The Romanian Real Estate Bubble – To burst or not to burst

Prices for real estate properties have rapidly grown until Romania’s join of the EU and absolutely rocketed since this date. Just checking the prices listed on agency websites would give you an idea about this reality: practically every two weeks the prices suffer quite important modifications. Reading the Romanian business newspapers there is really absolutely no information that could really give pertinent information on the future evolution of the market; practically everyday there is a different article predicting the exact opposite than the article published yesterday. The mistake would be to just see what the diverse range of specialists has to say (agents, businessmen or developers) as they sustain extremely different ideas. Some seem quite convinced that this is an artificial development and prices for Romanian real estate properties will abruptly decrease bringing the entire market to a disastrous crash while some would bet their lives on the fact that because of obvious-to-see reasons the real estate properties in Romanian will finally become and stay as expensive as central London.

Although not as drastic or far-fetched as that, there are facts that are able to sustain diverse theories. Here is a list of possible causes for a possible stagnation or even decrease in property prices:

- an extremely fast increase in prices based on the psychological factor of Romania joining the EU;
- an artificial increase in prices caused by the international investors rushing in to take part of the booming market;
- rising prices that will eventually become outrageously expensive even for Western Europe and obviously much too expensive for average Romanians.

Note: we should note that all local real estate specialists seem to be in accordance with one another on one point: all scenarios for the eventual stagnation of prices for Romanian real estate are not describing a near-future development; in other words they all agree that this will take place in at least 4-5 years.

In regards to the other side of the fence, you can find below a list of causes for a possible on-going increase in property prices:

- the lack of both residential and office buildings in the entire country (but especially in Bucharest). Although we are in the middle of a real estate boom in Romania, the rhythm of constructing new buildings seems to be below other Eastern countries with similar economic potential (like Poland for instance).
- International interest in the market (interesting to see how international investors might be an argument for both scenarios);
- Gaining of more income for the average Romanians who might be able to buy more.
- Romania’s National Bank change of policy towards crediting for the purchase of property: commercial banks are not obliged to certain limitations in giving out credits anymore (this is a recent change).

The lists above are what can be quickly extracted from articles and interviews from the Romanian press and certain personal experience. If you can come up with other facts please don’t hesitate to post them here.

Legal practice in Romania

To better understand the way legal assistance is practiced in Romania we have to first explain basic terms and regulations. A Romanian student of Law School has to pass the local Bar Exam in order to be qualified as a lawyer. This lawyer can immediately offer basic assistance and representation to clients but will have to pass a second bar exam to be approved as “definitive lawyer”. It’s quite important to point out that Romanian lawyers are not further separated into such solicitors, barristers etc. All lawyers in Romania have the right to appear in a Court of Law representing clients.

Lawyers in Romania are differently organized and are associated or practice law in a number of different modalities. The most common is the Individual Law Office “Cabinet individual”, with the vast majority of Romanian lawyers practicing law through this type of legal entity. While most of Individual Law Offices in Romania usually do not have more than one or two employees there are some which have a large number of attorneys and auxiliary help. The latter are however quite few.

Besides this type of organizing legal practice in Romania there are a number of medium-sized Law Firms with different orientations: Business and Commercial, Real Estate, IP Law etc. These firms have a number of partners of usually 2-6 and usually a larger number of employees, paralegal help, junior attorneys etc. As an example I would mention Ionita, Enescu & Cuc .

The third main category would be large Law Firms. These are very few and can be separated into Law Firms with Romanian partners (Examples: www.musat.ro or www.tuca.ro) or Branches of Large Foreign Law Firms (www.salans.com) These legal practices assist large corporate clients and government institutions or are present in Romania expanding together with their overseas clients.

The large Romanian law firms are basically legal practices which have started providing assistance to clients soon after the fall of communism and since then managed to work with large foreign clients and mostly with the Romanian State (privatizations etc.). If you are reading this article as a prospective client you will have to take into account that large Romanian Law Firms as well as the branches of foreign legal firms are quite expensive. In other words their fees are similar to large practices in Western states.

What I would recommend

If you are reading this article with the intention of hiring a Romanian lawyer then I would recommend thinking about doing business with a medium sized Romanian law Firm. (This is of course unless your represent a company which will generate lots and lots of business which will need a large number of lawyers). Here are the reasons why I think you should choose this way:

1. Medium sized legal practices have the greatest flexibility in handling business from both smaller or larger businesses;
2. I really believe that at this point in Romania it is best to hire a Romanian lawyer as they know best the characteristics of the business world here (and there are lots of characteristics);
3. They have moderate fees (they do not have the lowest fees as most Individual Law Offices have).