Investing in Romanian real estate during high inflation

Understanding Romania's real estate market amid substantial national and global inflationary pressures can be a daunting task.

As discussions about soaring prices and economic uncertainties continue, you may be wondering about the implications for property investments in the country.

To shed light on this issue, let's delve into the basics of real estate inflation, explore how it might affect property assets in Romania, and discuss strategies for preparation.

First and foremost, how does inflation impact real estate in Romania? Inflation essentially erodes the buyers' purchasing power over time. For example, a property valued at €100,000 in 2018 might now be valued at around €140,000 in 2024, considering the significant inflation rates experienced in Romania during this period, with 14% in 2022 alone and 6% in 2024 so far.

In an inflationary environment, the demand for rental properties normally surges as purchasing becomes increasingly expensive, although in Romania the opposite seemed to happen as buyers feared continuing soaring prices and buying patterns in 2023 for example, broke records. When rental demand does surge though, this presents an opportunity for Romanian property landlords to capitalize on heightened demand. However, the impact of inflation on rental properties can vary depending on location, with tourist-driven areas likely experiencing different effects.  For example, when interest rates were very high, such as in 2008, values dropped in the form of a crash but rental yields went up. The reason is, that rent is usually linked closely to the cost of borrowing rates. For example, if borrowing rates are 5% pa (as they were from 2014 to 2022), rental incomes tended to be 6%.  Now borrowing has jumped to 7%, normally you would expect rental to be 8% per year, but this didn't happen in Bucharest for example, where rents remain at 6% per year of the property value.  This may be because of the unusual panic buying trend that has reduced rental demand or it may be people are economizing more in preparation for another crisis. Certainly, though, rentals in 2024 are significantly down from 2023 from our experience in the agency.

Real estate investors in Romania face various challenges during periods of high inflation. Banks may adopt stricter lending criteria, and construction costs could skyrocket, affecting new development projects.

So, is it wise to invest in real estate in Romania during periods of high inflation? Despite the challenges, strategic investments can still yield favorable outcomes. Additionally, rental properties in Romania can become more lucrative if increased demand is present, potentially offering higher returns.

Investing wisely is paramount. Conduct thorough research, seek advice from industry professionals familiar with the Romanian market, and only pursue investments that align with your financial goals and risk tolerance.

High inflation may introduce complexities into Romania's real estate market, but with careful planning and strategic decision-making, investors can navigate these challenges and capitalize on the opportunities presented by inflationary environments in the country.