Why invest in Romania

After the 1989 revolution and the collapse of comunist rule, Romania embarked on a period of transition to a market economy. Romania joined NATO in 2004 and the European Union on 1 January 2007. The country is now looking to capitalise on its rich endowment of cultural and natural attractions, investing to boost tourist visitor numbers. As announced recently by the State secretary for tourism, Romania will receive around EUR 150m from European funds for tourist promotion and information programmes before 2013.

The country is also attracting an increasing amount of foreign investment and the economy has been growing on average around 5% per annum since 2000. Unemployment is low at around 6%, and inflation is on a downward trend at around 8%.

Romania has a relatively young real estate market and interest from overseas investors has yet to peak. However, with a steady economic growth and further prosperity and stability associated with the recent European Union entry, the country offers good prospects for property investors. Property prices are very competitive with significant potential for capital appreciation. According to a 2005 report from property consultancy Colliers the residental real estate sector in Romania “has probably the biggest opportunity in terms of future growth and development”. In 2006 Romania was listed as the number one country in Channel 4’s pool of the top twenty places to make money from property in Europe.

The main areas experiencing investor demand are the capital, Bucharest, the resorts along the Black Sea Coast and the mountains regions of Banat and Transylvania.

The purchase process

Property purchase process in Romania is relatively straightforward. Under Romanian law, non-Romanian citizens may directly own buildings, but are not entitled to own land. However, they can own land indirectly through legal entities incorporated in Romania.

One of the main aspects of property purchase is to establish that the property has a clean title, meaning that the seller has legal authority to sell the property and there are no pending claims on the property before the courts and all land titles should be checked in detail by more than one independent party to ensure legality of ownership.

Once a price has been agreed on the property and the preliminary searches have been conducted (property inspections, land registry), a deposit, usually 10 per cent, is paid to secure the property and a pre-contract signed.

When all searches are complete, buyer and seller sign the final contract of sale and the required legal documents are notarised and forwarded to the local Land Registry where the property is registered in the name of the buyer in the land book and the remainder of the fee is paid to the seller.

If a buyer is purchasing a property through a legal entity incorporated in Romania, forming a limited company through a solicitor is straightforward, taking around 2-3 weeks.

Taxes are paid on completion of the sale as well as the fees to the notaries and lawyers, which are usually around five to eight percent of the total purchase cost.

Purchase costs

Stamp duty and notary fees
The sale and purchase of real estate located in Romania is subject to stamp duty and a notary fee, amounting in total to approximately 1% of the transaction value. (The duty is charged as a percentage of the value of the transaction with the rate of approximately 0.5% to which the notary’s fee is added. The notary fee usually equates to a similar figure as the duty.)

Building Tax
Romania has a building tax ranging between 0.1% and 0.4% of the value of the building. As of January 1, 2007, building tax will be 0.1% of the value of the building regardless of its location. Owners of more than one building will pay an increase in tax for each building. The tax will be increased to 0.115% for the second building; 0.15 for the third building; and 0.175 for the fourth. For the fifth and subsequent buildings the tax will be increased to 0.2%.

Land tax
Land owners are liable to pay a tax on land calculated upon the size of the plot and depending on the location of the land.

VAT
VAT is applied to all newly constructed properties in Romania at the standard rate of 19%.

Tax Liabilities

Income tax
Romania has a flat income tax rate of 16%. For rental income, the taxable amount is determined by deducting a 25% expense quota from the gross income. Tax on rental income is determined by levying 16% on the taxable amount.
Capital Gains Tax (CGT)
The standard rate of capital gains tax in Romania is 16%. The sale of buildings with land that have been held for more than three years was exempt until January 2007, when the following changes were made:
The proceeds from the sale of buildings with land sold within 3 years will be subject to tax at the rate of 3% on the value of the sale up to 200,000 RON and at the rate of 2% on the value of the sale over 200,000 RON*.
The proceeds from the sale of buildings with land sold after 3 years will be subject to tax at the rate of 2% on the value of the sale up to 200,000 RON and at the rate of 1% on the value of the sale over 200,000 RON*.
*200,000 RON is approximately £38,500

Financing the purchase

The mortgage market in Romania is still in its infancy, but it is possible for non-Romanian citizens to obtain a mortgage. Although the terms are not as favourable as in other countries, these will most likely improve considerably over the next year as competition between banks increases.

Featured Properties