Residential Market

Either way, demand was noticeably softer throughout most of the year, as the high interest rates strangled demand, as did the growing caution that most displayed after a period of shaky economic news. Of particular relevance to this is the fact that acquisitions that have behind them a mortgage loan used to represent 60% (or even more in some parts of the country) and dipped towards 50% by the start of 2023.

The stabilization of interest rates helped convince some to return to the market, however, and the second half of the year looked quite different. What changed the equation were the-then proposed tax changes, with the main change having to do with hiking the minimum VAT rate for dwellings from 5% to 9% (for homes up to ~€120,000 and 120 sqm), as well as planned hikes on other fronts – like notary fees. As a result, many buyers rushed to close transactions in the final months of 2023, leading December to actually be the best month on record in Bucharest in recent history.

Looking at the major submarkets, in Bucharest, the year 2023 was marked by a notable surge in the real estate sector, particularly in December, which saw the highest number of transactions likely since 2007-2008. This peak concluded a year of impressive resilience, where despite the complexities and challenges, the annual sales volume was only 16% lower than the record-breaking year of 2022. This demonstrates the capital’s robust real estate market and its ability to maintain momentum even under testing conditions.

Cluj-Napoca presented a picture of relative stability in the ever-dynamic real estate landscape. The city experienced a moderate 6% decrease in apartment sales compared to 2022, showcasing its ability to weather market fluctuations. However, when viewed against the record year of 2021, the market did show a more noticeable contraction, with transactions falling by approximately 23%.

Timisoara’s real estate market in 2023 mirrored the broader national trends, recording a 10% decrease in transaction numbers from the previous year. However, the latter half of the year brought a significant revival in the market. The resurgence was marked by sales exceeding 1,000 units in four of the last six months of the year, signaling a strong end-of-year recovery and setting a positive tone for the future.

Iasi saw its real estate market reach its highest transaction volume in December for the past two years, ending 2023 on a high note. The overall performance of the year closely paralleled that of 2022, with just a 4% decrease in sales. Yet, compared to the peak year of 2021, the city witnessed a more significant 24% drop in sales, aligning with the broader trend of market normalization after the exceptional highs of the past years.

Otherwise, residential affordability was mostly affected for buyers relying on mortgages, as if we look at average prices relative to average income, these don’t look at all inflated. One indicator to see if the market is divorced from reality would be to take the average net annual salary and see how many of these would be the equivalent of an averagely priced 60 square meter apartment. Currently, in Bucharest, the average apartment is worth around 8 annual salaries, a figure which has been little changed for more than a decade, though it is mildly higher than before the pandemic, when this was sliding towards 7 years-worth of wages. For comparison, back in 2008, at the peak of the real estate bubble Romania was in, the same apartment would have cost around 25-years’ worth of average annual wages.

When analyzing the way the market behaves as well as the potential medium term outlook of prices, the way supply and demand are moving together tends to offer quite valuable insights. We looked at supply data from the National Institute of Statistics and at transactions from the National Agency for Cadastre and Land Registration; the latter figure tends to include everything: from purchases of new homes to purchases of homes on the secondary market to various other types of transactions, like inheritances. So these figures should not be taken at face value, rather as a proxy for overall market activity. And indeed, the gap between demand and supply reached quite substantial levels in the fourth quarter, much higher than before the pandemic. Keeping such a wide gap over extended periods of time would likely lead to the accumulation of upwards pressures on prices, but it is likely that the start of the year will again be on the soft side as the exceptional causes that boosted the fourth quarter dissipated.

Otherwise, it is difficult to judge the average price on the residential market, due to how segmented it is both between the various cities, types of products, location and so on. On average though, it looks like residential prices grew by single digits, with upper end products seeing a bit of a higher increase (a bit over 10%) in areas with little competition. Given that the average wage growth accelerated towards 15% by the year-end, it means that affordability of houses again improved during 2023, reversing the negative trend seem in the previous years.

Outlook

Overall, the recipe for long-term growth is still here: Romanian cities face major overcrowding relative to regional peers, let alone Western European cities, while the shift away from rural and smaller towns to the larger metropolitan areas continues. Furthermore, the shorter- to medium-term outlook is also looking quite a bit better, now that wages are again accelerating comfortably above consumer price growth and that interest rates are set to decrease this year. Assuming that the labour market remains strong, we have a cautiously optimistic view regarding 2024’s residential scene.

That said, we would expect a noticeably softer first half of the year compared to last year’s finale, but this should not be indicative of a longer downward trend in the market.