, publicly disseminate or transform it, except for personal private use. It is also forbidden to reproduce, relay, copy, assign or broadcast, in whole or in part, the information contained in this brochure, for whatever purpose and by whatever means, without written consent.

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Call us free from UK: Tel. 0808 160 0670 Call us free from Eire: Tel. 1800 932 514 For general and international enquiries contact us at: Tel: (0034) 952 820 319 Fax: (0034) 952 825 790 Alternatively you can email: info@obeliskinternational.com or visit: www.obeliskinternational.com

Romania Investment Guide  

Contains vital information to consider before investing in Romania. GDP growth, tax information and Economic Growth information.

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