Tips to Buying Property in Romania

Tips to Buying Property in Romania

Overseas Property Mall Buyers Guide Series to RomaniaWhere to Look

Bucharest is, by some way, the most favoured target for overseas investment but Romania has great tourist potential so resorts and mountain locations may be worth investigating. Brasov in the inside of the elbow of the Carpathian Mountain range is another popular location owing to its wealth of historic buildings dating from the time of its long occupation by Romania’s German-speaking minority. Poiana Brasov is considered the country’s best ski resort. Prices in the main provincial cities such as Cluj will be in the region of 8-900 Euros a square metre but in central Bucharest this can rise as high as 3,000 Euros a square metre.

Snags, Points to Remember, Legal and Otherwise

There are a number of problems relating to investing in property in Romania but the picture is not completely bleak. For instance there is a longstanding prohibition against foreign ownership of land (but not buildings) but it is possible for wholly foreign-owned companies to have title to land. Also this particular constraint will not be popular with fellow-members of the European Union who are likely to insist that Romania creates a level playing field for investors.

As yet reliable data about rental yields is hard to come by. Also, it’s important to remember that average incomes are a long way below Western European levels ($3400 per capita approximately in 2004) and this is bound to affect rentals, and lead to the possibility of a foreign led real estate bubble. The quality of new builds often leaves a lot to be desired and investors also need to research diligently to uncover planned utility or infrastructure improvements that could jeopardise the value of their investment. Checking title to property in Romania can be a long winded process. Not surprisingly, investors are strongly advised to retain local advisers of good repute.

Don’t forget that Romania is outside the Euro Zone and likely to remain so for a considerable time. The Romanian currency, the (new) Leu, is prone to fluctuate against major world currencies. The Leu exchange rate rose from 0.28 of a Euro a year ago to 0.30 of a Euro today but the dollar exchange rate has risen from 0.35 to 0.41 in the same period. On the positive side it is possible to obtain dollar and Euro mortgages but not sterling ones.

The maximum LTV (loan to value ratio) for mortgages is 75% of a property’s value up to 500,000 Euros (an enormous amount in terms of Romanian real estate). However, mortgaged properties can not be used as collateral for the property’s own mortgage.

Property Taxes

Property purchase tax: 10%

Stamp Duty: comprises a standard universal element plus a component varying according to price from 0.5% to 3 %.

Capital gains tax is 16% or 10% where the property has been owned for over two years.

Rental tax: This is set at 16% of rental income with a fixed 25% allowance for expenditures relating to the letting.

Annual property tax: For individuals this is set at just 0.2% of value per annum in urban areas and half that in country districts. The corporate equivalent is between 0.5 and 1%. This is a tax on buildings not land.(read more here) is good for keeping up with the detail.

Romania has been criticised by the likes of the International Monetary Fund for ineffective tax collection so it’s likely that the tax ‘take’ will rise in the years ahead.

What to Read

Insider’s Guide, An: Buying Property in Romania” by Alex I Pintea, also read Property-Abroad.com’s Romania Country Guide. For a (very) gloss on the situation read this piece on Romania’s property maket from the Telegraph