BR Exclusive: Small foreign investors tempted by stocks of 10 to 20 apartments on the Romanian residential market

With the real estate market on the rise, but not free of trouble, Romania has again become attractive for small investors, focused primarily on residential properties. Residential yields of around 5 to 7 percent and the low prices compared to Western markets are interesting for small investors who come to buy stocks of 10 to 20 apartments to lease.

”Most small foreign investors have Israel or Switzerland as country of origin, the average age is 50 years old and the amounts they are willing to invest are between EUR 1 million to EUR 5 million. The most attractive market segment for them is residential,” Biris Goran law firm representatives told BR.

According to Biris Goran, the small investors come to stay for the long term on the market, and usually, a transaction takes around one to three months. They are also opening companies to make the purchases.

”They are informed about the legal conditions of their presence on the market. The amendments to the new Fiscal Code on income tax help. Investors typically buy 10-20, 2-3 room apartments and look for projects from medium to high in Bucharest, but rarely outside the Capital city,” Biris Goran representatives explain.

Taxed like Romanian companies

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The companies founded by small foreign investors to purchase apartments on the Romanian residential market, pay taxes like Romanian ones. Profit or turnover tax, income tax, VAT, local taxes.

The prices they pay, in fact the discounts depend on the moment they enter the transaction. We can see a significant discount when the transaction is only planned and development process hasn’t started yet, but when the apartments are finalized, the discounts are between 5 percent and 10 percent per purchased package of units.

Even if Bucharest is the main attraction, mountain areas such as Brasov and Poiana Brasov are popular among buyers. Other areas of the country generally accepted as property investment locations are Ploiesti, Constanta, Cluj, Oradea, Brasov, and Timisoara oar the Transylvanian countryside which offers an alternative option for people who are looking to buy up bargain old rustic properties to refurbish and transform them in tourism units.

Anyway, according to Biris Goran, the situation can not be compared quantitatively with the 2006-2008 period, before the financial crisis, when the foreign investors market was dominated by big companies which initilally purchased thousands of apartments.

And the residential market seems, even now, to become too hot. According to INS data, residential constructions dropped by 24.7 percent in the first four months of this year for many reasons.

A lesser impact of the Prima Casa government program, the rise of ROBOR 3M to 2.9 percent, the highest level since October 2014 and affecting credit, prices growth which slowed transactions and last, but not least, the workforce crisis impacting construction companies’ activity on the market.