The Current State of Romania’s Real Estate Market and How to Unblock It

Real estate transactions have decreased by at least 30%, the demand for loans has decreased rapidly and even if banks want to give loans there is not much demand, new real estate developments have decreased, sales of construction material companies have decreased, sales of large household appliances – refrigerators , televisions, washing machines – have decreased because apartment sales have decreased, furniture sales have decreased, state receipts from this important chain in the economy have decreased, which is reflected in the current budget tension.

The increase in interest on mortgage/real estate loans (at an IRCC of almost 6%, to which a bank margin of 2-2.5% is added, results in an interest rate of 8-8.5%, considered high by customers), the increase in prices, inflation, the decrease in purchasing power, the war, the surrounding crises, the times of uncertainty have led to this tense situation, in which things on the real estate market are heading towards a deadlock.

At the same time, apartment prices are not falling, on the contrary, and rents are increasing, which makes the market even more difficult.

Everyone is negatively impacted, everyone loses, including the state, which sees that it no longer collects as much as it planned to collect budget revenues.

Given this situation, what is to be done next, how can this situation be unblocked?

Faced with declining sales of mortgages, real estate, banks started coming up with better offerswith fixed rates in the first years (5.9-5.99%), to try to unblock the credit market and bring customers back to the bank.

Many people hope that interest rates will decrease after the end of the crisis, but it is unlikely to reach an IRCC of 1.08%, as it was two years ago.

The sales of apartments, the ones that are made, are carried out in a proportion of 60% cash and only 40% with bank loans, which means that the money is blocked in banks and does not circulate.

Because demand has fallen, real estate developers are not selling enough apartments to start new projects. A development cycle lasts between two and three years.

Under these conditions, we may find in two years, in the absence of other real estate projects, that prices are rising steadily.

One of Romania’s advantages is that apartment prices are still low, many people can afford a real estate purchase. The government, regardless of its name, must support real estate purchases by all means, including by supporting a larger offer on the market.

Because people no longer took out loans to buy apartments, the rental market increased by 30-40%, because people have to stay somewhere.

The market must be unblocked, and in the short term what the government can do is to reduce the VAT from 19% to 5% on the sale of apartments over 600,000 lei (120,000 euros) or even reduce the VAT to 2-3 % for all apartment sales for a limited period of 2-3 years.

Thus, large sums of money would be unlocked that could be invested in the economy.

If a 19% VAT is added to a 200,000 euro apartment, the customer still has to come up with 38,000 euro, which is a lot. With this money, he can buy a bigger apartment, furnish his house, buy appliances, etc.

The government, regardless of its name, must move the real estate market, and through this decrease in VAT, the apartments in the stock would be sold, and developers could start other developments, which would stimulate the construction market again. If the construction teams do not have work, they will go to other countries, and London, Germany, Italy are waiting for them.

If it wants to encourage the birth rate, which should be a major goal for Romania, the government should encourage the purchase of apartments with larger surfaces, so that people have enough space for children. But these apartments with larger areas cost more and therefore the VAT must be reduced.

At this moment, there is a lot of money in the banks that is sitting for nothing, and the banks leave it at the BNR with an interest rate of 6% because they have no demand for loans.

Money must circulate, and if the banks come up with special credit offers, and the state lowers the VAT on the sales of new apartments, the real estate market, the construction market, the furniture market, the home appliance market would have a chance to revive.

If someone else has a better idea for unlocking the real estate market, for selling already built apartments that are sitting empty, they are welcome to express it.

If the government wants to collect more money in the budget, if the new government wants to start with the right, especially after this tense situation with the teachers, it should think about how it can unblock the real estate market as quickly as possible.

If the government doesn’t do anything, the market will freeze even more, young people will become even more stressed because they are stuck in rent, they are stuck in old apartments, they can’t move from two rooms to three rooms, they are crowded with children etc.

And in next year’s elections, they will remember that the government did nothing for them. Here we are not talking about developers, banks, construction companies, furniture companies, but the final customer.