In terms of accessibility…

After two or three more complicated years – pandemic, rising prices, explosion of inflation, overnight increase in interest rates, war/geopolitical tensions – our real estate market is starting to recover from the point of view of transactions and the increase in demand and granting of mortgage/real estate loans by banks.

But from the point of view of new residential constructions, the market continues to suffer, in the first two months of this year the decrease was 40% compared to the similar period of last year, according to the data from Statistics, this in the conditions in which the weather was good and the prices of construction materials have decreased compared to the overnight increase of 2022/2023.

Interest rate increase in lei – ROBOR increased from 1.65% to 8.2% in October 2022, and now it is 6.05%; IRCC increased from 1.05% to 5.96% – it hit hard in the confidence of Romanians to take a loan, and this was seen in the decrease in the demand for mortgage/real estate loans.

It is not so easy to accommodate a 60% increase in a bank rate in one year.

So in recent years, 60% of the transactions were made with cash, that is, the buyer had money from his own sources, and only 40% of the transactions were based on a mortgage/real estate loan.

If from the point of view of real estate transactions the last two/three years were weaker, the drop being 30%, from the point of view of the accessibility of purchasing an apartment (affordability index), the Romanian market was a dream.

Because salaries have increased in nominal terms in lei by almost 30% in the last two years, because the leu/euro exchange rate has remained stable (which made salaries increase in euros by 25%), for apartment prices not much have increased or increased very little, by a few percentages in euros in recent years, the degree of affordability for the purchase of a 50 square meter apartment has decreased in Bucharest to 6.9 years (the price of an apartment in euros versus the average salary in euros) , compared to 32.8 years in 2008, 15.5 years in 2012 and 8.7 years in 2020, according to the analysis of the real estate consulting firm SVN.

From this point of view, the degree of accessibility for the purchase of an apartment, Bucharest is a very cheap market.

According to a Deloitte study, the average transaction price of an apartment in Bucharest was 1,693 euros/sqm in 2022, compared to 2,682 euros/sqm in Warsaw, the capital of Poland, which has higher wages than in Romania, compared to 2,862 euros/ sqm in Budapest, or compared to 4,942 euros/sqm in Prague.

Also, the degree of accommodation of a mortgage/real estate loan in a national average salary is 43% in Bucharest, 80% in Budapest, 82% in Warsaw, 115% in Prague or 82% in Paris.

So, relative to salaries and compared to other cities, apartments in Bucharest are still cheap.

From the point of view of a real estate investment, things change.

Brokers and developers say, as a marketing proposition, that buying an apartment is the best purchase that protects you against inflation and rising inflation. Yes and no.

In recent years, inflation in Romania has increased by over 30%, but the price of apartments, in euros, has not increased at the same rate. We could say that the price of apartments decreased in real terms, if we take inflation into account. The stability of the leu/euro exchange rate in recent years has turned many calculations upside down – in the last four years the exchange rate increased by only 4%, while inflation exceeded 30%, and if the price of an apartment increased by only 10% in euros , in reality the value of the property decreased in lei by 15%.

This is also one of the reasons why the real estate market did not register a drop in prices, as many people expected based on what happened in the previous crisis, in 2008. Then, the increase of the euro exchange rate by 30% in a few on Monday, the 100% increase in the exchange rate of the Swiss franc, the decrease in wages in both nominal and real terms led to a 50% drop in the price of apartments.

Investing in an apartment to later rent it out has not been very profitable in recent years, due to the spectacular increase in interest rates in both lei and euros.

When interest rates were 0% in euros and 1-2% in lei, a rental yield of 5-6% was very good. Now, when interest rates on euros and lei are 5-7%, a gross rent yield of 5-7% is no longer so spectacular, but quite the opposite. The net return, taking into account the taxes, the expenses for the renovation of the apartments, lowers your return to 4-5%, in an optimistic version.

It’s better to buy Romanian government bonds in euros with an interest rate of 5% per year and you don’t have any trouble, than to invest in an apartment for rent.

The investment dates would only change if apartment prices increased.

Compared to other investments on the market – shares, bonds, bank deposits -, the purchase of an apartment, at least in Romania, has not brought a higher profit in recent years. At least on average, because there may be individual projects or cities where price increases have beaten inflation.

As a conclusion, if you want to buy an apartment to live in it, the real estate market in Romania, in Bucharest, is a dream compared to other countries or other European capitals. But as an investment, to earn from the rent and from the increase in the price of the apartment, the market is not so spectacular.