ROMANIA | Essential Guide | Buying Property in Romania

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Buying Property in Romania | Essential Guide | Romania

Property in Romania | Essential Guide

Buying Property in Romania

Whilst we have endeavored to cover every angle in some detail we are always happy for you to give us a call or come in to our office to discuss matters in person. We pride ourselves on the quality of our staff and they will normally be able to address any queries or concerns you may have on the spot. If not, we can also draw on our in-country resources to give answers to your questions within 24 hours.

Choosing the Right Property in Romania

Azure Overseas Property Limited only begins operations in a country after conducting extensive due diligence to satisfy ourselves that market conditions are suitable for investment and that no stone is left unturned. This is an ongoing process, as by definition the nature of emerging markets is dynamic and fast paced. Our Romania manager constantly monitors the various market reports, city development plans, planning applications and press coverage so that we can provide you with the best and most up to date advice.

Thanks to our extensive network of contacts, including partnerships with all the major developers, we are normally one of the first to find out about the most exciting and newest developments. Unlike other overseas estate agencies, we are completely independent and have no incentive to recommend particular properties or developments over others.

Power of Attorney

Should you wish, we can make all the necessary arrangements so that you never have to leave home. The unparalleled level of market research and information we can provide on each property we offer means that many of our clients are confident purchasing a property without ever having visited Bucharest.

We can arrange a reputable English-speaking lawyer to sign the property deeds on your behalf using power of attorney.

Property Ownership by Private Individuals

Under Romanian law, non-Romanian citizens and legal entities are not entitled to own land.

They are, however, entitled to own buildings. The Romanian Constitution will allow EU citizens or legal entities to own land 7 years after Romania’s accession to the EU (i.e. in 2014).

Standard Payment Terms

When buying off plan properties in Romania the developers will usually require a deposit of between 25% to 40% of the value of the property at the time the contract is signed. The balance is due in stage payments with the final payment being made upon completion (normally 12-18 months after construction started).

Costs Associated with the Purchase

One of the key benefits of purchasing properties off plan is that costs associated with purchasing a property can be kept to a minimum. Azure Overseas Property Limited will arrange for the contracts to be checked by a Romanian lawyer and ensure that all necessary checks (i.e. property inspections, land registry) are completed. Should you wish we can recommend independent Romanian (and UK) lawyers specialising in real estate.

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. Romania has a building tax ranging between 0.1% and 0.4% of the value of the building. 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.

Financing the Purchase

The mortgage market in Romania is still in its infancy.

It has however just become possible for non-Romanian citizens to obtain a mortgage without the need for a Romanian guarantor. While the terms are not as favorable as in other countries, we expect these to improve dramatically over the next few months as competition between banks increases. Based on the experience of other countries, the rapid growth of the mortgage market is likely to have a large impact on house prices.

Exchange rate risk

Exchange rate risk is a fact of life when purchasing properties in a currency other than your own. Rate fluctuations may work in your favor or against you so it is important to be aware of the risks and the potential consequences.

For example in 2004 the variation in the GBP-EUR exchange rate was 8.3%. Under this scenario the Sterling value of a EUR 100,000 property would have fluctuated by GBP 3,888.

One way to manage adverse currency fluctuations is to ensure that you have sufficient funds available to absorb any extra costs. Alternatively a forward deal can be put in place with a foreign exchange company to secure a set rate at some future date (up to 2 years in advance). Should you wish we can recommend a number of suitable firms.

Tax Liabilities

Income Tax – 16% flat rate

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.

As part of our inclusive service we can offer you discounted rates with a well-respected English speaking accountant/property manager who will be able to manage your tax returns on your behalf. Unless you have any other income streams in Romania this is simple and inexpensive.

Capital Gains Tax (CGT) – 16%

The standard rate of capital gains tax in Romania is 16%. However, the sale of buildings with land that have been held for more than three years is exempt.

As of January 1, 2007, this will change as follows:

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 roughly Ł38,500

Building Tax – 0.1%

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 - 19%

VAT is applied to all newly constructed properties in Romania at the standard rate of 19%. The VAT is always excluded in prices advertised by Azure Overseas Property Limited.

Stamp duty and notary fees- 1%

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

Letting the Property

We are able to introduce you to local real estate and letting management companies. They have a number of embassies and multinational corporations on their books and also advertise extensively in the local press.

The type of tenant and contract will vary depending on the property. Apartments in the north of Bucharest will generate the most rent and will appeal largely to international workers. Apartments near the centre will predominately attract the burgeoning, newly affluent local middle class. In our experience they are generally highly qualified young professionals, many of whom work for the ever-growing number of multi-national corporations relocating to Bucharest.

The letting management service is comprehensive so you will never need to have an ongoing involvement in the property. As part of the service agreement we have with the rental management firm they will obtain tenants, perform background and credit checks, collect the rent, arrange necessary maintenance using only fully accredited parts and labour, and conduct regular inspections of the property. They will liaise closely with our partner accountant to ensure tax returns are completed swiftly and with minimal cost.

Reselling the Property

At some point, sooner or later, you will wish to sell the property. This is possibly the most important stage in the investment cycle as it is only at this point that your capital gains are realised.

As part of our ongoing service we will advertise it on our website free of charge and actively promote it to any of our clients looking to buy in Romania. We also have an arrangement with one of the leading high street estate agents in Romania that will ensure your property gains maximum exposure to potential local buyers.

Azure Overseas Property Limited will also arrange to have a property inspection and valuation conducted by an independent and reputable surveyor so you can be confident of getting the market rate. Irrespective of how the property is eventually sold, the costs associated with the sale are typically the responsibility of the vendor. Should you wish to explore other options we will be happy to offer advice and point you in the right direction.

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