From a bird’s eye view how would you describe Romania’s real estate market, and its potential for further development?
The industry is currently at a point where it could rival any European country and come out the other side a winner, from several perspectives. First of all just walking through the fast developing cities you can spot new residential compounds and impressive office buildings. The cities are safe and with very little social friction. And while on the one hand we have quality, on the other we have the yields, which are better than anything available in the region. This, combined with human capital, level of education, and space for growth, make it a magnet for international developers.
From a potential development perspective, I believe Romania can and should find its niche – as every country has one – as Europe’s IT hub. There is already a good knowledge base and infrastructure to support it and the ground is well set up to attract even more. The Government and industry alike should align and join forces to brand Romania as “the place to go for IT”.
Does real estate occupy a significant portion of NNDKP’s practice? Is it a challenging space to work in?
Real estate has always been one of NNDKP’s pillar industries. It can certainly be challenging at times, every transaction is different, but we believe in always learning and improving. As business lawyers our approach is to have a hand-holding type of relationship with our clients, covering every single aspect of a transaction, from small lease deals to large acquisitions, knowing them and understanding what is needed along the way. I joined the industry in 2005 when the market was booming and I got to experience it first hand through the ups and downs that followed.
Are we on the precipice of another down, do you expect the pandemic to rival the 2008 crisis?
So far things have been remained relatively steady. Some segments of the real estate market are on stand-by – projects have not halted, but several are being delayed. Of course, the industry still needs to move and money needs to keep changing hands, so good deals are still getting the green light. The logistics segment has grown and is now the real estate industry’s darling. The pandemic is mostly hitting projects on the lower side of the demand spectrum and in worse off locations.
Some investors also changed their game, from a relatively quick build-to-sell turnaround to longer term investments that they also manage by partnering up, attracting private equity or getting publicly listed. It is making less sense nowadays to invest in one project or bank on quick returns, and this preference for joining multiple investment vehicles is proof of a maturing, more sophisticated market that is well set up to remain strong.
Romania’s administrative system is often criticized for lack of transparency – what are some of the common obstacles or slow-downs you have noticed?
The most common issues occur in the permitting process. Frankly speaking real estate legislation is so poorly written, so haphazard and chaotic that the idea of a coherent, well put together law looks less believable than a unicorn. Let me illustrate this with an example: Romania recently passed a law stating that all extra-muros agricultural land could be used solely for agricultural purposes. This was oblivious to the ripple effect across other industries, such as real estate or renewable energy. Legislators seems to work without consulting each other, often passing laws to fix one issue while creating three more in its stead.
In addition to this, there is big regional disparity – while public authorities in one region interpret the law one way, those in a different region apply the rules altogether differently. Once permits are obtained they also face the risk of getting annulled. In the United States or Western Europe, unless there is evidence of foul play, a permit once obtained cannot be revoked, unlike in Romania where there is a lack of certainty and predictability. When you invest tens of millions of Euro in a project you do not want the risk of permits getting withdrawn once you are well into the building process, or even well after its completion. This lack of consistency and transparency is, in my opinion, our country’s biggest barrier to conducting business.
What can be done to address this?
I believe public authorities, from top lawmakers to town hall employees, should be paid higher wages; this would attract more competent people to the roles, reduce the risk of bribery and ensure a more reliable decision making process for these vital roles. This alone will not fix things, but it would be a good starting point.
Looking forward how do you see the real estate sector evolving and what message do you have for investors eyeing Romania?
Logistics is currently riding a high wave, everyone’s eyes are on it. The office segment still has high potential, even if it is likely to experience a slump into the first half of 2021 while the pandemic is still strongly upon us. Companies will have to find alternatives to open space work and likely come up with a hybrid model.
As for a final message, it is important to highlight is Romania’s fantastic potential as a real estate destination, with cities like Bucharest, but also Iasi, Cluj or Timisoara leading the way. Romania is currently the hottest place to invest in the region and a fast developing IT hub.
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