The local residential market has become more attractive to tenants than to owners

Housing prices have risen by an average of 38% across the European Union from 2015 to 2021. Romania has seen a 34% increase, the lowest in the Central and Eastern Europe (CEE) region, compared to the other five major economies of Hungary (+108%), the Czech Republic (+84%), Slovakia (+54%), Bulgaria (+49%), and Poland (+48%), according to the report “The living sector in CEE-6. Let’s discover the potential of the market segment”, recently published by Colliers. In Bucharest and the larger cities, the price growth was much higher than the national average.

As inflation remains elevated, exceeding 15% in February, interest rates will remain high for some time, loans will be less affordable, thus renting a home is becoming an increasingly popular choice among Romanians as well, and this trend is attracting the attention of big investors, note Colliers consultants. Until 2021, the Czech Republic and Poland were the main targets of investors, but since last year, some of them have expanded their activities to Romania and Serbia, where they are already developing residential projects exclusively for rent.

“Even if housing in Romania remains affordable compared to EU countries when we take into account salaries, the reversal of the rate-rent ratio will make the rental market grow and the proportion of owners decrease. An increasing number of international investors, as well as local developers, are contacting us about residential projects exclusively for rent, and some of these plans are starting to be implemented. Having a large and experienced regional team dedicated to these projects is an advantage for investors who want to enter a new market like Romania, but also for developers who want to diversify their portfolio”, points out Gabriel Blanita, Associate Director Valuation & Advisory Services at Colliers Romania.

Until two years ago, the residential market was rather favorable to buyers because, if they managed to save up the money for a deposit, the rate on the loan was significantly lower than the rent for a similar property. In Bucharest and the big cities, especially in the central areas, this situation has now reversed, with rents for new apartments even 30% lower than the mortgage rate. And although rents have risen by an average of 10% in Bucharest over the past year, renting a home remains a more advantageous option than buying, according to Colliers consultants. In comparison, in Warsaw and Prague, for example, rents increased by between 25 and 40%. Otherwise, and in all major regional capitals except Sofia, rents are now lower than bank loan rates.

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Currently, the housing stock in rental-only developments in Bucharest is almost 1,000 units, and more than 3,000 units are in various stages of development, but Colliers specialists estimate that in the next 2-3 years, the segment of residential rental-only projects has the potential to reach 5,000 units.

Although the interest of Romanians in renting a home is growing, the desire to become homeowners remains high. On the other hand, looking beyond the divergence between rent and rate, Romania remains a more affordable country for buyers than other Eastern European countries. According to Colliers data, a couple in Bucharest needs an average of 4.2 years to save up the money for a deposit necessary for a mortgage, compared to 7.5 years in Budapest or 8.5 years in Bratislava. Average selling prices for new homes in Bucharest last year stood at around 1,800 euro per square meter, while in Warsaw the price was 2,800 euro per square meter, in Budapest – 3,400 euro per square meter, in Bratislava – 4,100 euro per square meter, and in Prague it reached 5,500 euro per square meter.

“Urbanization, the shortage of quality housing supply, and the growing middle class are the main drivers for the rising housing market in Central and Eastern Europe. While population dynamics in our region are declining, there is a significant difference between urban and rural areas. Despite the national population decline, some Romanian metropolitan centers – Bucharest, Iasi, Cluj-Napoca or Timisoara – have experienced sustained growth. For those who don’t own a property, buying a home will take a longer period, during which they will have to rent. For those who already own a property but whose housing needs are changing, either because they have changed jobs to another area or city, or because of a growing family – they will return to the residential market in search of a new home, and the decision between buying or renting will depend on their purchasing power. In general, the banks limit the rate costs to 40% of the income, which is usually kept in the budget of those who rent,” explains Gabriel Blanita.

In time, it’s not just the difference between the loan rate and the rent that will lead to a greater desire to rent. Similarly, generational change and greater workplace flexibility sought by some young people in particular will at least lead to a postponement of the decision to buy a home, according to the Colliers report.

In supply terms, Romanians and Bulgarians have the biggest problem with overcrowding, with almost 50% of the population living in overcrowded housing, more than double the European average of 20%.  The war in Ukraine has also had a significant impact on the rental housing market, especially in Poland, while in Romania the impact has been limited, according to Colliers consultants.

Another segment with significant growth in the CEE-6 countries is the private student accommodation market, and Romania, with almost 600,000 students, is in line with the growth trends. The number of accommodation units in private student accommodation currently exceeds 2,000 in Bucharest, similar to the Czech Republic, for example, which has only half the number of students in Romania. But most Romanian students either stay in public university and college dormitories or live with their parents or rent.