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
£38,500
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.