Romania vs UK and Ireland: a Market Comparison

With headlines are full of gloom about falling property price, it might seem that real estate is losing its status as a sound investment strategy. But the key to success is, as always, 'location, location, location'. Looking beyond the domestic markets, it is Romania that offers ROIs of 400% over the next decade, the same increase that was achieved in Ireland during the years of the Celtic tiger.

The Boom Years

In the past decade property owners have witnessed house prices triple in the UK and quadruple in the Rep. of Ireland. Rising house prices were a hot topic wherever you turned, with TV programmes such as "Property Ladder", "A Place in the Sun" and "Location, Location, Location" offering tips on how best to profit from property. What fascinated me, as an Irishman, was to witness the shift in Irish attitudes from a general complacency about property to the realisation that real estate can provide a vehicle for generating enormous wealth.

The Current Gloom

Nowadays it is hard to ignore headlines such as "Housing Gloom Worst in 30 Years". All indications point towards a fall in house prices initiated by the credit crunch (our article "Romania and the Credit Crunch" outlines the background and effects of the credit crunch). The withdrawal of 100% mortgages has substantially reduced the pool of first-time buyers which underpins the property ladder. The general consensus is that first-time buyers should wait 2-3 years for substantial price cuts of up to 25% before stepping on the ladder. A 25% reduction is equivalent to Ł45,000 knocked off the price of an average house, currently worth Ł180,000.

Are the Good Times Over for Property Investment?

As one commenter put it: "if you have credit, there is no crunch". Property will always provide an excellent investment, providing the three golden rules are obeyed: 'location, location, location'. Unfortunately, it is clear that the UK, Irish and indeed most property markets in the West no longer present a viable investment option for the near future. However, not all territories have experienced the ravages of the credit crunch equally.

Romania, a Refuge for Your Investment

As outlined in "Romania and the Credit Crunch", prudent lending and cautious growth of the mortgage market have enabled Romania to withstand the worst of the credit crunch. But it is more than the rapidly developing mortgage market that makes Romania an ideal destination for property investments. Attractive factors include the drastic shortage of modern housing, the significant levels FDI and Romania's recent joining of the world's single biggest market, the E.U.

The Irish Example

There are clear parallels between the experiences of the Rep. of Ireland and Romania's current situation. Ireland in the 1980's was one of the poorest countries in Europe, experiencing 18% unemployment at one stage. However, a combination (a) 10-12.5% corporation tax, (b) a low-cost but highly-educated labour market, (c) significant FDI and corporation relocation by e.g. Dell, Intel and Microsoft and (d) E.U. membership helped Ireland to generate over a decade of unprecedented growth: the 'Celtic Tiger'. As a result Ireland rose to become, by some accounts, the 6th richest nation in the world. It is no wonder that Romania is taking steps to emulate the Celtic Tiger!

Romania, a Tiger in the Making?

Romania has adopted a flat-rate tax of 16% for both personal incomes and corporate tax, one the lowest in Europe. Business-friendly taxes and policies have resulted in unemployment dropping to the 3.9% (1.8% in Bucharest), again one of the lowest in Europe. Foreign debt is particularly low at 20.3% of GDP (there is an interesting historical point about Romania and foreign debt – the hardships of the Ceausescu era were attributed to a misguided goal to reduce foreign debt to nil). When you consider (a) the healthy and manageable foreign debt, (b) massive inward flow of FDI (€8.3 billion in 2006), (c) relocation by international corporations e.g. Nokia, Ford and Microsoft and (d) €30 billion grants from the E.U. structural funds, it is clear that we have a tiger in the making!

Romania, the Clear Choice for Overseas Investment

If you are visiting our site then you may be either (a) an experienced overseas investor who is already well informed about the benefits of Romania or (b) a first-time overseas investor keen to determine the best territory to invest in. If you fall in the latter category (a category we expect to grow as cheap fixed rate mortgages in the UK expire towards the end of this year), then we hope we have done justice to outlining just how excellent an opportunity Romania represents. In the wake of the credit crunch that has property markets failing across the world, we are firmly convinced that the Romanian real estate market has all the necessary strengths and features to generate the profits that were typical during the boom years in the UK and Rep. of Ireland.