Rising costs for construction materials over the past year, massive delays in project implementation due to Covid-19 restrictions and the Russian-Ukrainian conflict, galloping inflation and permitting freeze represent some of the main elements conducting to increase of prices for residential units in Bucharest, according to an analysis of DIRECTIMO.
The poor quality of life conditions in old apartment buildings, amplified in recent times (installations that have not been replaced, lack of hot water, lack of parking, etc.), will lead to high demand in the quality housing segment, given that the Bucharest-Ilfov region remains in the top 10 development areas in Europe in terms of GDP.
For more than a year, widespread inflation has already been reflected in the cost of building materials, which account for a significant percentage of their prices. Massive delays throughout the supply chain, initially caused by Covid-19 restrictions and more recently by the Russian-Ukrainian conflict, also lead to cost increases. Higher interest rates on loans that developers use to finance themselves, coupled with delays caused by the Romanian state, increase the time it takes to close a project. Galloping inflation, expected to reach 20% in 2022, will generate high demand from investors for protection in quality properties.
“We are entering a period of high inflation where the value of money will be heavily eroded. Real estate remains both a primary savings method and a safe option for investors looking for secure, income-generating assets. With instability in the financial markets and based on historical analysis for the context of a period of stagflation in the US, for example, many investors choose real estate investing for safety versus the major fluctuations that can occur in the stock markets. Even if bank interest rates will rise and lending may be difficult, investing in real estate thus remains a safe option”, stated Matei Maloș, CEO Directimo.
The permit freeze, initiated by the City Hall starting February 2021, will lead to an acute shortage of supply during 2023-2024. Moreover, due to this situation, the price of land with permits has increased significantly, with an estimated average of 50%.
Compared to the market level in the region, Bucharest today has prices 10% lower than Belgrade (according to the Global Property Guide, the average price is $1,813/sqm in Bucharest versus $1,961/sqm in Belgrade).
At the same time, unlike in Vienna, luxury properties in prime areas are about 65% lower in Bucharest (approx. 5,000 – 7,000 euro/sqm) than in the Austrian capital (20,000 euro/sqm).
Compared to the US market, where prices have risen by 50% from their peak in 2007, prices in Romania are in some cases lower than their peak in the same period. While in Bucharest, incomes have more than tripled and household deposits have increased fivefold, according to the National Bank of Romania.
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