W

hy Romania? Real estate investors throughout Europe are optimistic about the industry's potential to generate healthy returns over the coming year, according to the highly regarded real estate investment report, Emerging Trends in Real Estate© Europe 2005, published in January by the Urban Land Institute and PricewaterhouseCoopers LLP. "The intense competition for prime assets has forced almost everyone to search for overlooked corners of markets," the report says.

This sense of buoyancy has been felt in Romania as well in the past year, as the real estate market has witnessed rapid development.

This has been underscored by the heightened interest shown by real estate developers who have constructed a host of class A offices, shopping centres, industrial facilities and residential buildings. Although still in its early stages, the Romanian real estate market shows great potential, as an increasing number of quality properties are being developed and as the economy is turning to better results and optimistic forecasts.

Nevertheless, the country is now officially on the map of most of the important real estate funds in the world, an awareness that translates into a large volume of money trying to identify opportunities on a market that is still scarce in investment grade products. This is a consequence the generous yields obtainable here, especially considering the relative level of risk.

Romania has made progress towards establishing a functioning market economy and it has taken measures that will allow the development of its future capacity. The Romanian market is trying to cope with the huge interest that it has attracted from foreign investors, both private and institutional. Only two years before EU accession, real estate continues to be profitable beyond expectations. The experience of Eastern European countries which have recently joined the EU has shown that the highest potential for growth exists in the economic phase before joining the EU. The closer that they approached this moment, the more the curve flattened. Another phase of growth is expected after 2007 when it is planned that Romania will join the EU. At that time and during the years to follow, the prices for purchasing residential, industrial and commercial Real Estate will tend to equal those in Western Europe. The expectation around this hallmark event has resulted in much needed economic and government reform, making conditions more suitable for foreign investment. The time line for this opportunity, however, is limited. Romania presents the investor with an exceptional opportunity to benefit from the ascension of an eastern block country to the European Community.

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Investors and Analysts feel that the Real Estate market in Central Europe will follow the evolution of the Real Estate markets in Spain and Portugal. The local influencing factors in the residential sector are the wages growth, employment levels and GDP growth.

There is a lack of supply of desirable, new-built apartments of modern design; there is also an increasing affluence of the Romanian population, especially of young professionals with higher wages.

At some point the wages will start to grow faster and that in return will put pressure on property prices to move up. There is an increased availability of flexible mortgages packages, with various other flexible related products, for the local population which is also a defining factor in the increase of the property prices.

Over the last two years, land and housing prices in Bucharest and most other major cities in the country nearly doubled, setting price appreciation patterns that local realtors couldn't quite interpret, alone predict. Various explanations ranged from shifting currency (the Euro became the reference currency for both estate buyers and sellers, as opposed to a weakening Dollar) to wider access to bank credit and mortgage plans, which major banks hurriedly offered to an increasing number of middle class consumers.

Add to this a multitude of property speculations made by private and corporate investors, confidence in the country's sustained economic development and an influx of new business, and you get an image of the thriving yet still improving Romanian real estate sector.

In the meantime, Romania's new government has been quick off the mark in modifying the country's tax system and a raft of changes have either already been enacted or are in the pipeline, which will influence real estate investments. Another promising development for Romanian real estate is created by the construction of a new € 2 billion super-highway being realized with the financial backing of the EU. This new super-highway built with the technology of the American firm Bechtel contracted to complete it by the year 2010-12 will dramatically change the face of Romania. It will cut the travel time between Bucharest and major European cities down significantly and literally create new major destinations in Romania, overnight.