Real estate prices are rising at an already alarming rate. What is fueling the boom?

Laurențiu Duică, Avison Young

Many questions about the real estate boom are on the lips of many specialists in different fields and ordinary people alike. Certainly, if we talk about what is to come we should look a little in the past, more precisely to ask why all generations (Z, Y, or millennials) buy homes and get into debt for at least 20 years, and one of the answers is that we have it in our DNA, and of course, and so will the next generations have it in them that you must own your house and not rent, and parents “force” their children to buy their house, and, in many cases, helping them with sums of money needed for the downpayment.

As in Bucharest and its neighboring areas no doubt live over 3.5 million inhabitants, it is easy to understand the acute need for housing, here, or in the cities that attract the largest exodus of the population, like Cluj, Timisoara, Oradea, Sibiu, or Brasov.

Recent studies have clearly shown that in Romania, the percentage of families living in small spaces (parents and children, plus grandchildren in the same apartment) is much higher compared to neighboring countries (Hungary, Czech Republic, Austria, or Poland), so this is another reason why real estate developers are considering new constructions.

The locations that will benefit most are those in the inner cities (we know very well what infrastructure is offered in the areas adjacent to the big cities) so here the prices will rise. Let’s not forget the rising prices for construction materials, and this very important factor will lead to further capital increases.

There are already investors in Romania looking to buy many apartments for long-term capital investment and return of investment (especially in areas adjacent to the offices of large corporations), but Romania is not as attractive as Poland or the Czech Republic and Hungary, the reason being mentioned above – Romanians want to own their property, not rent it, but these investors are also to be taken into account, as their much more active presence is further fueling the real estate boom.

Prices will continue to rise in major cities (Bucharest, primarily, Cluj, Timisoara, Oradea, Sibiu, Brasov, and Constanta), and the lack of well-established PUGs (General Urban Plans – no.) which allow access to obtaining fast Construction Permit, further favors the increase of prices. The growing demand for the same cities that are university centers, the fact that we do not have a development plan for small towns (and this is another factor that will contribute to rising prices in the real estate sector), the rising cost of construction materials and the lack of significant sectoral production in Romania, labor and wages in the field, the placement of large sums of money in this sector (see Germany and the fact that there are only a few companies that have a monopoly in the rental sector, and to reach a balance it takes over 180 years…).

Without a very clear policy to help other developers build in big cities, without a policy of economic support, so that the most disadvantaged cities can maintain their population, plus the reasons mentioned above, the market will grow and it is an alarming growth, not a normal one, based on income increases and inflation!

Laurențiu Duică is Senior Vice President at the Canadian real estate consulting firm Avison Young, with 100 offices in 15 countries. Previously, he was Partner & Head of Industrial Agency at Colliers International. Laurenţiu Duică has 17 years of experience in the real estate market in Romania, being specialized in the administration of complex logistics, production, and development projects, in which he assisted transactions of over 300,000 thousand square meters.

Translated from Romanian by Service For Life S.R.L.



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