A Market that's Always Hot: Land Development | Expert Opinion Article

22 July 2021

 

by Ionut Stan, Associate Director, Land Development, Crosspoint Real Estate

 

The last year has left its marks on the European residential market, and recently we have seen a higher demand for land plots and houses in less crowded areas outside the city centers. Romania finds itself in a particularly good position to take advantage of this trend - the country has achieved impressive success in real estate development over the past decade, with an average growth rate of 3%, one of the highest in the EU. However, it is also one of the countries with the highest overcrowding issues, leaving plenty of room for bigger, brighter living spaces.

In the past years Romania’s price to income ratio for housing has declined from the highest in CEE to the second lowest, due to both a rise in wages and a decrease in apartments prices. This led to better housing affordability, turning Romania from a speculative market before the 2008 crisis, to a stable one, built on strong foundations. That being said, Romania still faces numerous challenges: productivity growth is not aligned with the wage increase, foreign investment is volatile, and amid an ageing population, around 20% of the labor force is estimated to be living and working abroad.

If things will work out as planned with infrastructure development, we will continue to see a fast development of metropolitan hubs. One significant growth engine for this is the migration of people from rural areas to the cities. According to a recent World Bank study, Romania’s urban population makes up for about 40% of total population, compared to the rest of Europe where the same figure reaches 65%. Bucharest has reached productivity levels comparable to those of other EU capitals, already exceeding the EU average income per capita, and secondary cities are likely to  follow this path in the coming years.As the data shows, the capital city and the seven largest metropolitan areas - Cluj-Napoca, Constanța, Brasov, Craiova, Iași, Ploiești and Timișoara - concentrate 50 percent of Romania’s population and generate 75 percent of firm revenues. Without strong cities, we cannot have strong regions and a strong national economy.

Another trend that has been shaping Europe’s property market recently is making its way into Romania. The institutional investment into Europe's residential market hit a new record in 2020, with around 30% of total acquisition activity. That represents a huge jump from a rate of 10% just five years earlier. Mixed-use developments are also growing in popularity, bringing the best of residential and commercial architecture together and creating community environments. People have a desire to be connected and this kind of development is a good solution for those living in the cities that have problems with the traffic & poor infrastructure. Bucharest and the secondary cities in Romania have the legacy of former communist developments and many obsolete factories will be reshaped into mixed-use projects in the future.

All these trends can put added pressure on the price of land plots. We expect to see an average price rise of 10-15% per year in the coming three years for plots with good connections to the cities, suitable for housing or industrial development. 

 

This article was originally published in Real Estate in Romania & Poland 2021 report, available in full here.

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