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.