Land prices up 35% in one year
Cypriots look for investment opportunities
Investors were presented with a range of ideas for investing in the booming real estate of Romania at a Cleopatra Hotel seminar on Thursday.
The seminar was organised by the Embassy of Romania with the support of PricewaterhouseCoopers, the Ministry of Finance, the Cyprus Chamber of Commerce and Industry and the Cyprus-Romania Business Association.
Oana Nisioi, Counsellor at the Romanian Agency for Foreign Investments, was bullish about property investment.
“The real estate potential remains huge,” she said.
Farmland, at around EUR 450-500 per hectare, is still only a fraction of prices in neighbouring East-Central Europe.
For example, prices are around EUR 5,000 in the Czech Republic and EUR 6,000 to EUR 7,000 in Poland.
Romanian land prices have already risen 35% in one year and are expected to reach EUR 3,000-4,000 in just a few years’ time.
The main reason for this is that the pressure to convert to development land continues.
“There is high demand for industrial parks,” said Nisioi.
Another reason for the spectacular rise in prices is that “Romania is undergoing a facelift”.
This provides ample opportunities in the areas of infrastructure, industrial parks, warehousing and commercial/retail.
Downtown shopping malls and hypermarkets are becoming popular, for example.
Business tourism a huge FX earner
Another source of the real estate boom is business tourism, which now accounts for an astonishing 60% of total income from tourism.
The Cypriot tourism sector should watch out, because Romania is focusing on exactly the same areas as Cyprus’ multi-year plan: conferences, mountains, cultural heritage, spa and health tourism.
Project Manager at the Romanian Chambr of Commerce and Industry Ileana Parvan said that business tourism had risen by 36% in 2005 and that this is driving the demand for new hotels.
Return on investment is typically 10-12%, while yields on real estate investment in the office market in Bucharest is 8%–higher than neighbouring capitals.
Residential demand is also rising fast. “We need 30,000 apartments but only 15,000 will be ready by the end of 2007,” said Tudor Toma, President of the Cyprus-Romania Chamber of Commerce.
Possible investment vehicles
Toma noted that natural persons are not allowed to invest in real estate under Romanian law.
“You need to incorporate a company,” he said, and, as a lawyer himself, recommended using a local lawyer or accountant for legal certainty.
For example, some property may be subject to post-communist restitution claims, although the process has recently accelerated and all cases are expected to be resolved in the next two to three years.
Panicos Kaouris of PricewaterhouseCoopers said that the company requirement for investing in real estate was a “blessing in disguise”. Companies are taking advantage of Cyprus’ tax laws to invest through a Cypriot company into a Romanian company that then invests in Romanian real estate.
Kaouris’ presentation was very detailed but if we got it right, the nature of the two tax systems means that it could be more beneficial to invest in a real estate investment company and make profit by selling the shares (which is taxed by the Romanian authorities at 1% if held for more than one year), rather than investing directly in real estate, which is taxed in Romania at 16% when sold.
Kaouris noted that the profile of those investing in Romania has changed and “more and more locals are investing in Romania”.
One large Cypriot real estate company involved in the business is Klatsias Estates.
With 35 years’ experience in the Cypriot market, Klatsias Estates’ General Manager Litsa Nicolaidou told the Financial Mirror that they began looking at Romania some time ago and started to get really involved around 8 months ago, finding appropriate real estate investments for clients.
Fiona Mullen
