Romanian property bubble Totally Explained

Everything about Romanian Property Bubble totally explained

After a relatively calm '90's decade, Romania registered, since 2002, a dramatic increase in property price. In 2002-2007 the median price for an old, communist-era built, apartment increased 10 times (1000%), from 10.000 to 100.000 euros. Today some apartments in central areas of Bucharest have comparable prices with properties in Paris or London and virtually every small town has a median housing price that rivalise with prices in similar cities from EU.
The Romanian market is also atypical. Contrary to what happened in Hungary, Poland or the Czech Republic subsequent to joining the EU (where prices remained stationary); when Romania joined the European Union, prices suddenly jumped by some 20%.

Causes

It is very hard to establish what exactly caused such an increase. Among the most usually cited causes, one may note:

banking system development, that made possible affordable credit/loan offers (almost impossible to attain for a Romanian before 2002);
almost 2.5 millions Romanians are working abroad (mainly in Italy and Spain) and this made possible for them to gather money for buying an apartment in Romania;
economic growth (aprox. 6% yearly since 2001) and average net salary growth (from 100 euros in 2002 to 350 euros in Aug. 2007);
poor supply, large demand; between 1989-2005 almost no new apartments were built in Romania.

Causes' critics

Critics argue that some of the above cited causes aren't very sustainable.

although crediting offer is now very present in every bank's product portfolio, few Romanians are in fact creditable and the average salary is too small;

the vast majority of the Romanians working abroad make low-cost, low-profile works (construction workers, au-pair etc.) and would be impossible for such a worker to gather enough money in order to buy a property in Romania;

the demand isn't "so high", and isn't increasing, as estimated by the market optimists: Romanians still mass-migrate towards other countries (since January 1st, 2007 Romania is an EU country, which made possible for Romanians to reach easier France, Germany or UK), the "ceausei" generation (baby-boom during '70s, Ceausescu's era) is now mature and already owns a home and eventually foreign workers that will come from countries such as India or Pakistan in order to fullfil Romania's job market will be too poor to afford to buy a house.

Popular beliefs

Beside the "scientific" / economic beliefs, ordinary people in Romania think also that:

the increase was made possible by the money-laundering necessities of the various politicians, corrupt business men etc.; however, some regulations adopted after 2004 make money-laundering very difficult to achieve;

the inflation of real estate agents; before 2002 very few real estate agencies were active in Romania, but today there are approx. 10.000; since there are no regulations and no deontological code for the "real estate agent" profession (in fact, anyone can be a "real estate agent"), many ordinary Romanians think that agents are increasing artificially the prices demanded by the owners.Further Information

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