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Romania and The Property Market

By Antonis Loizou, FRICS
Antonis Loizou & Associates Ltd
Chartered Surveyors
Property Valuers - Project Managers

April 2007

Romania and The Property MarketYou are possibly aware of the goings on in the Romania real estate market and the intense activity that is taking place. Romania is one of the hot spots in the European real estate investment, which, together with Bulgaria, show an annual return in terms of capital appreciation of over 25%-35%, depending on the type of property. We hereby submit part of the speech that Mr Antonis Loizou has given at the Marriot Hotel in Bucharest on 13.3.07, on the occasion of the Cypriot President’s visit.

“….

“I am here to speak to this important gathering on the possibility of Cypriot investments in Romania Real Estate.

Does Cyprus, with its rather affluent, but limited number of residents of 700.000, has a role to play in the development of the 23 million Romania people?

Cypriots have been investing in Romania since the 1990’s, well before the more financially strong European countries knew where Romania was. Cypriot businesses started to invest in the clothes industry, ports and one at least timber industry, were bought and run by Cypriot companies and these early investors have made substantial gains.

In the real estate field, other nationalities have followed, mainly British, German, Israeli and Greeks, including large property investment funds from Europe. Most of the real estate foreign investments happened in the year 2004/5 and the year 2006 foreign real estate investment has reached 200 mil. Euros, whereas the trend is upward and it is mainly directed towards Bucharest and its suburbs.

What worries me is, if the Romania property market is a bubble which will burst? Is everybody (foreign investors) buying one from another, creating some form of a Pyramid in the real estate, with the last ones experiencing a loss?

Nobody can predict the timing of this state of the market and how it is going to cool and even how extensive will the affect be. It is generally agreed by our Romania real estate agents/accountants and other local experts, that care is needed, but it is generally accepted that at least over the next 3-4 years, this state of affairs will continue.

Romania is a large country with a diversification of resources and with young people, highly educated looking for a better way of life, whereas the low cost of living and low property prices, including rising living standards, are encouraging more investment especially in the real estate industry.

The economic indicators regarding the country’s economic progress are positive especially in the real estate market and I hope that political stability will prevail. Unemployment is low (around 5%), living standards are rising by approximately 17%, inflation has been reached to around 4.5%, the economy is growing by 7% p.a. and Romania is expected to have a huge E.U financial assistance, only second in size after Poland.

Bucharest with its 2.0 mil. inhabitants in a country of 23 mil., is a positive consideration for real estate development, since the average population in the capitals of European countries are around 20%+ of the total population or for Romania, Bucharest is expected to reach approximately +-4.0 mil. people. This means a lot of demand for housing development, residential land etc, whereas increasing living standards, imply added affordability for shopping, better quality apartments and out of town living.

To this end the various commercial/office/residential projects that are under development or planned to be developed and have a keen market, is an indication.

Romania is a European country, which will follow the others in their style of living and development. So it is relatively easy to predict the change and mode of the market over the next years.

Surely I am not an expert in the Romania market, neither I am a medium to predict the future situation, but I can say that based on past experience and statistics, it is reasonable to accept an affordable level of risk over the future years in the field of Real Estate.

Will Romania benefit from this influx of foreign investment? As far as I am concerned, this upsurge of real estate market, will benefit the property owners/ developers/investors/estate agents/lawyers and accountants, but it will work against the local lower income groups and the younger people. This is not an isolated phenomenon, but it applies to Cyprus and other countries who are experiencing a similar state of affairs.

Small Cyprus has a substantial percentage of wealthy people and being the 12th richest country in the E. Union, is a country who could be of interest to Romania, especially bearing in mind that Cypriots invest in real estate by approximately 80% of the total population.

Is this seminar important for the participants and Romania?

Definitely yes. I can recall Cyprus’ example with the spearheads of luring investors in Cyprus being the international auditing firms, the Government and lawyers with estate agents to follow. We did, as Cyprus, experience a negative effect in the property market, which has caused property price hikes, but at the same time we have now 70.000 foreign permanent residents, spending approximately EU ½ billion Euro p.a.

What can I say – Globalization of investment has its good and bad effects, but Romania with its present and future prospects, I can say with a definite opinion that the future lies with this great country with its excellent quality of people and resources …..”.

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