News Archive - Currency UK Ltd

27/09/2006 - Romania on verge of EU accession

A European Commission report released yesterday announced that Romania and Bulgaria will join the EU on 1st January 2007, seven years after membership talks began. This accession date has been brought forward from 2008 after Commission President Jose Manuel Barroso announced that the two countries had made enough progress to be able to join the EU ahead of schedule.

However, Romania and Bulgaria will have to meet tough conditions including the reduction of organised crime and corruption, guarantees of food safety and ensuring EU funds are properly used. Citizens of the two countries may also face restrictions on migration to other EU countries for up to three years.

Mr Barroso said on Monday that the EU could not expand further until it has decided what to do about its shelved constitution.

Not just castles and vampire bats...

Romania is a country of considerable potential, with a substantial population of 22.7 million, rich agricultural land, diverse energy sources and a vast industrial base. The significant growth of tourism (over 4 million visitors annually) both in Bucharest and on the Black Sea coast has led to increased employment of Romanians in this sector as well as the construction of modern residential developments.

Tahir Ali, MD of Romania Revealed comments, “Romania represents the classic emerging market opportunity: the attractive blend of great architecture, stunning countryside, relaxed pace of life, low cost airfares direct from the UK, affordable accommodation, low cost of living and a strategic location between Europe, the Middle East & Asia.” Multinational companies are recognising these advantages with many opening offices in the Romanian capital, Bucharest.

Since the fall of communism in 1989 Romania has worked hard to build a democratic and economically stable country. 1990 saw the first elections and Romania became a founding member of European Bank for Reconstruction and Development (EBRD). In 1991 a new constitution was approved proclaiming a market economy and by 1995 Romania had joined the World Trade Organization (WTO). 1996 saw the commencement of significant political and economic reform and in 2004 Romania became a member of NATO.

The EU effect

A key plank of the Romanian government's reform agenda has been EU membership. In 1999, the country was invited to begin accession negotiations and on 25th April 2005 signed the accession treaty with 01 January 2007 as the proposed starting date for Romania's full EU membership.

EU accession - and the run up to it - tends to boost entrants' economies as both foreign investors and tourists are more reassured about spending their money in that country. The stringent entry criteria regarding corruption and proper use of EU funds should be particularly welcome news for investors.

Strong demand for high quality property

Over the last decade as foreign direct investment (over $13 billion to date) has flooded into Romania and spending on infrastructure has increased, demand for high quality accommodation from both overseas visitors and the local population has started to boom.

This is in large part due to the country's out-of-date housing stock. According to the National Housing Authority report (2003-2004) there are approximately 8 million dwellings in Romania, half of which date from 1945 – 70. Rental stock equates to only 4.1% and there are approximately 200,000 households with housing needs. Many Romanian families live in cramped housing and so the demand for good quality, larger residential units in suburban locations is high.

Property prices in the capital, Bucharest average at £50,000, still cheap compared to Western standards. As the 2005 Colliers property report stated, “As residential prices are still low compared to the region, this sector has probably the biggest opportunity in terms of future growth development.” Prices of residential land, depending on location, increased between 25–50% in 2005, while others saw prices doubling or even higher.

With the aim of attracting more overseas investors, Romania is in the process of reviewing its laws to allow foreign nationals to own not only the property but the land also. Until these reforms have been agreed however property investors will still have to follow the existing procedure of setting up a Romanian company to purchase land.

Tahir Ali comments, “We feel that the long awaited EU accession will allow Romania to really compete with other European property markets. This is not the end of Romania’s story, it’s just the beginning.”

The Commission's confirmation of Bulgaria and Romania's accession to the EU in January 2007 is likely to provoke a renewed stampede of property investors keen to benefit from capital gains, creating a short term bubble in prices. However, with sustained EU and private investment into the country and property prices in much of the country currently very low compared to the wider region, property should grow steadily in the medium term as the local population to aspire to the living standards of their western counterparts.