While house sales are stalling at home and Romanians thinking more about whether it is the right time to buy a new house, some wealthy locals are spending their cash on buying homes abroad. And it's not such a bold move as it may seem.
In some cases, apartment prices abroad are lower than at home, and an apartment with a view of Central Park or a villa in Cannes may not be such a faraway dream, at least no more than an old villa in downtown Bucharest is. However, the number of Romanians testing foreign property waters is still limited.
“If we were to add up the numbers, around 0.03 percent of the Romanian population buy properties outside their country,” says Dan Ionascu, head of the valuation department with Cushman & Wakefield Activ Consulting.
This means that around 6,000 Romanians are buying properties abroad.
Average investment stays between $200,000 and $300,000
A Romanian invests over $100,000 in a residential property abroad. The average price would be some $300,000, says Valentin Ilie, CEO of Coldwell Banker Romania.
Romanians' increasing interest in buying a home in a foreign country is one of the effects of the financial crisis which has started to spread worldwide but which hasn't yet affected all those who can afford to buy such properties. The crisis in the US, which has expanded into Western Europe, has sent property prices plummeting, to the joy of potential buyers.
“The interest has increased for properties on markets which have seen falling prices, and which will see a similar evolution, mainly in the US. Usually, buyers see it as an opportunity and not necessarily as a new residence,” Ilie explains.
However, Ionascu believes Romanians are still too timid to buy foreign properties purely as investments. “They need some time to get used to investing,” he says.
Where do Romanian buyers spend their $200,000 to $300,000, on an average? “Recently, apartments in London, Paris and Miami, the latter being a new entry on the list of preferences, have become targets,” says Ionascu.
London and Paris homes were also choices for property investments for the Romanians who had the opportunity to work in these cities.
The London housing market has been constantly falling in the first half of the year, so one man's crisis becomes a Romanian's opportunity. The average house price has fallen by more than ten percent since the market peaked in September last year, and forecasts show a further 25 percent expected fall in prices in the next two years, according to UK pundits. One would argue that not many owners would sell their homes during a period of downturn, but however poor the market is, some people just have to sell, and that's where the opportunities lie.
The Brits are being advised to rent rather than buy a home, which may bring the opportunity for those buying a home in the UK to rent it to locals.
The average house price in the UK is around 180,000 GBP. A two-bedroom unfurnished apartment in London costs some 2,500 GBP per month to month, according to a recent study by Mercer.
Falling US prices turn Miami into reasonable housing target
In the recent period, many have turned their eyes to Florida, Miami, and merged the holiday there with an investment.
“It is amazing, but housing prices in Florida have gone down by as much as 50 percent. Now, a two-roomed apartment in a villa there can cost EUR 70,000,” says Ionascu.
Data from April this year showed that housing prices in the US had fallen by 15 percent on an average, year-on-year. However, the weakening of the dollar against main currencies has made living in US cities cheaper for foreigners than in many other European capital cities.
The local market, which allows for profits of 40 percent or more on residential properties, has influenced Romanians in the sense that they now expect to buy cheap foreign properties that will increase in value in a very short time. Considering the prognosis both for the UK and US markets, this is not likely to happen soon. So the only possibilities would be either to turn the newly purchased property into a second home, or rent it.
“Usually, rental contracts abroad are signed for five years, on average. The targeted profit from renting is two percent per year,” says Ionascu.
Two months ago, a Romanian bought a hotel in Miami. The property was worth $9 million, but the Romanian buyer snapped it for $6 million, according to Ionascu.
He gives a similar example of an apartment in La Defence in Paris, which was worth EUR 370,000, but which was bought by a Romanian with EUR 320,000.
France is also popular among those scouting for properties abroad. The country is actually top of the list among these destinations, followed by Switzerland and then the US. “We at Coldwell Banker intermediated sales of apartments and land in the US, and apartments in France,” says Ilie.
Apart from apartments in the capital city, France attracts investors for its Mediterranean properties on the French Riviera: Nice, Cannes and the villages in the region. While properties in Cannes are expensive, one could find more suitably priced housing further inland. A village villa an hour's drive from Nice could cost between EUR 300,000 and EUR 400,000, according to some of the most recent offers. While in other regions of France the prices of some properties, mainly of those under EUR 200,000, have stalled, in these tourist areas prices continue to rise, say French specialists.
Low-budget housing in Hungary and Bulgaria
Romanians buying homes outside the borders of their country is not entirely new, but what is new is the fact that they have gone to more exotic destinations than before. Initially, the most sought after house purchases abroad were in neighboring Hungary and Bulgaria, either for holiday homes, or for relocating entirely in localities close to the Romanian border. In some locations, Romanians' interest has upped the prices by as much as 50 percent. These types of investments are made by lower-budget Romanians, and some sell their homes in Romania and relocate.
In the Hungarian area Battonya, which is close to the Romanian border, 350 Romanian families have bought houses, after selling their apartments in Romania, and started commuting to Arad, where they work. House prices there vary between EUR 20,000 and EUR 70,000, which is in some cases less than what a Romanian would cash in from selling an apartment in a western Romanian cities.
By Corina Saceanu